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Business News/ News / World/  Italy denies using derivatives to get into euro zone
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Italy denies using derivatives to get into euro zone

Rome says the public accounts are sound

Italy’s finance ministry was reacting to reports in La Repubblica and Financial Times dailies that Italy was facing losses of about €8 bn on derivative contracts taken out in the late 1990s. Photo: Mint (Mint)Premium
Italy’s finance ministry was reacting to reports in La Repubblica and Financial Times dailies that Italy was facing losses of about €8 bn on derivative contracts taken out in the late 1990s. Photo: Mint
(Mint)

Milan: Italy’s finance ministry denied reports on Wednesday that it had used derivatives contracts to dress up the accounts to join the euro zone, and insisted the public accounts were sound.

“There is no danger to public accounts," the ministry said in a note.

Furthermore, “the hypothesis that Italy used derivatives at the end of the 1990s to create the conditions necessary to enter into the euro zone is absolutely groundless."

The ministry was reacting to reports in La Repubblica and Financial Times dailies that Italy was facing losses of about €8 billion ($10.45 billion) on derivative contracts taken out in the late 1990s.

The reports said Rome had used the derivatives to window dress its accounts in order to get into the euro zone.

“There is a time bomb in the public accounts," Italy’s La Repubblica said.

The paper said it had seen a confidential 29-page report which said the Italian Treasury had restructured the debts “between May and December 2012" when the euro zone crisis was at its worst.

The loss was particularly damming considering the contracts were worth 31 billion, it said.

“Many mistakes were made in the 1990s to get Italy into the euro," a government official told the daily on the condition of anonymity.

“And today they transform into even more debt, hidden by the official accounts in an very grey area of the Treasury that only a few people are able to understand and manage," he said.

Prime Minister Enrico Letta’s government was quick to try and limit damage from the report and prevent it from derailing a push to revive Italy’s growth.

“Controls systematically carried out by Eurostat from the second half of the 1990s, including those which followed the phased introduction of new guidelines on derivatives, have consistently confirmed the regularity of the accounting of these operations," the ministry said.

Christian Schulz, senior economist at Berenberg Bank in London, said in a note that the report should not spark undue panic.

“Eight billion euros are only 0.5% of Italian GDP (gross domestic product), not enough for a major change the assessment of Italy’s fiscal health," he said.

However, he said it raised questions, for example whether the loss had been absorbed into the deficit last year. And he called for Italy and the European Commission to “quickly shed light on the risks from these and similar derivatives deals in order not to undermine confidence in Eurostat’s public finance data."

The reported technique is redolent of derivative and accounting devices used by Greece to mask the weakness of its public finances before it joined the euro zone

The report in La Repubblica sparked calls for a reaction from the head of the European Central Bank (ECB) Mario Draghi, who was head of the Italian Treasury at the time the derivatives were taken out.

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Published: 26 Jun 2013, 08:38 PM IST
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