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Debt deals haunt europe; investors re examine complex financial maneuvers used to hide borrowings wsj

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22/02/2010
Debt Deals Haunt Europe; Investors Re…
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FEBRUARY 22, 2010 Debt Deals Haunt Europe Investors Re-Examine Complex Financial Maneuvers Used to Hide Borrowings
ByF O R E L L EC H AR L E SAN DS U S AN N EC R AIG
Concerns that Greece and other struggling European nations may not be able to repay their debts are focusing investor attention on another big worry: Economies across the Continent have used complex financial transactions—sometimes in secret—to hide the true size of their debts and deficits.
Investors long turned a blind eye to European governments' aggressive bookkeeping, aimed at meeting the euro zone's fiscal ceilings. Countries using the euro currency have a rich history of exotic maneuvers aimed at meeting rules requiring members to cap debt levels at 60% of their gross domestic product and their annual budget deficits to no more than 3%. Despite criticism, European leaders deemed manyof these moves acceptable as they sought the long-planned currency union.
T otry to meet the targets, which were aimed at building trust in the stability of the euro, governments over the years have sold state assets, bundled expected future payments into securities to hawk and even, in the case of Greece, insisted to the Eurostat statistics authority that large portions of its military spending were "confidential" and thus excluded from deficit calculations. In 2000, Greece reported that it spent €828 million ($1.13 billion) on the military —about a fourth of the €3.17 billion it later said it spent. Greece admitted to underreporting military spending by €8.7 billionbetween 1997 and 2003.
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Portugal classified subsidies to the Lisbon subway and other state enterprises as equity purchases. After learning that, Eurostat made Portugal redo its accounting in 2002. T he country revised its 2001 deficit from €2.76 billion, or 2.2% of GDP, to €5.09 billion, or 4.1%—well over the limit.
France arranged a deal with the soon-to-be privatized France Telecomin 1997 under which the company paid the government a lump sum of more than €5 billion. In return, France agreed to assume pension liabilities for France Telecom workers. The billions from France
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