Italy to pay state debt to companies

OLD PROBLEM::Companies have long complained about the massive backlog of bills unpaid by the government, but are now having difficulties raising credit from banks

Reuters, ROME

Mon, Apr 08, 2013 - Page 15

Italy’s caretaker government said on Saturday it would pay 40 billion euros (US$51.6 billion) that the state owes to private companies over the next 12 months, while vowing to stick within the EU’s deficit limit.

The Cabinet approved a decree intended to provide funds to cash-strapped firms and help tackle a deep recession in the eurozone’s third-largest economy.

However, some industry groups said it would be difficult for businesses to claim their money despite the measures.

The massive backlog of bills unpaid by Italy’s public administration has long been a complaint by companies, which are having increasing difficulty raising credit from banks that are facing increasingly tight credit conditions themselves.

Italian Prime Minister Mario Monti said on Saturday that delayed payment of bills was “an unacceptable situation that has been accepted for a long time.”

Monti, who continues to lead a caretaker government after an inconclusive election in February, has been in talks with the European Commission, which is concerned about the impact the decree will have on Italy’s deficit and its massive public debt.

The measures were originally due to be approved on Wednesday last week, but were delayed because of doubts over how they would be funded.

Monti said on Saturday that the government was committed to remaining within the EU’s fiscal deficit ceiling of 3 percent of GDP.

“Economic policy is not changing course, and we don’t believe that to revive the economy you have to create more public debt,” he told a news conference.

Last month the government eased its deficit target for this year to 2.9 percent of GDP from a previous target of 1.8 percent, partly to allow the payments to private firms.

Local authorities lacking their own resources to pay bills will receive money from the central state and will be asked to set out a comprehensive plan to reimburse it within 30 years.

“We have to follow a path between the two requirements: to help our economy to recover ... and to maintain budget discipline,” Italian Minister of the Economy Vittorio Grilli said. “It’s a narrow path, but a path that is absolutely viable.”

Grilli said the government planned to examine its fiscal performance again in September and the economy ministry would be able to adopt corrective measures if the deficit looked likely to breach the “precautionary” limit of 2.9 percent.

He said payments to companies could begin as soon as the decree is published officially, expected as early as today.

Grilli is due to meet European Economic Affairs Commissioner Olli Rehn in Brussels today to explain the new measures, a government source said.

Monti said he was hopeful Rome would be able next month to exit the European Commission’s excessive deficit procedure, which imposes corrective measures on countries that exceed the deficit threshold.

Italy has been in political limbo for weeks, with no party able to form a government while economic problems pile up.