In a sharp break with its paternalistic past, Italys new government has ordered a major state company to go into de facto bankruptcy. Prime Minister Giuliano Amato has announced the liquidation of EFIM, a defense and heavy-industry combine burdened with $7.5 billion in debt.

But the surprise move could make borrowing much more costly for Italy in the future. The governments unilateral rescheduling of EFIM's debt has outraged foreign banks. Standard & Poors Corp., which does not rate EFIM, says it may soon downgrade the ratings of other Italian public sector companies as well as banks that borrow internationally.

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