April 6 (Bloomberg) -- Italian Prime Minister Mario Monti’s Cabinet approved the payment of 40 billion euros ($52 billion) owed by the government to private companies in an effort to spur a recovery in the recession-hit country.
“The payment will happen within 12 months,” Economic Development Minister Corrado Passera said at a press conference broadcast by SkyTG24 television today. The Cabinet also approved measures to contain the deficit to 2.9 percent of gross domestic product this year, according to an e-mailed statement.
Monti’s caretaker government is under pressure to bring relief to the corporate sector while keeping the deficit within 3 percent of GDP. Money owed to suppliers of central and local administrations totaled 91 billion euros in 2011, Bank of Italy’s chief economist Daniele Franco told the Rome-based Parliament on March 28. The arrears may have topped 100 billion euros in 2012, banking lobby ABI said in an April 4 statement.
Finance Minister Vittorio Grilli said at the press conference that 7 million euros out of 20 billion euros to be paid in 2013 will weigh on this year’s deficit, while the payments will gradually boost the country’s debt by 40 billion euros. The payment of debts taken over by banks from suppliers will be made through government bonds, the statement said. Passera estimated these debts at about 15 billion euros to 20 billion euros.
Italy, which has Europe’s second-biggest debt burden, entered the recession in the second half of 2011. The Treasury expects the euro region’s third-largest economy to shrink 1.3 percent this year and to expand by the same amount in 2014, Grilli said last month.
“In many countries the most powerful measure is to pay back the arrears,” European Central Bank President Mario Draghi told reporters in Frankfurt on April 4, without citing Italy.
EU leaders agreed at a summit last month on the need for greater flexibility in the reduction of public deficits at a time when most member states are mired in recession.
The Brussels-based Commission “looks forward to a decree law by the Italian government in order to address the urgent issue of unbearable commercial debt,” EU Economic and Monetary Affairs Commissioner Olli Rehn said April 4.
“The accelerated repayment of commercial debt to Italian enterprises would not be a silver bullet, but would greatly help to alleviate their severe situation.”
Rehn discussed the issue in an April 3 telephone conversation with Monti, according to EU spokesman Olivier Bailly. Monti committed to keep the deficit below the EU ceiling, Bailly said.
Fitch Ratings cut Italy’s credit rating last month by one level as an inconclusive election in February produced political paralysis that threatens the country’s ability to deal with the fourth recession since 2001. Fitch also said it expects Italy’s GDP to decline 1.8 percent this year as public debt peaks at almost 130 percent, up from 127 percent in 2012.
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