<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN"> <HTML><HEAD> <META http-equiv=Content-Type content="text/html; charset=windows-1255"> <META content="MSHTML 6.00.2600.0" name=GENERATOR> <STYLE></STYLE> </HEAD> <BODY bgColor=#ffffff> <DIV><FONT face="Times New Roman">Doubts over way Italy qualified for euro<BR>By Rebecca Bream in London, James Blitz in Rome and Peter Norman in Brussels<BR>Published: November 4 2001 20:20 | Last Updated: November 5 2001 06:10<BR> </FONT></DIV> <DIV><FONT face="Times New Roman">The government of a European Union country - understood to be Italy - used the derivatives market to camouflage the true size of its budget deficit so that it could be admitted to the European single currency, according to a report. </FONT></DIV> <DIV> </DIV> <DIV><FONT face="Times New Roman">The International Securities Market Association (Isma), the self-regulatory organisation, says in a report to be published on Monday that it has uncovered evidence of a swaps contract in 1997 undertaken to manipulate government data. </FONT></DIV> <DIV> </DIV> <DIV><FONT face="Times New Roman">Isma raises concerns that the exploitation of loopholes in the accounting for derivatives may have been widespread when European countries were preparing for entry to the euro, launched in January 1999. The report says that such abuses could still be going on, and Isma is pressing for greater transparency in the use of derivatives. </FONT></DIV> <DIV> </DIV> <DIV><FONT face="Times New Roman">The report, written by Dr Gustavo Piga and published by Isma and the Council on Foreign Relations, the independent US-based research group, does not explicitly name Italy in order to protect the official that leaked the information. However, Dr Piga cites the case of a bond issue from 1995 upon which a currency swap contract was used in 1997 to reduce temporarily the size of the country's deficit to meet Maastricht criteria. The terms match exactly those of a Y200bn (Ł1.1bn) bond issued by Italy in 1995. </FONT></DIV> <DIV> </DIV> <DIV><FONT face="Times New Roman">Isma's report will lend weight to rumours which had circulated about the circumstances of Italy's entrance to the single European currency in 1999. Italy qualified to be a founder member of the euro against the expectations of most leading economists. </FONT></DIV> <DIV> </DIV> <DIV><FONT face="Times New Roman">In 1996, the country had a budget deficit that was 6.5 per cent of gross domestic product - more than double the level allowed under the Maastricht treaty. But by 1999, the year of the currency's launch, Italy had reduced the deficit to less than 2 per cent. </FONT></DIV> <DIV> </DIV> <DIV><FONT face="Times New Roman">Italy's new centre-right government is confident the situation is under control. The government now expects the deficit to end the year at about 1.1 per cent of GDP. </FONT></DIV> <DIV> </DIV> <DIV><FONT face="Times New Roman">Isma's report may also have serious implications for the investment banks that acted as counterparties in the swaps deals and did not disclose them. </FONT></DIV> <DIV> </DIV> <DIV><FONT face="Times New Roman">While the claims of the report may prove embarrassing to the Italian authorities, European monetary officials do not expect any significant repercussions. </FONT></DIV> <DIV> </DIV> <DIV><FONT face="Times New Roman">More positively, budgetary consolidation has continued since 1997 bringing deficits clearly below the Maastricht Treaty ceiling of 3 per cent of GDP. </FONT></DIV> <DIV> </DIV> <DIV><FONT face="Times New Roman"> <BR></FONT></DIV> <DIV><FONT face="Times New Roman">Bryan Atinsky<BR>IMC-Israel <BR>English Editorial Coordinator<BR><A href="http://www.indymedia.org.il">http://www.indymedia.org.il</A></FONT></DIV></BODY></HTML>