The German deficit dilemma
German municipalities are turning to the derivatives market to manage the interest rate risks on their massive deficits. Will these instruments relieve their problems or add to them? Rachel Wolcott investigates
German cities' balance sheets don't make pretty reading. Hit by successive reductions in tax receipts, German municipalities have racked up billions of euros in budget deficits since a major tax reform was implemented in 2000. To help manage the interest rate exposure on these deficits, many city treasurers are turning to derivatives - for the most part interest rate swaps, caps and floors, but in
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