Italy Is the Euro-Area's Swaps Loser Facing $9 Billion Bill

(Bloomberg) -- Derivatives burdened Italy’s public debt again last year for a record amount of 8.3 billion euros ($9 billion), making the country the biggest swaps loser in the euro region.

Losses related to swaps held by the nation added 4.25 billion euros to the country’s debt while net liabilities’ burden totaled 4.07 billion euros, according to Bloomberg News calculations based on data released Monday by European Union statistics office Eurostat.

In the 2012-2016 period, the burden totaled 29.6 billion euros, also a euro-area record.

Italy’s derivative-related losses and net liabilities were higher than those for the whole euro region combined both in 2016 and in the five-year period as some countries actually saw the swaps helping to alleviate their debts.

Governments across the euro region have used derivatives to manage their debt-financing costs and to hedge against sudden changes in rates and excessive exchange-rate volatility. Those deals have sometimes backfired with the effect of pushing nations’ debts even higher.

In the existing interest-rate swaps the Italian Treasury “usually pays a flow anchored to a fixed rate, while receiving one indexed to the 6-month Euribor rate,” the government said earlier this month in an annex to its annual Economic and Financial Document. Since starting from November 2015, the Euribor stayed negative and the impact on the flow indexed to that rate was that the Treasury had to pay money to its counterparts, instead of being paid by them, the document also said.

Italy’s public debt rose last year to 2.2 trillion euros, or 132.6 percent of the country’s gross domestic product, Eurostat said in a separate report on Monday.

To contact the reporters on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net, Giovanni Salzano in Rome at gsalzano@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Kevin Costelloe, Elisa Martinuzzi