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 some cases, more complex products.
The problem is that many of the city treasury departments don
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