EU to Increase Firewall as Italian Derivative Bet Unravels

The European Union is planning to increase its bailout fund from close to 500 billion to 700 billion. The main objective is to calm the markets after the Greek bailout as contagion fears are spreading to Italy, Portugal and Spain. The finance minister and central banker meeting on March 30th will focus on this topic as at least one country, Hungary has already been excluded from receiving funds until they are true on their commitments to reduce debt.

Italy paid Morgan Stanley 3.4 billion USD to unwind interest derivative contracts from the 1990s. Earlier in the year the Investment firm had declared that it had reduced its exposure to Italian risk, but it is now known that Italy was not planning to renew the contract as the positions were negative. Italy is the 2nd most indebted country in the Euro zone. This payment is close to half of the new sales tax increase introduced this year.

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