Italian Treasury denies public finances are at risk from derivatives deals signed years ago

MILAN – The Italian Treasury said Wednesday that derivatives contracts it signed years ago pose no threat to state finances, a response to news reports claiming it risks losing 8 billion euros ($10.5 billion).

Italian financial authorities also denied that Italy had used the potentially risky financial instruments at the end of the 1990s to help the country meet criteria for admission to the euro currency union.

Questions about potential risks linked to Italian derivatives arose from media reports that said Italy risks losing billions on derivatives contracts it restructured in 2012 at the height of the eurozone crisis. The reports in La Repubblica and the Financial Times were based on a confidential document by the Treasury to state auditors.

“It’s a great misunderstanding, there are no losses,” Economy Minister Fabrizio Saccomanni told reporters in Rome. He said the report to state auditors was part of regular controls. “There’s no impact on public finances,” he said.

A derivative is a financial contract whose value is based on an underlying asset, such as a stock or bond.

The Italian government says it entered such contracts in the 1990s to protect against changes in the interest rates it has to pay on its public debt.

As of March, Italy had derivatives contracts cover about 160 billion euros in debt, according to the Treasury. Wednesday’s news reports claim that some of those contracts now expose the country to massive losses.

In early 2012, Italy paid Morgan Stanley 2.57 billion euros after the investment bank exercised a clause on derivatives contracts reached with Italy in 1994.

At the time the payment was disclosed, Italian media speculated it would not be the only one resulting from the derivatives. Italian officials insisted it was an isolated case.

European Central Bank President Mario Draghi was director-general of the Italian Treasury at the time the derivative contracts were entered. Draghi on Wednesday declined to comment on the reports.

Rome prosecutors are investigating the derivative trades, the news agency ANSA reported, but they have not identified a possible crime or targets of investigation.