Italy to speed up private sector debt repayment

Rome: The Italian government on Saturday gave its go-ahead for a bill to pay back €40 billion (Dh189.9 billion) in debts owed to the private sector over the next 12 months in a bid to stimulate growth.

“The cabinet meeting today approved an urgent decree to pay back the debts of the public sector to the private sector,” Prime Minister Mario Monti told a press conference after the talks.

The bill had been eagerly awaited by Italy’s business community under pressure from the longest post-war recession in the Eurozone’s third largest economy and a lack of available credit from banks.

The bill sped up the timetable for the payments to €40 billion over one year instead of two, the period proposed previously.

Finance Minister Vittorio Grilli said that the payments could begin as early as Monday and that the oldest debts would be repaid first.

The parliament still must give final approval.

Monti said total debts were €80 billion at the end of 2011 and that banks estimated they had since risen to more than €100 billion.

“This means costs for businesses and for the whole country. It is an unacceptable situation that has taken on ever greater dimensions,” Monti said.

The interim prime minister, who is in charge awaiting the formation of a new government following elections in February, said the payments would not breach the deficit threshold of 3 per cent of GDP mandated by the European Union (EU).

The repayment increases Italy’s forecast deficit to 2.9 per cent from 2.4 per cent earlier, Grilli said, adding that this had been given the go-ahead by the EU since it did not constitute new spending.

Draft bill

“This was very needed,” Paolo Buzzetti, head of the National Association of Construction Companies, told news channel Sky TG 24.

“We can definitely go to Europe and ask to be able to go over that three-per cent threshold. Other European countries have done it,” he said.

Monti stressed that the approval of the draft bill did not mean that his government had plans to stay in charge for much longer, adding that Saturday’s cabinet meeting “could be the last one”.

A general election yielded no clear winner, and the main political forces — Pier Luigi Bersani’s centre-left, Silvio Berlusconi’s centre-right and a new protest party — have failed to find an agreement to form a new government.

The economy is forecast to shrink by 1.3 per cent this year, although government officials have said the result could be even worse with a contraction in gross domestic product of up to 1.7 per cent.

The economy shrank by 2.4 per cent in 2012.

The unemployment rate is close to record highs, and many Italians have been put under unprecedented pressure by successive rounds of austerity measures and tax hikes, sparking an increase in suicides by small business owners and pensioners.