UPDATE 1-Italy mulls law on commercial arrears, no new funds seen-sources

Wed Mar 12, 2014 7:31am EDT

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ROME, March 12 (Reuters) - Italian Prime Minister Matteo Renzi is not setting aside any more money to settle billions of euros in unpaid bills owed to commercial suppliers by the public sector in measures the cabinet is examining on Wednesday, a government source said.

With companies starved of cash during the longest recession in Italy's postwar history, freeing up billions of euros owed to suppliers by public bodies has been seen as a way for the government to help the economy.

The source's comments suggested the government may not have enough money to pay for all of its debts, however.

The cabinet is expected to examine a new draft law on settling commercial arrears before Renzi unveils a fresh package of tax cuts and labour reforms on Wednesday afternoon.

The law will contain measures enabling companies to obtain payment through the state holding company Cassa dei Depositi e Prestiti and commercial banks, which would take on claims against the government in return for a limited fee.

However, it does not envisage any more money beyond the 47.5 billion euros ($66 billion) already set aside to cover commercial arrears by the previous government of former Prime Minister Enrico Letta, who was ousted by Renzi last month.

"At the moment, the draft law does not envisage additional resources to pay off debt on the current or capital side beyond what was already envisaged by the previous government," a source close to the discussions told Reuters.

Renzi has said previously he intends to settle all outstanding bills owed to suppliers and contractors, and he put a figure of 60 billion euros on the payments to be made.

The European Union has also demanded that Italy take action to cut payment times and comply with EU rules requiring the settlement of bills within 30 to 60 days.

However, with the budget deficit right up against the EU's limit of 3 percent of gross domestic product and a public debt of around 133 percent of GDP, the government's scope to come up with the funds is limited. ($1 = 0.7212 euros) (Reporting by Giselda Vagnoni, Editing by Naomi O'Leary and Hugh Lawson)

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