By Giuseppe Fonte
MILAN Jan 21 Italy's central government faced a
potential cost of as much as 29 billion euros last year from
derivatives deals, mostly made with foreign banks, Bank of Italy
Derivatives contracts with foreign banks accounted for 27
billion euros of Italy's international liabilities at the end of
September, the Bank of Italy said in its economic bulletin on
Separate central bank data showed that by June, derivatives
with domestic banks brought the total exposure to 29 billion
euros. A source close to the matter said the situation hadn't
changed in the third quarter.
The data was released as part of a transparency push by the
Treasury. It has begun to provide previously unavailable data to
the central bank after a controversy erupted in 2012 over a 2.6
billion-euro payout to Morgan Stanley to close out
The 29 billion-euro exposure represents the mark-to-market
value of derivatives contracts taken out by the Treasury. It
shows how much the Treasury would have to pay at a given moment
to terminate the contracts early. Their value changes over time
in line with changes in market interest rates.
Italy holds derivatives contracts based on government bonds
worth around 160 billion euros, or 9 percent of the total value
of its bonds issued. More than half of them are interest rate
swaps, allowing the Treasury to swap a floating rate for a fixed
one, hedging against a rise in interest rates.
Derivatives contracts held by Italy's central and local
administrations have added 2 billion euros a year between 2010
and 2012 to interest payments, national statistics data show.
Italy's foreign liabilities, including the Treasury's
derivatives exposure to foreign banks, outstripped its foreign
assets by 450 billion euros ($610 billion) at the end of
September, the Bank of Italy's bullettin showed.
Intesa Sanpaolo economist Luca Mezzomo said that at 29
percent of national output these liabilities, known as Italy's
"net international investment position" fared well in
comparisons with other southern European counties also hit by
the sovereign debt crisis.
"Countries like Portugal, Greece or even Spain, that has
started running a current account surplus, all have a net
international investment position of around 100 percent of gross
domestic product," he said. ($1 = 0.7376 euros)