Italy to pay 40 bln euros in public debt

Italy to pay 40 bln euros in public debt

ROME - Agence France-Presse
Italy to pay 40 bln euros in public debt

The Italian caretaker, Prime Minister Mario Monti, standing at center, speaks at the Italian Parliament in Rome in this file photo. AP photo

The Italian government on April 6 gave its go-ahead for a bill to pay back 40 billion euros in debts owed to the private sector in a bid to boost businesses and stimulate growth as the country endures its longest post-war recession.

“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 the business community in the eurozone’s third largest economy, where many companies are suffering from the slump in demand and a lack of credit from banks.

The decree recognises “the extreme importance, necessity and urgency in paying public sector debts to businesses as a precondition for an economic and labour market recovery,” said Antonio Patuelli, head of the main banking lobby ABI.

The bill’s timetable is for 40 billion euros ($52 billion) in payments over one year instead of over two years, the period proposed previously - another expected boon for businesses.

On average 215,000 companies are affected and the average debt is 422,000 euros. Some two-thirds of the debts are owed to medical companies supplying the public health sector. The payments also include the building of roads, repairs of schools etc.

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

The parliament still must give final approval.

Deficit threshold

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

“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 3.0 percent of GDP mandated by the European Union.

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