Unpaid bills threaten fiscal dilemma for Italy

06 Apr, 2012

The Italian state has racked up bills with commercial creditors equivalent to 4 percent of economic output that it is under increasing pressure to pay, but it may turn to alternative solutions to keep its debt-reduction programme on track. Italian public authorities have one of Europe's worst track records for paying creditors, and in all they owe companies 60 billion euros - money the government can ill-afford to part with as it struggles to cut the budget deficit while the economy contracts.
Local and foreign businesses say the backlog is hampering economic activity, and an emotive domestic debate has been sparked by the suicide of a number of smaller-scale businessmen squeezed between unpaid bills and scarcer banking credit. "Late payments are a huge problem and the public administration is giving a bad example," said Sandro De Poli, chairman of the Italian unit of giant US conglomerate GE.
"We have diligent Italian regions that pay in 60 days and others that take 900." Industry Minister Corrado Passera, the former head of Italian bank Intesa Sanpaolo and a key minister in Mario Monti's government, has promised to tackle the issue. An initial proposal by him to use Treasury bills as a form of payment ran into difficulties because the issuance would increase Italy's 1.9 trillion euro debt pile - and companies could not use the bills to offset tax.
That option was adopted for a relatively insignificant 2 billion euros of unpaid invoices. The Italian press has speculated that instead, the credits could be sold at a discount to banks that would pay the firms and eventually claim back what is due from the state.

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