“Damn, no wonder the country’s in such dire straits,” I thought this morning. It was a Monday and half the city was shut down. The other half all seemed to be in restaurants, taking a long brunch. The morning had the feel of a “St Monday”, the old medieval holiday, when an entire village would simply declare that Monday was a saint, that this Monday happened to be her day, and that was that. In Psirri, the fashionable inner-city district, done in faux pastel and earth tones, everyone appeared to be hovering in slow motion over a tiny coffee. Ask a city of Germans to do the same thing during a financial crisis and they would be drumming their fingers on the table with anxiety and invading Poland again.

Turned out it was kathari deterai, the first day of Orthodox Lent, variously translated as clean Monday, pure Monday, ash Monday and a bunch of other names. The event is marked with float parades, and whole towns pelting each other with coloured flour, in clown costumes. One of the other names is Green Monday, and this year it is, of course, all about the green. The holiday coincided with the revelation that Greece’s dodgy financial accounting had been assisted by the kind offices of Goldman Sachs, who had arranged a complex series of currency and debt swaps with the Greek government as a client in the early 2000s, right at the time that Greece (belatedly) joined the euro. This managed to keep whole chunks of Greece’s debt off the books by… well, let’s let Risk.net’s Nick Dunbar explain it:

The transactions agreed between the Greek public debt division and Goldman Sachs involved cross-currency swaps linked to Greece’s outstanding yen and dollar debt. Cross-currency swaps were among the earliest over-the-counter derivatives contracts to be traded, and have a perfectly routine purpose in debt management, namely to transform the currency of an obligation.

For example, an issuer with foreign fixed-rate debt might choose to lock in a favourable exchange rate move. To do this, it could swap a stream of fixed domestic currency payments for a stream of foreign currency ones, referenced to the notional of the debt using the prevailing spot foreign exchange rate, with an exchange of the two notionals at maturity. Because they are transacted at spot exchange rates, cross-currency swaps of this type have zero present value at inception, although the net value (and credit exposure of either counterparty) may subsequently fluctuate.

However, according to sources, the cross-currency swaps transacted by Goldman for Greece’s public debt division were “off-market” — the spot exchange rate was not used for re-denominating the notional of the foreign currency debt. Instead, a weaker level of euro versus dollar or yen was used in the contracts, resulting in a mismatch between the domestic and foreign currency swap notionals. The effect of this was to create an up-front payment by Goldman to Greece at inception, and an increased stream of interest payments to Greece during the lifetime of the swap. Goldman would recoup these non-standard cashflows at maturity, receiving a large “balloon’”cash payment from Greece. (01.07.2003)

I mean, duh. The crucial facts are these: the move kept the debt entirely off Greece’s books at the time, it projected a mega payment from Greece in to the future, GS wasn’t the only bank Greece was doing it with, and Greece wasn’t the only country doing it.

As the date on the report above indicates, these deals have never been a secret — they’ve simply been hidden in plain sight, waiting for an intern to find them in the thicket of past high crimes and misdemeanours that constitute the whole of the global finance system for the past decade. Their rediscovery has created further embarrassment for Eurostat, the EU agency ostensibly devoted to ensuring compliance with EU standards, and which has effectively acted as an enabler and co-conspirator in fudging the books.

Indeed, there is something pretty funny about the tut-tutting that the EU continues to make about Greece’s accounts, since the Union has been, in relation to its poor southern member, like the stereotypical Greek revenue inspector looking around a 50-table restaurant, and accepting that its revenues fall below the tax threshold. The EU has given Greece until the end of February to tell it what it already knew — that its accounts are Swiss cheese. The rediscovery of the swaps has come on the day that EU finance ministers meet to put some flesh on the bones of last week’s vague promise to back Greece as it heads towards a default. Funny that.

At this point, one could start to feel like a history teacher trying to explain Anglo-Saxon crop rotation to a year-six class on a summer day. So let’s try and make it as clear as possible — the second wave of the 2008 GFC has begun, and Greece is where it started from. The first wave was prompted by the collapse of a series of private investment banks, starting with Lehman Brothers. The second is starting with the deep problems occasioned by the indebtedness of sovereign nations using the broad security of the euro, to be entrepreneurial with their budgets. That’s entrepreneurial in a political sense — thus Greece’s centre-right New Democrats left the nation’s finances unreformed as a way of giving the illusion that the wave of post euro-entry prosperity was solidly backed. Instead the country has simply wildly over-borrowed from its future.

That much is Greece’s problem primarily, and Europe’s secondarily. It becomes a global matter when the degree of exposure of the global banking system becomes clear — hot on the heels of the last crunch, and with nothing resembling a real recovery in-between.

Clean Monday indeed. The day itself is preceded by a special service of “Forgiveness vespers”, and a Ceremony of Mutual Forgiveness. In the week to come, everyone is supposed to attend confession, and clean house thoroughly.

You couldn’t make it up.

Unless you were a banker. Or a finance minister. Or a regulator. Or …