Eurostat, the European Union (EU) statistical office wants Greece to give an accounting of structured finance deals that were undertaken from 2001 to 2008, which might have allowed the government to conceal billions of euros of new debt from the public and regulators.

According to the Financial Times, the EU now asserts that the Greek government failed to disclose information about the currency swaps to a Eurostat team that visited Athens in September 2008. The team went to Greece to monitor the country's debt management.

However, Greece Finance Minister George Papaconstantinou told a meeting of the European Policy Centre think-tank that the “kind of derivatives contracts reported by some newspapers were, at the time, legal and Greece was not the only country to use them. They have since been made illegal, and Greece has not used them since.”

Italy, Portugal and Spain also employed similar securitization techniques as a means to address the EU requirements.

To be sure, back in 2001 the Greek government heavily promoted the use of securitization to address the EU's standards for conversion to the euro. It worked, and through a series of deals Greece managed to reign in its deficit and bring in line with EU requirements.

Deals like the Atlas Securitization S.A., a special purpose entity, which issued €2 billion ($2.75 billion) in two floating-rate tranches and Ariadne, a €650 million securitization of future state lottery receivables, and Hellenic Securitization S.A., a €445 million deal backed by future receipts from home loans to state employees, were responsible for getting Greece to meet the EU standards. These deals at the time were sanctioned by the EU.

By 2005, following a shift in how the EU treated these deals — which meant that European governments would no longer be allowed to treat the transactions as off balance sheet debt —Greece had already begun to taper off its strong government debt issuance program.

EU finance ministers have given Greece a March 16 deadline to show that it can make the required spending cuts to bring its deficit down from the EU's highest, 12.7%, to 8.7% this year. They said in a statement that this was essential to "remove the risk of jeopardizing the proper functioning of economic and monetary union."

Greece, however, is not asking for financial help, but if the review finds that any of the deals did not meet the Eurostat requirements, the Greek finance ministry said it could lead to "significant debt revisions" for 2009 statistics because of swaps, debt to suppliers and state-guaranteed loans that might default.

“The EU is trying to rescue this poor beast, which is caught in a debt trap, but their efforts resemble those of the Keystone Cops,” said Stuart Thomson, economist at Ignis Asset Management. “Greece wants to get out of the trap by itself, but the pit is too deep and impossible without help. Growing resistance in Germany and Holland to providing taxpayers money means the costs to Greece of EU help are rising. Greece does not want to leave the Euro, neither does Germany, but the route from here to fiscal responsibility is a long and torturous one and we believe a greater threat to the single currency over the medium term than the short-term."

Thomson added that the current solution will produce a deflationary shock to the Southern Mediterranean economies and Ireland as these countries undergo drastic internal devaluation to restore competitiveness.

"The pain of this devaluation can only be lessened through depreciation of the euro to parity against the dollar," Thomson said. 

However, he said that this requires that Germany accept higher domestic inflation and consumer spending. China and America must also agree to substantial appreciation of their currencies in a world of competitive devaluations.

"These considerations add to the complexity of problems facing the resolution of this crisis," Thomson said. "They are not insurmountable, but they will certainly add to the resulting volatility in financial markets this year."

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