Fury over Greece using derivatives that masked its debt conveniently ignores the fact that euro zone countries and EU bookkeepers have approved other deals worth billions of euros for over 10 years.
Brussels has told Greece to provide details of a 2001 derivatives deal with U.S. investment bank Goldman Sachs that helped Athens dress up its public finances by deferring interest rate payments as it entered the euro.
Goldman Sachs explained how the trades worked and that they were consistent with EU regulations in force at the time, in a statement made on its website on Sunday.
The currency swaps effectively created a 1 billion euro ($1.35 billion) loan from Goldman Sachs to its client which did not show up in Greece accounts as such, a banker (not with Goldman) with an understanding of the trade said.
While previously reported in trade magazines and well-known in financial circles, the re-emergence of details on its swap was another blow for Greece, which stunned markets in October when the newly-elected socialists hiked budget deficit forecasts for 2009 to 12.7 percent of GDP, three times original estimates.
Bankers said derivatives and securitization activities were not a secret and were widely used by other euro zone members as they sought to meet the Maastrict criteria by reducing either budget deficits or debt-to-GDP ratios.
A former public sector banker likened the process for getting derivatives approved by Eurostat in the early days as hands-on and similar to that conducted with a rating agency.
Greece like other EU sovereigns, most notably Italy, was happy to take advantage of known loopholes in the European system of accounts 1995 (ESA 95), produced by Eurostat, which ensures the comparability of European countries' accounts
Eurostat was pushed to clear up on accounting grey areas in 2001 when the academic Gustova Piga published research that showed Italy had used derivatives to massage its statistics in 1997, and enter the single currency in the first wave.
But when in 2002 Eurostat published a new version of ESA 95 it set out in detail the very rules Greece was to use.
Sovereigns were explicitly allowed to use year-end levels on cross currency swaps, a banker said.
Because there was a big move in euro/yen, there was a large enough difference in the year-end rate and the real rate at which Greece transacted so that it was able to get 1 billion euros upfront and repay that loan over the swap's term.
The tale has also spun the spotlight back on Goldman Sachs, the Wall Street investment bank that has triggered public and political anger for paying some of the biggest bonuses in the industry despite the near-collapse of the sector in 2008.
Eurostat now says it wants to assess whether underlying exchange rates and interest rates in the deals conducted with Goldman were based on actual market rates rather than historical rates, which was a loophole sovereigns had exploited for years.
Unsurprisingly, bankers are echoing comments by Christophoros Sardelis, who was chief of Greece's debt management agency when the swaps were secured. He noted this week that rules governing swaps were only tightened later.
"Everyone did these (types of) trades. Deutsche Bank, JP Morgan, Merrill, Goldman and others. They look unfortunate now — but are we solely to blame?" said a senior fixed income banker.
"It's easy to simply blame the bankers ... but really people should also be asking about the politicians who asked us to find solutions for their problems," said a senior fixed income banker.
"No one can act surprised. Eurostat's regulations are clear. If the political will to stop this had been there, it could have happened," he said.
German Chancellor Angela Merkel led the bandwagon of politicians bashing bankers — already suffering from a public image debacle ever since the credit crisis — saying it would be "a disgrace" if they had been party to "falsifying Greek national statistics."
Bankers noted, however, that Germany is no stranger to off-balance sheet vehicles. KfW, the German state-guaranteed development bank borrowed 50 billion euros ($67.62 billion) last year, a sum that does not appear on the state's budget.
"The reality is that it's not about a single deal. It's not about whether what was done was right or against the spirit of the regulations or not," noted a former public sector banker. "It's the whole accounting standard you have to look at."
Another anomaly in the accounting for states' liabilities and assets was how options are treated. States writing an option can book premium as cash but the liability is not accounted until the option is exercised, a banker said.
It is not just derivatives. European sovereigns' game of shifting liabilities off their balance sheets once provided fruitful ground for the now tarnished securitization sector.
Italy kicked of the craze 10 years ago by selling a 4.5 billion euro securitization backed by unpaid social security payments at the Istituto Nazionale Previdenza Sociale (INPS).
The early years of the single currency was marked by a series of similar asset-backed securitizations for Italy and other states such as Portugal, Greece and Belgium.
Then in May 2005 Germany joined in, selling 8 billion euros of civil service pension rights backed by payments from former state-owned companies Deutsche Telekom, Deutsche Post and Deutsche Postbank.
Eurostat did not allow the German securitization count as part of state borrowings, a stance which has seen the flow of deals grind to a halt.
Similarly, in 2008 it stopped the use of derivatives for fiscal window dressing but revelations over public sector finances are likely to continue this year.
Italian authorities are pressing for legal action against several banks for deals involving local authorities who sold bonds worth billions of euros during the past decade.
Italian municipals were heavy users of the debt markets during much of the past decade as a squeeze on public sector financing at the state level led them to look for alternatives
The rules on Italian local authorities' borrowings encouraged them to use derivatives to smooth out the redemptions of debt. It is these derivatives, which are the center of the legal disputes.
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