Italy under pressure to act on payment arrears

Tue Feb 4, 2014 7:33am EST

Related Topics

* Brussels demands action to meet payment targets

* Government aims to pay off 47 billion euros arrears

* Business groups complain little progress made

By Giuseppe Fonte

ROME, Feb 4 (Reuters) - Italy faces growing pressure to speed up payment by the state of bills to private sector suppliers with companies complaining of unfulfilled promises to cut delays and European Union authorities demanding action.

Cutting massive arrears of more than 40 billion euros ($54.07 billion) in unpaid bills to private suppliers was one of the government's main pledges last year.

However progress has been slow, with building association ANCE estimating that the average time taken to settle bills from the public sector running at 200 days or almost 7 months.

"About 25 percent of our revenues in Italy come from the public administration and the issue of unpaid bills remains a problem," said Franco Mascetti, chief executive of Amplifon , the world's biggest hearing devices company.

"The state has started to pay the older bills, but it's still delaying payments on the new ones. Sometimes delays amount to 365 days, even 400," he said.

A decree to settle the arrears was one of the final major acts of the technocrat government of former Prime Minister Mario Monti last year and Rome had to borrow more to pay creditors, despite severe pressure on its strained public finances.

The European Union has demanded action, writing to Prime Minister Enrico Letta's government this week to ask why Italy has failed to comply with EU rules obliging the settlement of bills within between 30 and 60 days.

If it receives no satisfactory answer, it could launch infraction procedures that could see Rome fined for failing to comply with EU rules.

With companies starved of cash during the longest recession in Italy's postwar history, freeing up the billions of euros owed to suppliers by public authorities was seen as one of the main ways in which the government could help the economy.

WORST PAYER IN EUROPE

But it has proved more difficult than expected to get the payments through the cumbersome administration.

"Getting from a situation of chronic late payments to 30 days isn't easy, especially in a complicated public finance situation like ours," Economy Ministry Undersecretary Pierpaolo Baretta told RAI state radio on Tuesday.

"I think we'll manage to meet the rules completely in a reasonably short time, but that will depend on collaboration and not an excessive degree of conflict between the government, the public administration and other parties," he said.

"Italy is the worst payer in the European Union," Deputy European Commission President Antonio Tajani said in Rome this week. "The situation hasn't improved, it's worsened."

The government aims to pay off 47.5 billion euros ($64.21 billion) to private suppliers by the first half of 2014 but has already slipped behind target. According to government figures, the public administration had paid off 21.6 billion euros out of a scheduled 27.2 billion by Dec. 31 last year.

Interest on late payments amounting to 8.25 percent, could add 3-4 billion euros to the bill, according to estimates by Tajani last week.

Business organizations estimate the total amount owed to private suppliers at more than 100 billion euros but government figures do not exist as the economy ministry has never completed the survey promised in legislation passed last year.

Italian authorities have said that they will wait until they have received the details of the Commission's objections before deciding what action to take.

"It's clear that we have to do everything to avoid a fine from Europe and we'll do it. But paying off 40 billion euros in arrears and paying new bills on time, with the risk of a fine from Europe hanging over us, will be a very complex operation," Baretta said.

($1 = 0.7397 euros) (Additional reporting by Lisa Jucca; writing by James Mackenzie)

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