Italy’s caretaker government on Saturday approved a plan to reimburse debts of 40 billion euros to private companies. The measure is an attempt to provide firms in the recession-stricken eurozone country with vital liquidity.

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The Italian government on Saturday 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 Monday and that the oldest debts would be repaid first.

The parliament still must give final approval.

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.

The finance ministry will carry out special monitoring in September to ensure that the 3.0-percent threshold is not breached, Grilli said.

"This was very needed," Paolo Buzzetti, head of the National Association of Construction Companies, told news channel Sky TG 24.

"We can definitely go to Europe and ask to be able to go over that three-percent threshold. Other European countries have done it," he said.

But Carlo Sangalli, head of the business lobby Rete Imprese Italia, said the bill showed the government had "not understood" that the business community "risks collapse".

Sangalli said the payments should be made immediately and the procedure for obtaining payments should be made much simpler.

Monti stressed that the bill did not mean that his government was easing its budget discipline or had plans to stay in charge, adding that Saturday's cabinet meeting "could be the last one".

A general election yielded no clear winner, and the main political forces -- Pier Luigi Bersani's centre-left, Silvio Berlusconi's centre-right and a new protest party -- have failed to find an agreement to form a new government.

The economy is forecast to shrink by 1.3 percent this year, although government officials have said the result could be even worse with a contraction in gross domestic product of up to 1.7 percent.

The economy shrank by 2.4 percent in 2012.

Unemployment is close to record highs, and many Italians have been put under unprecedented pressure by successive rounds of austerity measures and tax hikes, sparking an increase in suicides by small business owners and pensioners.

(AFP)

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