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The agreement gives Italy the green light to raise its debt levels so that the public administration can pay tens of billions of euros owed in arrears to the private sector without incurring penalties for breaching EU fiscal constraints.
Mario Monti, caretaker prime minister, welcomed the move, which could provide significant relief to a private sector reeling from recession and cut backs in bank lending. “We will work with the Commission to identify technical solutions to begin to settle the payments as soon as possible”, he said.
The Commission said the commercial debt overhang was “sizeable” but gave no figure. “The plan should include adequate safeguards against moral hazard by the administrations responsible for the debt overhang”, it said. “A liquidation of commercial debt would be reflected in a corresponding increase in public debt.”
Italy’s public debt has already hit a record of more than €2 trillion, or some 126 per cent of GDP – the second highest ratio in the eurozone after Greece. Despite the recession, Italy managed to keep its budget deficit under 3 per cent last year, giving it more flexibility under EU rules than other countries such as France that are struggling to hit the target figure.
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