EX-99.1 2 u49497exv99w1.htm RECENT DEVELOPMENTS EX-99.1
 

Exhibit 1
Recent Developments Update Dated November 8, 2005
     The information included in this section supplements the information about the Republic of Italy that is contained in Exhibit D to the Republic’s annual report on Form 18-K, as amended, for the fiscal year ended December 31, 2003. To the extent that the information included in this section differs from the information set forth in the annual report, you should rely on the information in this section.
The Italian Economy
     Based on ISTAT data, Italy’s real GDP increased at a seasonally adjusted rate of 0.7 per cent in the second quarter of 2005 and grew at an annual rate of 0.1 per cent during the year ended June 30, 2005. Italy’s seasonally adjusted average unemployment rate decreased to 7.8 per cent and 7.7 per cent during the first and second quarters of 2005, respectively, from 8.0 per cent during last quarter of 2004. Consumer prices, as measured by the harmonized EU consumer price index, increased at an annual rate of 2.2 per cent during the twelve months ended September 30, 2005.
Real GDP and Expenditures
     The following table sets forth information relating to real GDP and expenditures for the periods indicated.
                                         
    2000     2001     2002     2003     2004  
    (euro in millions)  
Real GDP
     1,015,077       1,032,985       1,036,945       1,039,581       1,052,308  
Add: Imports of goods and services
     286,418       287,798       286,466       290,187       297,470  
of which
                                        
Goods
     221,639       221,185       218,140       221,361       231,585  
Services
     64,779       66,613       68,326       68,826       65,885  
 
                              
Total supply of goods and services
     1,301,495       1,320,783       1,323,410       1,329,768       1,349,779  
 
                              
Less: Exports of goods and services
     303,311       308,131       298,147       292,478       301,750  
of which
                                        
Goods
     240,454       244,164       236,399       231,091       239,322  
Services
     62,857       63,967       61,748       61,387       62,428  
 
                              
Total goods and services available for domestic expenditure
     998,184       1,012,652       1,025,263       1,037,290       1,048,029  
 
                              
 
                                        
Domestic expenditure
                                        
Private sector consumption
     611,570       616,427       618,920       627,722       633,815  
Public sector consumption
     177,227       184,011       187,468       191,702       193,075  
 
                              
Total domestic consumption
     788,797       800,438       806,388       819,424       826,890  
 
                              
Gross fixed investment
     209,217       213,121       215,702       211,907       216,267  
Changes in inventories
     171       (906 )     3,173       5,959       4,872  
 
                              
Total domestic expenditures(1)
     998,185       1,012,653       1,025,263       1,037,290       1,048,029  
 
                              
 
(1)   Total goods and services available for domestic expenditure do not match total domestic expenditure figures due to the effects of rounding.
 
Source:   Annual Report of the Bank of Italy (May 2005) for the year ended December 31, 2004.

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Selected Balance of Payments Indicators 2000 through 2004
     The following table illustrates the balance of payments for the periods indicated, including revisions of data previously published for 2000 through 2003.
                                         
    2000     2001     2002     2003     2004  
    (euro in millions)  
Current Account
     (6,305 )     (740 )     (10,014 )     (17,351 )     (12,035 )
Capital Account
     3,195       936       (67 )     2,494       2,081  
Financial Account
     4,287       (3,294 )     8,532       17,319       8,884  
Errors and omissions
     (1,177 )     3,098       1,549       (2,462 )     1,071  
 
Source:   Annual Report of the Bank of Italy (May 2005) for the year ended December 31, 2004.
     The deterioration in Italy’s current account reflects an improvement in invisible trade from a deficit of €2.4 billion in 2003 to a surplus of €1.5 billion in 2004, mainly due to a decrease in amounts spent by Italians abroad and a decrease in the income deficit from €17.8 billion in 2003 to €14.7 billion in 2004. This improvement was offset in part by a decrease in the visible trade surplus from €9.9 billion in 2003 to €8.8 billion in 2004 and an increase in the current transfers deficit from €7.1 billion in 2003 to €7.7 billion in 2004.
     Italy’s financial account surplus decrease was principally attributable to net direct investment outflows of €2.0 billion in 2004 compared to net direct investment inflows of €6.5 billion in 2003 and an increase in net outflows from Italian banks of €11 billion, compared to net inflows to Italian banks of €40.6 billion in 2003. The decrease in Italy’s financial account was offset in part by an increase in the surplus in portfolio investment from €3.4 billion in 2003 to €26.4 billion in 2004, mainly due to a decrease in investment by Italians in non-Italian debt securities, higher investment by non-Italians in Italian equity securities, offset in part by a decline in investment in Italian debt securities by non-Italians.
Public Finance — General Government Revenues and Expenditures
     The table below sets forth general Government revenues and expenditures for the five-year period ended at December 31, 2004. The table does not include revenues from privatizations, which are deposited into a special fund for the repayment of outstanding Treasury securities and cannot be used to finance current expenditures. Accordingly, proceeds from privatizations do not affect the financial balance, but, when used to repay outstanding Treasury securities, do contribute to a decrease in the public debt and consequently the ratio of public debt to GDP.
     The following table reflects upward revisions to Italy’s net borrowing and public deficit statistics published by ISTAT in May 2005, following discussions between ISTAT and Eurostat in relation to:
•   the recording of payments to the Italian government by financial institutions that act as tax collectors (concessionari d’imposta),
 
•   the classification of government-owned entities,
 
•   the treatment of a government securitisation operation,
 
•   the recording of transactions with the EU budget,
 
•   inconsistencies between data on cash and accrual bases, and
 
•   statistical discrepancies in government accounts.
     Eurostat continues to be engaged in discussions with Italian authorities relating to the recording of transactions with the EU budget, inconsistencies between data on cash and accrual bases and statistical discrepancies in government accounts, which could lead to a further upward revision in Italy’s budget deficit for the period between 2001 and 2004.

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GENERAL GOVERNMENT REVENUES AND EXPENDITURES
                                         
    2000(1)     2001     2002     2003     2004  
    (millions of euro)  
Expenditures
                                        
Current expenditures
     512,658       541,794       557,332       581,775       599,290  
of which
                                        
Total consumption
     213,300       229,518       238,921       253,035       260,063  
of which
                                        
Wages and salaries
     123,480       131,084       136,423       143,870       148,248  
Cost of goods and services
     85,726       93,637       96,495       100,887       103,057  
Interest expense
     75,333       79,570       72,547       69,275       68,434  
Production grants
     13,903       14,670       13,641       14,194       14,471  
Social services
     195,460       202,291       214,035       224,445       234,181  
Other current expenditures
     14,662       15,745       18,188       20,826       22,141  
Capital expenditures(2)
     30,542       53,440       48,651       58,420       55,562  
Investments
     27,807       30,196       23,768       34,133       34,875  
Investment grants
     14,143       17,662       19,031       19,043       17,638  
Other capital expenditures
     (11,408 )     5,582       5,852       5,244       3,049  
 
                              
Total expenditures
     543,200       595,234       605,983       640,195       654,852  
% of GDP
     46.6 %     48.8 %     48.1 %     49.2 %     48.5 %
 
                                        
Revenues
                                        
Current revenues
     529,290       553,091       565,934       574,959       598,193  
of which
                                        
Tax revenues
     345,718       359,182       364,080       365,443       379,382  
of which
                                        
Direct taxes
     170,547       182,690       178,964       178,098       184,175  
Indirect taxes
     175,171       176,492       185,116       187,345       195,207  
Social security contributions
     148,083       153,819       161,241       168,899       174,756  
Revenues from capital
     5,617       7,686       7,673       7,704       8,319  
Other current revenues
     29,872       32,404       32,940       32,913       35,736  
Capital revenues
     5,110       3,402       5,586       23,481       13,007  
 
                              
Total revenues
     534,400       556,493       571,520       598,440       611,200  
% of GDP
     45.8 %     45.7 %     45.3 %     46.0 %     45.2 %
 
                                        
Current surplus/(deficit)
     16,632       11,297       8,602       (6,816 )     (1,097 )
% of GDP
     1.4 %      0.9 %      0.7 %      (0.5) %     (0.1) %
Net borrowing
     8,800       38,741       34,463       41,755       43,652  
% of GDP
     0.8 %     3.2 %     2.7 %     3.2 %     3.2 %
Primary balance
     66,533       40,829       38,084       27,520       24,782  
% of GDP
     5.7 %     3.4 %     3.0 %     2.1 %     1.8 %
GDP (nominal value)
     1,166,548       1,218,535       1,260,598       1,300,929       1,351,328  
 
(1)   The Statistical Office of the European Communities, or Eurostat, published in July 2002 a decision relating to the methods of accounting for securitizations. Pursuant to the Eurostat decision, Italy is required to account for receipts, aggregating approximately €6.7 billion, from certain real estate and state lottery proceeds securitization transactions, which took place

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    in 2001, in the three-year period 2002-2004 and not in 2001. The general government revenues and expenditures figures presented in the table above take into account the effects of the Eurostat decision.
 
(2)   Includes revenues from UMTS licenses (deducted from capital expenditures) for the year 2000 (€ 13,815 million, or 1.2 per cent of GDP) and revenues from the disposal of state-owned real estate (deducted from capital expenditures) for the year 2001 (€ 1,600 million, or 0.2 per cent of GDP), 2002 (€ 10,800 million, or 0.9 per cent of GDP), 2003 (€ 2,700 million, or 0.2 per cent of GDP) and 2004 (€ 4.5 million, or 0.3 per cent of GDP).
 
Source:   Annual Report of the Bank of Italy (May 2005) for the year ended December 31, 2004.
     General government expenditures and revenues have increased in each of the last five years and are expected to increase in 2005. General government expenditures rose by 2.3 per cent in 2004, compared to 5.6 per cent in 2003. Lower expenditure growth in 2004 was principally due to lower interest expense and costs of goods and services, which accounted for 4.9 per cent of GDP in 2004 compared to 5.1 per cent in 2003 as well as lower capital expenditures, principally resulting from higher receipts from the disposal of state-owned real estate.
     General government revenues increased by 2.1 per cent in 2004 compared to 4.7 per cent in 2003. Current revenues grew by 4.0% in 2004 compared to 1.6 per cent in 2003, primarily due to substantially higher growth in tax revenues than in 2003. The effect of higher revenue growth was offset by lower capital revenues, which were atypically high in 2003 due to a tax amnesty introduced in 2003.
     Italy’s current account registered a steady declining surplus from 2000 through 2002 and a €6.8 billion deficit in 2003, principally attributable to a rise in wage and salaries and costs of goods and services, partially offset by a slight rise in tax receipts. Italy’s current account deficit decreased to €1.1 billion in 2004, principally due to the higher growth of tax receipts in 2004 than wage and salaries and costs of goods and services.
     The following table sets forth the composition of tax revenues for each of the five fiscal years ended December 31, 2004 based on State sector (cash basis) accounting criteria. Direct and indirect tax revenues reflected in this table do not correspond to those shown in the ‘‘General Government Revenues and Expenditures’’ table set forth above, which is prepared on general Government (accrual basis) ESA95 accounting criteria as explained in further detail in footnote 1 to the table.
COMPOSITION OF TAX REVENUES
                                         
    2000     2001     2002     2003     2004  
    (millions of euro)  
Direct taxes(1)
                                        
Personal income tax
     113,970       120,931       120,204       124,238       127,657  
Corporate income tax
     28,622       32,521       29,651       29,022       28,063  
Local income tax
     165       195       145       60       23  
Investment income tax
     18,426       15,174       12,620       10,509       10,539  
Other(2)
     3,774       8,739       7,693       13,770       15,715  
 
                              
Total direct taxes
     164,957       177,560       170,313       177,599       181,997  
 
                              
 
                                        
Indirect taxes(1)
                                        
VAT
     89,022       91,515       93,881       96,177       100,562  
Other transaction-based taxes
     15,042       14,519       16,497       18,481       20,527  
Production taxes
     26,532       25,936       26,034       27,456       26,214  
Tax on State monopolies
     7,357       7,305       7,685       7,770       8,502  
National Lottery
     8,887       7,722       8,858       6,839       14,657  
Others
     678       637       638       3,774       1,855  
 
                              
Total indirect taxes
     147,518       147,634       153,593       160,497       172,317  
 
                              
Total taxes
     312,475       325,194       323,906       338,096       354,314  
 
                              
 
 
(1)   The data presented in this table does not correspond to the general Government direct and indirect tax revenue figures contained in the preceding table entitled “General Government Revenues and Expenditures”, primarily because this table is prepared on the basis of State sector (cash basis) accounting criteria while the “General Government Revenues and Expenditures” table is prepared on an accrual basis in accordance with ESA95. Generally, State sector accounting does not include indirect taxes levied by, and certain amounts allocable to, regional and other local governments and entities. However, because this table is prepared on a cash basis, it reflects tax receipts of entities that are excluded from State sector accounting (such as local government entities) that are collected on their behalf by the State (and subsequently transferred by the State to those entities).
 
(2)   The taxes classified as “other” are non-recurring and, accordingly, this item is highly variable.
 
Source:   Annual Report of the Bank of Italy (May 2005) for the year ended December 31, 2004.
     In 2004, direct taxes receipts increased by 2.5 per cent from € 177.6 billion in 2003 to € 182.0 billion in 2004, principally due to higher receipts from personal income taxes and non-recurring tax receipts. Indirect taxes include VAT, excise duties, stamp duties and other taxes levied on expenditures. Indirect tax receipts increased approximately 7.4 per cent from € 160.5 billion in 2003 to € 172.3 billion in 2004, mainly due to the increase in tax revenues derived from the national lottery and VAT receipts.

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The 2006-2009 Program Document
     In July 2005 the Government finalized and presented to Parliament its 2006-2009 Program Document, which contemplates as its main objective achieving long-term economic growth. The following table sets forth information on Italy’s principal public finance forecasts for 2005 and targets for the years indicated, as well as the gross domestic product, inflation and unemployment assumptions underlying the Program Document.
2006-2009 PROGRAM DOCUMENT OBJECTIVES
                                         
    2005     2006     2007     2008     2009  
    (Forecast)     (Target)  
Primary balance, as a percentage of GDP
     0.6       0.9       1.8       2.5       3.0  
Net borrowing, as a percentage of GDP
     (4.3)     (3.8)     (2.8)     (2.1)     (1.5)
Public debt, as a percentage of GDP
     108.2       107.4       105.2       103.6       100.9  
GDP (% real growth rate)
     0.0       1.5       1.5       1.7       1.8  
Inflation (% real growth)
     N.A.       1.7       1.7       1.6       1.6  
Unemployment rate (%)
     8.1       8.1       7.5       7.4       7.3  
 
                                        
Structural primary balance, as a percentage of GDP
     1.5       1.7       2.5       3.0       3.4  
Structural net borrowing, as a percentage of GDP
     (3.4)     (3.0)     (2.1)     (1.6)     (1.1)
Structural net borrowing, net of one-off measures, as a percentage of GDP
     (3.8)     (3.0)     (2.1)     (1.6)     (1.1)
Structural primary balance, net of one-off measures, as a percentage of GDP
     1.1       1.7       2.5       3.0       3.4  
 
Source:   2006-2009 Program Document. The unemployment rate objectives for 2007, 2008 and 2009 have been revised to reflect the new objectives published in the Forecast and Planning Report for 2006 (Relazione Previsionale e Programmatica per il 2006).
     Because the Program Document is based on assumptions with respect to future economic developments, including international economic trends, there can be no assurance that its forecasts and objectives will be attained.
Public Debt—Total Treasury Issues
     The following table shows the total of debt securities issued by the Treasury and outstanding as of the dates indicated. Total Treasury issues differ from Italy’s total public debt as the former do not include liabilities to holders of postal savings accounts, debt incurred by Ferrovie dello Stato S.p.A. and ANAS (Aziende Nationale per le Strade) and debt incurred by other State sector entities and other general government entities.
                 
    June 30, 2005     September 30, 2005  
    (millions of euro)  
Short term bonds (BOT)
     139,110       141,666  
Medium and long term bonds (initially issued in Italy)
     1,037,139       1,016,088  
External bonds (initially issued outside Italy(1))
     89,680       90,017  
 
            
Total Treasury issues
     1,265,929       1,247,771  
 
            
 
(1)   Italy often enters into currency swap agreements in the ordinary course of the management of its debt. The total amount of external bonds shown above takes into account the effect of these arrangements.

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    The total amounts of external bonds shown above include outstanding debt under Italy’s €10 billion Commercial Paper program, with maturity of less than one year. All amounts of debt outstanding under Italy’s Commercial Paper Program are repaid in full every year by year-end.
 
    The amount of external bonds shown above is not directly comparable to the total amount of external bonds indicated in the table “External Bonds of the Treasury as of September 30, 2005” below, which does not take into account (i) the effect of currency swaps and (ii) the amount of debt outstanding under Italy’s Commercial Paper Program.
 
    Source: Ministry of Economy and Finance
     The following table shows the external bonds of the Treasury issued and outstanding as of September 30, 2005.
EXTERNAL BONDS OF THE TREASURY
AS OF SEPTEMBER 30, 2005
                                                     
        Initial Public                     Original Principal     Principal Amount        
Title   Interest Rate(%)   Offering Price     Date of Issue     Maturity Date     Amount     Outstanding     Equivalent in euro  
US$(1)
                                                    
 
                                                    
$3,500,000,000
   6.875%     98.725 %   September 27, 1993   September 27, 2023     3,500,000,000       3,500,000,000       2,906,493,938  
$1,500,000,000
   6.025%-6.88%     100.000 %   March 5, 1996   Mar 5, 2004/12     1,500,000,000       1,500,000,000       1,245,640,259  
$750,000,000
   5.81%-6.70%     100.000 %   March 5, 1996   Mar 5, 2002/10     750,000,000       750,000,000       622,820,130  
$1,500,000,000
   5.97%-6.25%     100.000 %   December 20, 1996   Dec 20, 2004/12     1,500,000,000       1,500,000,000       1,245,640,259  
$2,500,000,000
   6.000%     99.755 %   May 29, 1998   May 29, 2008     2,500,000,000       2,500,000,000       2,076,067,098  
$2,000,000,000
   6.000%     99.274 %   February 22, 2001   February 22, 2011     2,000,000,000       2,000,000,000       1,660,853,679  
$2,000,000,000
   5.250%     99.506 %   April 5, 2001   April 5, 2006     2,000,000,000       2,000,000,000       1,660,853,679  
$3,000,000,000
   4.375%     99.468 %   October 25, 2001   October 25, 2006     3,000,000,000       3,000,000,000       2,491,280,518  
$2,000,000,000
   4.375%     98.007 %   January 28, 2002   October 25, 2006     2,000,000,000       2,000,000,000       1,660,853,679  
$2,000,000,000
   5.625%     99.893 %   March 1, 2002   June 15, 2012     2,000,000,000       2,000,000,000       1,660,853,679  
$1,000,000,000
   5.625%     99.392 %   May 8, 2002   June 15, 2012     1,000,000,000       1,000,000,000       830,426,839  
$300,000,000
   3 mth libor - 0.065%     100.000 %   August 1, 2002   August 1, 2007     300,000,000       300,000,000       249,128,052  
$3,000,000,000
   3.625%     99.721 %   September 4, 2002   September 4, 2007     3,000,000,000       3,000,000,000       2,491,280,518  
$3,000,000,000
   2.500%     99.767 %   January 30, 2003   March 31, 2006     3,000,000,000       3,000,000,000       2,491,280,518  
$2,000,000,000
   5.375%     98.436 %   February 27, 2003   June 15, 2033     2,000,000,000       2,000,000,000       1,660,853,679  
$2,000,000,000
   4.375%     99.694 %   February 27, 2003   June 15, 2013     2,000,000,000       2,000,000,000       1,660,853,679  
$1,250,000,000
   3.25%     99.949 %   May 6, 2003   May 6, 2008     1,250,000,000       1,250,000,000       1,038,033,549  
$2,000,000,000
   99.52%     99.521 %   July 3, 2003   July 15, 2008     2,000,000,000       2,000,000,000       1,660,853,679  
$3,000,000,000
   2.75%     99.901 %   November 13, 2003   December 15, 2006     3,000,000,000       3,000,000,000       2,491,280,518  
$100,000,000
   4.17%     100.000 %   November 14, 2003   November 15, 2010     100,000,000       100,000,000       83,042,684  
$100,000,000
   4.06%     100.000 %   December 9, 2003   December 9, 2010     100,000,000       100,000,000       83,042,684  
$2,000,000,000
   2.75%     100.239 %   January 14, 2004   December 15, 2006     2,000,000,000       2,000,000,000       1,660,853,679  
$2,000,000,000
   3.25%     99.515 %   March 3, 2004   May 15, 2009     2,000,000,000       2,000,000,000       1,660,853,679  
$2,000,000,000
   3.75%     99.783 %   June 30, 2004   December 14, 2007     2,000,000,000       2,000,000,000       1,660,853,679  
$4,000,000,000
   4.50%     99.411 %   January 21, 2005   January 21, 2015     4,000,000,000       4,000,000,000       3,321,707,358  
$3,000,000,000
   4.00%     99.932 %   May 9, 2005   June 16, 2008     3,000,000,000       3,000,000,000       2,491,280,518  
 
                                                    
Euro(2)
                                                    
 
                                                    
1,000,000,000
   3 mth libor - 0.06%     100.000 %   October 30, 1990   October 30, 2005     1,000,000,000       1,000,000,000       1,000,000,000  
2,500,000,000
   9.250%     98.160 %   March 7, 1991   March 7, 2011     2,500,000,000       2,500,000,000       2,500,000,000  
 
1,022,583,762
   3 mth libor + 0.0625%     99.887 %   December 11, 1995   December 20, 2002/10     1,022,583,762       1,022,583,762       1,022,583,762  
 
567,225,000
   6.250%     100.790 %   May 29, 1997   May 29, 2012     567,225,000       567,225,000       567,225,000  
762,245,000
   5.875%     101.594 %   July 2, 1997   July 2, 2007     762,245,000       762,245,000       762,245,000  
1,533,870,000
   5.750%     101.663 %   July 10, 1997   July 10, 2007     1,533,870,000       1,533,870,000       1,533,870,000  
60,000,000
   FRN/FX     99.610 %   October 8, 1998   October 8, 2018     60,000,000       60,000,000       60,000,000  

6

 

                                                     
        Initial Public                     Original Principal     Principal Amount        
Title   Interest Rate(%)   Offering Price     Date of Issue     Maturity Date     Amount     Outstanding     Equivalent in euro  
300,000,000
   Index linked     101.425 %   October 15, 1998   October 15, 2018     300,000,000       300,000,000       300,000,000  
1,000,000,000
   4.000%     99.342 %   October 26, 1998   October 26, 2005     1,000,000,000       1,000,000,000       1,000,000,000  
1,000,000,000
   CMS     99.950 %   May 6, 1999   May 6, 2019     1,000,000,000       1,000,000,000       1,000,000,000  
1,000,000,000
   CMS     101.600 %   June 28, 1999   June 28, 2029     1,000,000,000       905,000,000       905,000,000  
1,000,000,000
   CMS     100.750 %   August 30, 1999   August 30, 2019     1,000,000,000       1,000,000,000       1,000,000,000  
2,000,000,000
   4.750%     99.706 %   January 23, 2001   January 23, 2006     2,000,000,000       2,000,000,000       2,000,000,000  
150,000,000
   Zero Coupon     100.000 %   February 20, 2001   February 20, 2031     150,000,000       150,000,000       150,000,000  
3,000,000,000
   5.750%     100.040 %   July 25, 2001   July 25, 2016     3,000,000,000       3,000,000,000       3,000,000,000  
400,000,000
   3 mth libor - 0.06%     100.000 %   January 22, 2002   January 22, 2012     400,000,000       400,000,000       400,000,000  
1,000,000,000
   3 mth eubor - 0.06%     100.000 %   July 24, 2003   January 24, 2007     1,000,000,000       1,000,000,000       1,000,000,000  
150,000,000
   84.5% cms 10Y     100.000 %   April 26, 2004   April 26, 2019     150,000,000       150,000,000       150,000,000  
300,000,000
   12 mth eubor + 0.10%     100.000 %   May 31, 2005   May 31, 2035     300,000,000       300,000,000       300,000,000  
720,000,000
   3.546% until 2009     100.000 %   June 2, 2005   June 2, 2029     720,000,000       720,000,000       720,000,000  
395,000,000
   3.523% until 2010     100.000 %   June 2, 2005   June 2, 2030     395,000,000       395,000,000       395,000,000  
200,000,000
   85% * 10y Eurswap     100.000 %   June 8, 2005   June 8, 2020     200,000,000       200,000,000       200,000,000  
2,500,000,000
   85% * 10y swap rate     100.000 %   June 15, 2005   June 15, 2020     2,500,000,000       2,500,000,000       2,500,000,000  
300,000,000
   85.5% * 10y swap rate     100.000 %   June 28, 2005   June 28, 2021     300,000,000       300,000,000       300,000,000  
 
                                                    
Swiss Francs(3)
                                                    
 
                                                    
ChF 300,000,000
   Zero Coupon     30.873 %   December 11, 1985   December 11, 2005     300,000,000       300,000,000       192,789,666  
ChF 1,000,000,000
   3.500%     102.900 %   September 25, 1998   September 25, 2008     1,000,000,000       1,000,000,000       642,632,222  
ChF 1,500,000,000
   3.125%     99.825 %   Jan 15,1999   July 15, 2010     1,500,000,000       1,500,000,000       963,948,332  
ChF 1,000,000,000
   3.625%     100.820 %   January 10, 2001   January 10, 2006     1,000,000,000       1,000,000,000       642,632,222  
ChF 1,000,000,000
   3.000%     100.180 %   February 11, 2002   August 11, 2006     1,000,000,000       1,000,000,000       642,632,222  
ChF 1,000,000,000
   2.000%     100.470 %   January 30, 2003   April 30, 2009     1,000,000,000       1,000,000,000       642,632,222  
ChF 1,000,000,000
   2.000%     99.775 %   August 11, 2003   February 9, 2007     1,000,000,000       1,000,000,000       642,632,222  
ChF 1,000,000,000
   1.750%     100.09 %   February 3, 2004   March 3, 2008     1,000,000,000       1,000,000,000       642,632,222  
ChF 1,000,000,000
   2.750%     100.625 %   July 1, 2004   July 1, 2011     1,000,000,000       1,000,000,000       642,632,222  
ChF 2,000,000,000
   2.500%     100.090 %   February 2, 2005   March 2, 2015     2,000,000,000       2,000,000,000       1,285,264,443  
 
                                                    
Pounds Sterling(4)
                                                    
 
                                                    
£400,000,000
   10.500%     100.875 %   April 28, 1989   April 30, 2014     400,000,000       400,000,000       586,553,266  
£1,500,000,000
   6.000%     98.565 %   August 4, 1998   August 4, 2028     1,500,000,000       1,500,000,000       2,199,574,749  
£600,000,000
   3 mth libor - 0.15%     100.000 %   March 5, 2003   March 5, 2008     600,000,000       600,000,000       879,829,900  
£250,000,000
   5.25%     99.476 %   July 29, 2004   December 7, 2034     250,000,000       250,000,000       366,595,791  
 
                                                    
Norwegian Kroners(5)
                                                    
 
                                                    
NOK 2,000,000,000
   6.150%     100.000 %   September 25, 2002   September 25, 2012     2,000,000,000       2,000,000,000       253,903,770  
NOK 2,000,000,000
   4.340%     100.000 %   June 23, 2003   June 23, 2015     2,000,000,000       2,000,000,000       253,903,770  
 
                                                    
Japanese Yen(6)
                                                    
 
                                                    
¥125,000,000,000
   5.500%     100.000 %   December 15, 1994   December 15, 2014     125,000,000,000       125,000,000,000       917,431,193  
¥125,000,000,000
   4.500%     100.000 %   June 8, 1995   June 8, 2015     125,000,000,000       125,000,000,000       917,431,193  
¥150,000,000,000
   3.800%     100.000 %   April 4, 1996   March 27, 2008     150,000,000,000       150,000,000,000       1,100,917,431  
¥100,000,000,000
   3.700%     100.000 %   November 14, 1996   November 14, 2016     100,000,000,000       100,000,000,000       733,944,954  
¥100,000,000,000
   3.45%e     99.800 %   March 24, 1997   March 24, 2017     100,000,000,000       100,000,000,000       733,944,954  
¥100,000,000,000
   1.800%     99.882 %   February 23, 2000   February 23, 2010     100,000,000,000       100,000,000,000       733,944,954  
¥100,000,000,000
   0.375%     99.936 %   October 10, 2001   October 10, 2006     100,000,000,000       100,000,000,000       733,944,954  
¥100,000,000,000
   0.375%     99.800 %   April 2, 2002   October 10, 2006     100,000,000,000       100,000,000,000       733,944,954  
¥100,000,000,000
   0.650%     99.995 %   April 14, 2004   March 20, 2009     100,000,000,000       100,000,000,000       733,944,954  

7

 

                                                     
        Initial Public                     Original Principal     Principal Amount        
Title   Interest Rate(%)   Offering Price     Date of Issue     Maturity Date     Amount     Outstanding     Equivalent in euro  
Australian Dollar(7)
                                                    
 
                                                    
A$1,000,000,000
   5.880%     99.803 %   February 27, 2004   August 14, 2008     1,000,000,000       1,000,000,000       631,791,761  
 
                                      
TOTAL OUTSTANDING
                                                 84,984,936,534 (8)
 
                                      
 
(1)   U.S. dollar amounts have been converted into euro at $1.2042/€1.00, the exchange rate prevailing at September 30, 2005.
 
(2)   External debt denominated in currencies of countries that have adopted the euro have been converted into euro at the fixed rate at which those currencies where converted into euro upon their issuing countries becoming members of the European Monetary Union.
 
(3)   Swiss Franc amounts have been converted into euro at ChF1.5561/€1.00, the exchange rate prevailing at September 30, 2005.
 
(4)   Pounds Sterling amounts have been converted into euro at £0.68195/€1.00, the exchange rate prevailing at September 30, 2005.
 
(5)   Norwegian Kroner amounts have been converted into euro at NOK7.877/€1.00, the exchange rate prevailing at September 30, 2005.
 
(6)   Japanese Yen amounts have been converted into euro at ¥136.25/€1.00, the exchange rate prevailing at September 30, 2005.
 
(7)   Australian Dollar amounts have been converted into euro at A$1.5828/€1.00, the exchange rate prevailing at September 30, 2005.
 
(8)   The amount of external bonds shown above does not take into account (i) approximately US$325 million outstanding under Italy’s Commercial Paper Program and (ii) the effect of currency swaps that Italy often enters into in the ordinary course of the management of its debt. The following table summarizes the effects on the Treasury’s external bonds after giving effect to currency swaps.
                 
    As of September 30, 2005  
Currency   Before Swap     After Swap  
US Dollars
     50.32 %     6.48 %
Euro
     26.79 %     72.29 %
Swiss Francs
     8.17 %     8.79 %
Pounds Sterling
     4.75 %     3.38 %
Norwegian Kroner
     0.60 %     —  
Japanese Yen
     8.64 %     9.06 %
Australian Dollar
     0.74 %     —  
             
Total External Bonds (in millions of Euro)
   €84,985     €89,765  
Source:   Ministry of Economy and Finance
Other Developments
     In November 2003, the Regional Tax Court of Cremona (Commissione Tributaria Provinciale di Cremona) instituted a proceeding before the European Court of Justice (ECJ), referred to as the IRAP case, requesting that the ECJ issue a preliminary ruling in the case of Banca Popolare di Cremona Soc. Coop.a.r.l. v. Agenzia Entrate Ufficio di Cremona on the question of whether Italy’s regional tax on production (Imposta Regionale sulle Attivitá Produttive or IRAP) is incompatible with the EU’s prohibition of national turnover taxes other than VAT. IRAP was introduced in 1998 in connection with Italy’s regional devolution program. IRAP receipts are reflected in indirect taxes in the “General Government and Revenues” table set forth above and totaled €31.3 billion, €32.8 billion and €32.3 billion in 2002, 2003 and 2004, respectively. They are collected by the Italian government on behalf of Italy’s regions and they represent one of the principal sources of funding of regional expenditures. In March 2005, the EU advocate general opined before the ECJ that IRAP possessed the essential features of VAT and therefore should be ruled to be incompatible with VAT. Italy’s position is that IRAP does not violate the EU’s prohibition on national turnover taxes other than VAT. The ECJ has not yet delivered its preliminary ruling on the IRAP case. If the ECJ ruled that IRAP is incompatible with EU law, the Italian Government estimates that the retroactive entitlement to reimbursement would be in excess of €120 billion. Accordingly, in order to avoid material adverse effects on Italy’s regional finances, the EU Advocate General requested that the ECJ limit the effects of its ruling from a temporal standpoint by reference to a fixed date.
     In September 2005, securities litigation was commenced against Italy and a number of investment banking firms in the U.S. District Court for the Southern District of New York. This litigation, which seeks class action status, alleges that the registration statements filed by Italy with the U.S. Securities and Exchange Commission and used by Italy in connection with its issuance of $25 billion of debt securities between September 2002 and April 2005 contained certain misrepresentations and omissions relating to the size of Italy’s historical budget deficits and the amount of Italy’s debt as a percentage of gross national product. In this action, the plaintiff seeks an unspecified amount of compensatory damages, plus costs and fees. Italy believes that it has valid defenses to these claims and intends to defend this action vigorously. Because litigation is subject to many uncertainties, it is not feasible for Italy to predict the outcome of this lawsuit. However, Italy does not expect that this matter will have a material effect on its financial position.

8