Italy is reportedly facing losses of around €8bn on controversial derivative contracts taken out in the late 1990s, ahead of the country's adoption of the euro and restructured at the height of the eurozone crisis, reveal the Financial Times.
Confidential government papers seen by the newspaper suggest the Italian Treasury restructured eight debt contracts with foreign banks in early 2012, at what appear to be poor terms.
The FT says that "while the report leaves out crucial details and appears intended not to give a full picture of Italy’s potential losses, experts who examined it told the Financial Times the restructuring allowed the cash-strapped Treasury to stagger payments owed to foreign banks over a longer period but, in some cases, at more disadvantageous terms for Italy."
The report does not name the banks or give details of the original contracts but the experts told the FT that they appeared to date back to the period in the late 1990s.
"At that time, before and just after Italy entered the euro, Rome was flattering its accounts by taking upfront payments from banks in order to meet the deficit targets set by the EU for joining the first wave of 11 countries that adopted the euro in 1999," say the FInancial Times and go on to suggest that the estimated loss of €8bn is "surprisingly high" as these contracts have a notional value of €31.7bn.
The revelations raise the possibility that Italy got a particularly rough deal off the banks in its efforts to avoid a full-blown debt crisis last year.
In recent days Italy's borrowing costs have been rising. The country is scheduled to conduct a big bond sale tomorrow.
Analysts say the revelations bring back to the fore the issue of how certain economies managed to bring their balance sheets in good enough shape, at least temporarily, in order to join the euro. "It appears that Italy, like Greece, used complex methods improve its finances in the years before joining the single currency," says the Guardian, adding that the derivative contracts would have bolstered the county's balance sheet when they were taken out, but would have added to its liabilities in future years as they were repaid.
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