Italy to speed up private sector debt repayments

Italy on Thursday said it will accelerate the payment of 40 billion euros ($52 billion) in state debt arrears to private companies, a move it noted would increase its debt and deficit without breaching EU rules.

A cabinet meeting decided to pay back 20 billion euros in the second half of 2013 and 20 billion euros in 2014, the government said in a statement.

"If you asked me 'why didn't you do this before?', I would tell you that it was not possible," said Prime Minister Mario Monti, who is in charge in an interim capacity until a new government is formed.

Unblocking the funds was a key demand of the employers' federation Confindustria to help the many companies struggling through Italy's longest recession in 20 years.

The European Council last week made this possible by allowing repayments to be counted outside of public debt and deficit targets.

"Now we can take measures that untie the purse strings," said Monti, who came a distant fourth in the elections last month because of widespread discontent over his budget austerity measures.

The government said debt arrears had taken on "considerable proportions", while a study by business daily Il Sole 24 Ore saying it could amount to up to 70 billion euros.

Finance Minister Vittorio Grilli said the government now expected a public deficit equivalent to 2.4 percent of gross domestic product (GDP) this year, or 2.9 percent counting the debt repayments.

He said this would fall to 1.7 percent next year.

The debt, which is currently about 2.0 trillion euros ($2.6 trillion), would increase by 20 billion euros in 2013 and 20 billion in 2014.

Grilli said the government was also revising its growth forecasts down, predicting that the economy would shrink by 1.3 percent this year -- compared with an expected contraction of 0.2 percent previously.

He said the government then expected the economy to grow by 1.3 percent in 2014.

The measures to reimburse debts still have to be approved by parliament, which is currently busy trying to form a government.