Francesco Merloni, the Public Works Minister, said the government would pay interest rates in line with market rates on Efim's debt. Last month, the government refused to honour the full amount of Efim's debts of L8,000bn (pounds 3.8bn).
A senior banker involved in the row said: 'They have caved in. What the banks have wanted all along is a hundred cents in the dollar.'
The Italian government froze repayments to the banks without warning and imposed a substantially lower interest rate, in effect reducing the value of outstanding loans by 20 per cent.
Some banks likened it to a Latin American-style forced rescheduling. As a state-owned body, bank lenders had believed there was an implicit government guarantee on Efim's debts.
The crisis damaged the Italian government's relationship with international banks at the worst possible moment. The government's credit rating fell as some banks threatened to trigger cross-default clauses on other Italian loans, demanding immediate repayment that would have escalated the country's financial crisis. Yesterday's move was seen by bankers in London as a direct result of the enormous pressures Italy has come under in international financial markets.
'It was something they had to sort out in a manner acceptable to the international market,' one banker said.
Mr Merloni said the interest rate to be paid on the debt would be in line with the yields on sovereign debts - loans issued by governments - which currently stand at 11-12 per cent.
The Italian Treasury had said that L4,000bn of bonds would be issued to cover Efim's debts, paying rates of a little over 4 per cent in ecu and 7 per cent in lire. Committees of creditor banks had made clear to the Italian government that they would be satisfied by a restoration of market interest rates. However, scheduled meetings between officials and the banks had still not taken place by yesterday's announcement.Reuse content