Das: details of Greek deals

"...Greece may be merely following the precedent of another Club Med member. In 2001, academic Gustavo Piga identified Italy's use of derivatives to provide window dressing to meet its obligations under the European Union Maastricht Treaty.

In December 1996, Italy used a currency swap against an existing Y200bn bond ($1.6bn) to lock in profits from the depreciation of the yen. Italy set the exchange rate for the swap at off-market rates - at the May 1995 level rather than the current rate.

Under the swap, Italy paid a rate of dollar Libor minus 16.77 per cent, reflecting the large foreign exchange gain for the counterparty. Given Libor rates of 5 per cent, the interest rate paid by Italy was negative. The swap was really a loan where Italy had accepted an unfavourable exchange rate and received cash in return. The payments were used to reduce Italy's deficit helping it meet the budget deficit targets of less than 3 per cent of GDP.

The Greek transactions are believed to be similar cross-currency swaps linked to the country's foreign currency debt, structured with off-market rates. Analysts suggest that the cash received from the transactions may have reduced Greece's debt/GDP ratio from 107 per cent in 2001 to 104.9 per cent in 2002 and lowered interest payments from 7.4 per cent in 2001 to 6.4 per cent in 2002.

Securitisation, non-consolidated borrowers, private-public financing arrangement supported indirectly by the State and leasing of assets can also be used to disguise levels of debt. Although no illegality is involved, the arrangements raise important questions about public finances and financial products..."