MercoPress. South Atlantic News Agency

Greece defends controversial debt-swaps masterminded by Goldman Sachs

Finance Minister George Papaconstantinou says operations were legal at the time

Greece has defended a controversial deal that may have masked the extent of its budget woes and has annoyed the European Union. The 2001 debt-swap deal with Goldman Sachs was legal under EU rules, Finance Minister George Papaconstantinou told the Greek parliament.

The European Commission has asked Greece to provide details of the deal. The EU's statistics agency, Eurostat, said it has only recently become aware of the complex transaction.

The cross-currency deal with Goldman is reported to have allowed Greece - which joined the euro in 2001 - to show a smaller budget deficit. Reports say the contracts also delayed payments on the debt and made its obligations seem less than they were on first glance - allowing Greece to get deeper into debt.

Both Greece and Goldman have come in for heavy criticism over the deal, which comes as the EU has become involved in talk of rescuing Greece from its heavy debts.

The legality of such deals has also been questioned.

The use of such derivatives was legal under EU rules “at the time”, Mr Papaconstantinou has said. He also said that it was compliant with Eurostat regulations at the time. But derivatives like the currency swap are no longer compliant and Greece does not use such deals, he added.

Eurostat told Bloomberg News that the agency has required information about such currency swaps from Euro-zone member states since 2007.

Goldman Sachs declined to comment on the matter.

Meanwhile, Bank of Italy head Mario Draghi said he had no role in any swaps conducted by Goldman for the Greek government.

Mr Draghi - who was vice chairman of Goldman in London between 2002 and 2005 - is also head of global regulatory body set by the G20, the Financial Stability Board.

The Bank of Italy said the deals took place before he was at Goldman.

Last week, the EU vowed to help Greece if needed.

Greece is trying to reduce its public deficit from 12.7% - more than four times the level that single currency rules allow. It has pledged to reduce this to 8.7% during 2010 under an austerity plan that involves major cuts in public spending.

Mr Papaconstantinou has said repeatedly that his country is not asking for financial help from Brussels. (BBC)