By Silvia Marchetti
ROME (MaceNews) – Italy’s government is expected to extend a key pandemic loans payment moratorium which expired in December 2021, and boost state-backed guarantees for private investments, according to ruling coalition sources.
The extension of both measures, set-up in the wake of the COVID-19 crisis to help struggling firms’ and families access credit, is being negotiated at European level and will likely be approved through a special decree aimed at furthering strengthening the economy, which will be cleared by parliament in coming days.
“It is crucial to keep supporting liquidity and access to credit, the recovery is still very weak, but in order to keep doing so we need to reach a compromise with Brussels that overcomes the issue of state aid”, said an official.
At the outbreak of the Covid-19 pandemic the European institutions agreed on a temporary framework that envisages exemptions for member states from being vetoed on state aids.
“The pandemic has allowed countries to financially support their economies, something which in pre-pandemic times would have been classified as ‘unacceptable’ state aid that clashes with EU treaties and distorts market competition. This kind of public aid is now tolerated within a more lenient, flexible pandemic budget framework. However, that doesn’t mean that Brussels’ green light is permanent. We need to renew and check this is OK every six months or so”.
Sources argued that firms keep applying for the fund’s state guarantees to obtain bank loans, and families with a mortgage have hugely benefited from the measures.
The state guarantees tap into an emergency fund aimed at supporting small and medium enterprises’ investments which was boosted at the outbreak of the COVID pandemic. The public guarantees scheme, alongside the loans payments freeze, have already been more than once extended and strengthened with additional deficit spending.
Sources said technical details of the new extension were being discussed and finalized with the European commission, particularly whether to fully or partially extend both measures by covering up for only a part of the loan or up to a certain amount.
So far total state guarantees issued for bank loans subscribed by firms and professionals stand at roughly EUR 223 billion, while the loans payment moratorium (including mortgages) amounts to roughly EUR 24 billion.
Trade lobbies have called for a ‘permanent’ extension of both pro-growth measures for as long as there will be pandemic repercussions on the economy, while banking associations have voiced concern over a sharp rise in bad loans this year if public support is lifted.
According to recent data in the two years prior to the pandemic outbreak Italy had succeeded in curbing non-performing loans down to net EUR 22 billion, the lowest level in a decade, but by the end of 2022 NPLs are expected to spike by up to 3.8%.
It is likely that an extension of the loans freeze will be of another 6 months, up to June, with the possibility of another stretch if warranted, said sources.
Financial sector sources noted that progress so far made in curbing the volume of bad loans sitting on banks’ balance sheets would be waisted if the state guarantees were lifted and loans payment rebooted.
“If public support of this kind ends, all loans currently subscribed would automatically become non-performing, and it would kill the shy recovery”, said a financial market source.
Contact this reporter: silvia@macenews.com
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