Greece: Swap deal explanation to be sent to EU

[February 19, 2010]  ATHENS, Greece (AP) -- Greece says a complex debt deal with U.S. investment bank Goldman Sachs that has come under scrutiny by the European Union was above board, and will be explained in a letter being sent by the finance minister to the European Union.

The EU's top economy official, Olli Rehn, gave the Greek government until Friday to supply answers on how it used transactions known as currency swaps and how that affected the country's debt and deficit figures.

"There will be a response. There is a letter by the Finance Minister," government spokesman Giorgos Petalotis said, adding it would "most likely" be sent on Friday.

George Papaconstantinou's letter "will analyze the compatibility of those acts with EU regulations and (say) there is no problem, and that other countries have also carried out equivalent actions exactly because Eurostat accepted this until a certain time," Petalotis told the AP, referring to the EU statistics agency.

Athens insists that it stopped using the practice when the Eurostat rules changed.

Greece's Socialists sharply revised the budget deficit in October, shortly after winning general elections, to 12.7 percent of gross domestic product from a 3.7 percent forecast months earlier -- sending Europe into renewed financial crisis over mounting debts by Greece and several other countries using the euro.

Rehn, speaking in Brussels earlier this week, said that a "profound investigation" must be carried out, and that "if it turns out that there is such kind of securitization of swaps that are not in line with the rules of the time, then of course we would need to take action."

The EU can take Greece to court, under threat of daily fines, to change its statistics methods. It is already threatening legal action for Greece's failure to report accurate public finance figures last year.

French Finance Minister Christine Lagarde, speaking on France Inter radio Thursday, said Eurostat was looking into "how a merchant bank, in this case Goldman Sachs, helped Greece structure, postpone a certain number of debt repayments."

Asked whether the bank had broken rules, the minister said: "That is the question that we have to ask ourselves and to which we need the answer. And I don't have that answer today."

"You have to know first of all whether it was doctoring the accounts and if this was legal or not at the time it was done. And if it was legal, it will be necessary to find out whether it was favorable for stability. Probably not. And in that case, how we can avoid a repeat, if those measures already were taken," Lagarde said.

Christoforos Sardelis, who headed Greece's Public Debt Management Agency from 1999-2004, told the AP earlier this week that the deal had not been meant to mask debt.

"There was absolutely no transparency issue," Sardelis said in a telephone interview, adding that "we reported these transactions correctly."

The swaps were restructured in 2005 by the then Conservative government to extend their maturity date from 2019 to 2037, he said, adding that securitizations and swaps have been recorded as part of the public debt when the reporting rules changed in 2002.

Sardelis said that while the issue had never been secret and had appeared in the media in the past, it was being brought to the fore again as a form of political pressure by the opposition to damage the governing Socialists. But, he said, the tactic risked damaging the country's reputation.

"With this pressure upon us, I believe this story will have a negative impact on our borrowing," he said.

"We taint the reputation of our country without thinking of the consequences ... It's like someone throwing a match into a dried-up field of grass," Sardelis said.

Greece has been under severe pressure to bring its finances under control, and has imposed a series of austerity measures, including a freezing of civil servants' salaries, cuts in stipends and bonuses, a two-year increase in the average retirement age to 63 and higher taxes.

Finance Ministry General Secretary Ilias Plaskovitis said Athens was under pressure to cut what is known as government workers' "14th salary." Greek workers get their annual salary divided into 14 payments, with two of them given as holiday bonuses.

Asked about whether one of the holiday payments would be cut, Plaskovitis said the idea was not part of the government's plan, but "of course we cannot hide the fact that we are receiving pressure on this issue as well as a number of other issues.

"A package of measures will be assessed which I repeat will have the minimum possible impact on the poorer sections of society," he said Thursday.

Labor unions oppose the austerity plans, and a general strike has been called for next Wednesday.

Customs workers, who walked off the job on Tuesday, announced another three 48-hour rolling strikes that will hamper imports and exports until late next week. Fuel supplies in particular have already begun to run short.

[Associated Press; By ELENA BECATOROS]

Associated Press writers Deborah Seward and Jamey Keaten in Paris and Demetris Nellas and Derek Gatopoulos in Athens contributed.

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