Italy faces €8bn on derivative contracts, FT reveals

Italy risks losing around €8bn over debt deals made as it tried to improve its finances before joining the euro in the late 90s, the Financial Times reports.

Italy is reportedly facing losses of around €8bn on controversial derivative contracts made in the late 1990s, and restructured at the height of the eurozone crisis.

Confidential government papers seen by the Financial Times suggest the Italian Treasury is sitting on an €8bn loss after restructuring eight debt contracts with foreign banks in early 2012.

The FT explains that the 29-page report leaves out crucial details and appears intended not to give a full picture of Italy’s potential losses.

“Experts who examined the document 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 FT article also reads.

As the FT reports, the document does not mention any bank in particular, but it seems 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,” the FT reports.

The claims are likely to represent additional issues for Italian prime minister Enrico Letta, who is currently trying to stimulate Italy’s economy and keep the coalition government together.

ECB president Mario Draghi could also be challenged by the report, as he was the head of the Italian Treasury in the late 1990s when the contracts were originally taken out.


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