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Feb. 22 (Bloomberg) -- Goldman Sachs Group Inc. did “nothing inappropriate” when it arranged currency swaps for Greece that reduced the nation’s national debt by 2.37 billion
euros ($3.2 billion), a top executive said.

“They did produce a rather small, but nevertheless not insignificant reduction, in Greece’s debt-to-GDP ratio,” Gerald Corrigan, chairman of Goldman Sachs’s regulated bank subsidiary,
told a panel of U.K. lawmakers today. The swaps were “in
conformity with existing rules and procedures.”

Corrigan was the first executive at Goldman Sachs, Wall Street’s most profitable securities firm, to speak publicly about the swaps after politicians including Germany’s ruling
Christian Democrats questioned whether it helped Greece reduce
the deficit to comply with the euro’s membership criteria. The
bank was paid about $300 million from the swaps, the New York
Times reported Feb. 14.

“There was nothing inappropriate,” Corrigan told Parliament’s Treasury Committee. “With the benefit of hindsight, it seems to be very clear that the standards of
transparency could have, and probably should have been,
higher.”

The New York-based firm consulted European Union regulators when it arranged the swaps in 2000 and 2001, he said. Eurostat officials said last week they only recently became aware of the
contracts. Goldman Sachs was “by no means the only bank
involved” in arranging the contracts, Corrigan said.

Eurostat spokesman Johan Wullt didn’t reply to a phone message seeking comment after regular office hours.

Cross-currency Swaps

Goldman Sachs helped the Greek government hedge bonds sold in euros and yen in 2000, the firm said in a statement on its Web site today. The nation sought to cut its borrowings in
foreign currencies after deciding to join the euro because a
rising dollar or yen would inflate its debt level in euros,
Goldman Sachs said.

The bank then arranged new cross-currency swaps and restructured its other swaps with Greece at a historical exchange rate in December 2000 and June 2001. The transactions
reduced the country’s deficit by 0.14 percentage points and
lowered its debt as a proportion of gross domestic product to
103.7 percent from 105.3 percent, according to Goldman Sachs.

‘Not Small Potatoes’

“Any time you’ve got one-and-a-half percent of GDP that you’re disguising, that’s not trivial,” said Laurence Kotlikoff, an economics professor at Boston University and
author of “Jimmy Stewart is Dead -- Ending the World’s Ongoing
Financial Plague with Limited Purpose Banking.” “That’s not
small potatoes by any stretch of the imagination.”

Concern about Greece’s ability to finance its deficit and debt roiled financial markets since the government revealed the country had a budget shortfall of 12.7 percent last year, more
than four times the limit allowed for those countries using the
euro. Eurostat, the EU accounting watchdog ordered Greece last
week to provide information on its swaps as it probes whether
the country used derivatives to hide its true deficit.

Greece, whose burgeoning budget deficit caused it to fail the criteria for joining the single European currency in 1999, joined the euro in 2001. Member nations must keep deficits at
less than 3 percent of gross domestic product and trim national
debt to less than 60 percent of GDP under the pact.

“Governments on a fairly generalized basis do go to some lengths to try to ‘manage’ their budgetary deficit positions and manage their public debt positions,” Corrigan said. “There is
nothing terribly new about this, unfortunately. Certainly, those
practices have been around for decades, if not centuries. We
have to keep that perspective.”