The Italian treasury securitization activity may have initially called attention to the possible problem brewing at Eurostat headquarters (see ASR 3/25), but last week word was that the regulator's task force is gathering its view on a ruling that will affect all government-related securitization.

Details of the task force conclusion on whether or not the recent government-related transactions would be treated as off-balance-sheet should be ready by the beginning of July, said one source close to the situation.

One country that the task force will definitely consider is Greece, who is on par with the extensive program that the Italians came to market with last year. Between the two governments' EURO9.8 billion-plus that was issued, accounting for over 9% of total European securitization volume in 2001,Greece, like Italy, plans to access the market for more this year.

In fact, because it is unclear as to what the Italian government did and did not use to deduct from the deficit, currently the only two transactions that will be investigated are the Lotto and real-estate deals that were completed last year and deducted from the deficit. The Hellenic government, however, has deducted all of its securitizations from the deficit.

According to Dresdner Kleinwort Wasserstein, the task force may help bring transparency to this end of the market although the group has yet to disclose how the discussions are currently unfolding.

However, in theory, because the existing transactions have been executed differently on a country-by-country basis, it is expected that the task force will review the deals on a case-by-case basis. Dresdner reported that to date, Italy has only securitized non-core assets and has not given explicit guarantees whereas Greece provides an undertaking from the government on all the deals.

It's unlikely that any negative outcome would adversely affect the deals or the Greek government rating, said one source. It could, however, affect the maturity profile of these deals and any negative action might also affect trading levels. "Regarding existing deals, should the transaction not qualify under the new rules, there would be the risk/chance of early redemption if deals provide for regulatory call options," explained Dresdner.

Going forward, it's certain that any negative action would make the securitization market a less appealing option for governments who have primarily used the market to relieve deficit levels and stay in line with Maastricht criteria. There is no doubt that countries will be following the outcome of the ruling as many have considered following Italy, Greece, Austria, Finland and Ireland in attempts to rein in deficit levels.

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