Sovereign derivatives seem to have a knack for attracting controversy. Now it’s the turn of Italy, the country that taught Greece the art of window dressing transactions more than two decades ago.

Italy’s supreme court just published its ruling on a case involving Morgan Stanley, two former Italian treasury officials and two ex-finance ministers.

For watchers of sovereign derivatives, it’s worth taking a look, because much that has been written about this case is wrong.

The background is that Italy is one of the world’s largest borrowers with €2.3 trillion of sovereign debt outstanding. It also has one of the largest derivatives portfolios, at just below €100 billion notional. Counterparties include the world’s biggest banks, such as JP Morgan, Citigroup and Deutsche Bank. But no longer Morgan Stanley.

Early in 2012, Morgan Stanley triggered a contractual clause and abruptly terminated a portfolio of derivatives with Italy, forcing its treasury to hand over €3.4 billion of settlement costs. Together with Elisa Martinuzzi, I helped break this story while I was at Bloomberg.