New economic measure allows property to be sold in bonds

Italy's economy ministry will be able to sell state real estate assets in exchange for government bonds to clarify and expedite the euro zone's third-largest economy out of a debt crisis.

According to Dowjones newswires reports, the government’s growth plan which is due to be approved as part of the 2012 budget bill is set to offer some respite to Italian banks, whose large holdings of Italian government bonds has caused them to suffer from regulatory and market concerns. The maxi-amendment presented by Economy Minister Giulio Tremonti to the Senate Budget Committee stated that the ministry will be authorized to sell public property to special-purpose vehicles or other buyers.

A senior government official said that the amendment allows the ministry "to accept government bonds as compensation for the sales" which will create an opportunity for Italian banks.

As a key regulatory measure for solvency, Italian banks hold Buoni Del Tesoro Poliennali, or BTPs, equivalent to more than 150% of their core Tier 1 capital. New European rules need banks to cut rate the market value of their BTPs and at a time when liquidity in Italian financial markets is scarce this makes them to raise more than EUR14 billion in fresh capitals. In exchange for property, Banks could offer some of their BTPs back to the government which is likely to be leased back by the government. Banks could securitize those properties into covered bonds eligible as collateral at the European Central Bank, backed by the cash flow from the lease contracts. In the past efforts to sell some real-estate assets have struggled for lack of bidders, however the new measure also solves a problem for the Italian Treasury.

Meanwhile, President Giorgio Napolitano's called for "immediate efforts" to put Italy's public finances in a safer condition. Yields on Italian government bond yields surged to record highs with the 10-year yield now at 7.35% and even two-year bonds now yielding 6.5 percentage points more than similar German paper. There is also increasing calls for the government to carry out a massive funding drive through swift privatizations or a one-time wealth tax, to tap Italy's substantial household wealth to reduce the country's huge debt pile and shore up its economy.