Financial income and Expenses

34. Financial income

Financial income includes the following:

(in thousands of Euros)

2007

2006

Interest

89,870

76,460

Other financial income

12,915

19,389

Gains on exchange

171,800

145,576

Gains on disposal of available-for-sale financial assets

9,922

218,563

Gains on disposal of investments in subsidiaries

55,901

416,400

340,408

876,388

Gains on exchange include the adjustment to the year-end exchange rates for open positions at the end of the year expressed in currencies other than the functional currency and the gains realized on closed positions.

Gains on the disposal of available-for-sale financial assets mainly refer to the sale of Servizio Titoli S.p.A. ordinary shares (Euros 4,022 thousand), Intek S.p.A. ordinary shares (Euros 1,463 thousand), Telecom Italia S.p.A. shares (Euros 2,100 thousand) and KME Group S.p.A. shares for Euros 877 thousand.

In 2006, this caption mainly included Euros 215,200 thousand for the sale of the investment in Capitalia S.p.A. (nonrecurring event).

The gains on the disposal of investments in subsidiaries, equal to Euros 55,901 thousand, refer to the sale of a 49 percent stake in Pirelli RE Integrated Facility Management B.V. to Intesa Sanpaolo, finalized on June 27, 2007.

In 2006, the amount of Euros 416,400 thousand referred to the sale of the 38.9 percent interest in the capital of Pirelli Tyre S.p.A..

The above gains qualify as nonrecurring events.

35. Financial expenses

Financial expenses include the following:

(in thousands of Euros)

2007

2006

Bank interest

200,567

151,288

Other financial expenses

31,189

42,474

Losses on exchange

150,270

129,700

Losses on disposal of available-for-sale financial assets

-

5,732

Impairment loss on available-for-sale financial assets

34,137

13,378

416,163

342,572

Losses on exchange include the adjustment to the period-end exchange rates of open items at the end of the year expressed in currencies other than the functional currency and losses realized on closed positions.

Impairment losses on available-for-sale financial assets have been recognized following the prolonged and significant reduction in the fair value of shares compared to their cost, and refer mainly to impairment losses in respect of Telecom Italia S.p.A. (Euros 21,929 thousand), Avanex (Euros 7,670 thousand) and Equinox (Euros 3,362 thousand).

Last year this item mainly included the impairment losses on investments in G.I.M. – Generale Industrie Metallurgiche S.p.A. (Euros 1,244 thousand), Consortium S.r.l. (Euros 4,532 thousand), Euroqube S.p.A. (Euros 2,181 thousand), Alloptic Inc. (Euros 1,000 thousand), Stip Tunisi (Euros 1,206 thousand) and KG Deutsche Gasrubwerke Gmbh (Euros 1,710 thousand).