ECB seeks tighter EU budget rules on swaps

MILAN (BestGrowthStock) – The European Central Bank would like the European Union to tighten budgetary rules so member states cannot use swaps and complex derivatives to reduce their fiscal deficits, a source close to the subject said on Tuesday.

With a debate still raging about swaps deals arranged by Goldman Sachs (GS.N: ) which helped Greece reduce its debt in 2001, the European source said the ECB proposal was aimed at making the use of swaps and forward rate agreements (FRA) more transparent.

“If the Commission and Eurostat accept the ECB’s suggestion, then higher interest payments and positive flows from swaps and FRA would be considered as financial transactions and would be excluded from the calculation of the deficit,” said the source, who had seen the ECB proposal.

There was no immediate comment from the central bank.

The source said the changes, if adopted, would make the budget figures more transparent and homogenous for the whole of the European Union.

In the case of Italy, the adoption of the new rules would have helped lower its budget deficit by 1 billion euros — the amount it paid on interest rate swaps — from 80 billion euros in 2009.

Goldman Sachs has defended the cross-currency derivatives it conducted for Greece in 2001 which reduced the country’s debt as a common currency risk management procedure consistent with EU debt reporting rules.

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(Reporting by Francesca Landini)

ECB seeks tighter EU budget rules on swaps