Ah, Italy. When it rains, it pours. The Italian government recently paid a few billion euros to Morgan Stanley to unwind some interest rate swap positions it took in an ill-fated attempt to hedge its borrowing costs.
The excellent SoberLook has the full story, including the kicker that Italy still has over 150 billion Euros in open positions that are undoubtably "underwater" for them.
As SoberLook pointed out in a much earlier post about Harvard's swap woes, there are cheaper ways to buy insurance against increased funding costs.