The Use of 'Derivatives' by Italian Local Authorities in Public Finance Management. Still an Issue

48 Pages Posted: 9 Feb 2014

See all articles by Francesco Capriglione

Francesco Capriglione

Università degli Studi Guglielmo Marconi

Date Written: February 8, 2014

Abstract

The 2008 financial crisis and its aftermath have prompted academics and policy makers to question issues related to the public finance management and, more specifically, to the usage of financial derivatives by local authorities.

This paper can be placed within the debate on whether derivatives may or not contribute to a healthy allocation of public resources. It meets the need to investigate the extent to which those derivatives transactions entered into by the Italian local authorities before being prohibited by the regulator in 2008, have been executed in conformity with their related disciplining provisions; a still actual issue if one consider the wide number of legal disputes in subiecta materia.

In Italy, the need to prevent local administrations from postponing forward in time the financial burden of debt has driven the regulator to establish strict guidelines that could not be disregarded by intermediaries involved in the aforementioned transactions. Firstly, the scope of derivative transactions has been limited only to debt restructuring and, secondly, it was required to avoid both complex contractual forms, with the contextual request of a plain vanilla structure, and payment flows present values with an increasing profile. Thus, it is deemed necessary to analyse the remedies to challenge derivatives non-compliant with the ad hoc regulation: from the declaration of voidness (under Article 1418 of the Italian Civil Code) to the local authorities’ self-repealing authority (potere di autotutela) and to the possibility to settle the dispute. This work reaches the conclusion that the interpretative approach adopted by the Italian Corte dei Conti leaves no doubt about how to use derivatives in the public finance management.

Suggested Citation

Capriglione, Francesco, The Use of 'Derivatives' by Italian Local Authorities in Public Finance Management. Still an Issue (February 8, 2014). Available at SSRN: https://ssrn.com/abstract=2392709 or http://dx.doi.org/10.2139/ssrn.2392709

Francesco Capriglione (Contact Author)

Università degli Studi Guglielmo Marconi ( email )

Via Plinio 44
Rome, RM 00100
Italy

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