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25th Jun 2022

Brussels threatens to widen net on currency swaps

  • The EU's new economy commissioner Olli Rehn said banks could also be investigated (Photo: 1suisse)

The European Commission has said it will widen its investigation into complex currency transactions, used to hide the true extent of national debt levels, if evidence suggests they were deployed in more than one member state.

The EU's statistics office, Eurostat, launched an investigation into Greece over the weekend, following recent reports that Wall Street investment banks provided Athens with swaps and other financial instruments throughout the last decade.

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Speaking after a meeting of EU finance ministers in Brussels on Tuesday (16 February), EU economy commissioner Olli Rehn said Greece has until 19 February to justify their legitimacy, adding that the net could be widened to other capitals.

"In case there is reason to expect that these kind of techniques have been used by other member states, not only Greece, then we will request information from other member states," said Mr Rehn.

The Finnish politician said Eurostat had no evidence of other capitals using the swaps, but the statistics agency was also unaware of Athens' activities until very recently.

Media reports over the weekend said Europe's other chronic big spender, Italy, has also used the off-balance sheet items in the past to hide its debt pile.

Greek finance minister George Papaconstantinou told journalists on Monday: "Greece was not the only country using them. They have since been made illegal and Greece has not used them since."

Spanish economy minister and current chair of the bloc's finance meetings, Elena Salgado, said Spain had not been approached by investment banks concerning the products. "If such a proposal had been made it would not have been accepted, but there has not been any proposal along those lines," she said.

Mr Rehn also extended a warning to the firms themselves. "If confirmed that some investment banks have been involved in these kind of exercises, we have to see whether the rules have been respected," he said.

Investment bank Goldman Sachs is alleged to have arranged so-called cross-currency swaps for Greece at the start of 2002, under which government debt issued in dollars and yen was swapped for euro debt for a certain period, to be exchanged back into the original currencies at a later date.

The procedure is widely practised by governments looking for different currencies, but questions have been asked about the validity of the exchange rates used in the Greek case.

The reports suggest Goldman Sachs used fictional rates to enable Athens to receive a far higher sum than the actual euro market value of its dollar / yen denominated debt, with the additional credit gained in this way going undetected by Brussels.

US bank plans

As well as formally adopting commission excessive deficit recommendations on a number of EU countries, and approving the Greek government's deficit cutting programme, EU finance ministers also listened to presentations from the bloc's various economic commissioners regarding plans for the next five years.

Internal market commissioner Michel Barnier said the EU was currently studying recent US proposals to reform its banking sector, but indicated the EU was not intending to merely adopt them whole scale.

"You can't just transpose or copy the ideas or reforms proposed by [US President] Obama to the European continent," said Mr Barnier who is heading to Washington and New York in the coming days to discuss the plans with American officials.

"In Europe we have more problems related to the interconnection of the banks, rather than the specific nature of the activities or the scale of individual banks," he said.

The US plans, named after their chief architect and former Federal Reserve Chairman Paul Volcker, aim to limit the size and risk-taking of banks operating in America.

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