Italy facing a 'credit emergency' as thousands of firms starved of liquidity
ITALY'S industry chiefs have warned that the country faces a "full credit emergency" as thousands of companies run out of critical funding, threatening a slide into deeper depression.
Confindustria, the business federation, said 29pc of Italian firms cannot meet "operational expenses" and are starved of liquidity. A "third phase of the credit crunch" is under way that matches the shocks in 2008-2009 and again in 2011.
In a research report, the group said the economy was caught in a "vicious circle" where banks are too frightened to lend, driving more companies over the edge. A thousand are going bankrupt every day.
Franco Bernabe, the head of Telecom Italia, echoed the warnings, lamenting that firms were literally "dying from lack of liquidity". He called on the Bank of Italy to take bolder action to head off disaster.
"The Italian economy is being suffocated. The country must intervene rapidly to reinject funds into the economy," he said.
Fulvio Conti, head of the energy group Enel, exhorted Rome to give the economy an immediate shot in the arm by paying €48bn in state arrears to companies, arguing that this can be done without breaching EU deficit rules.
Late payments have become a chronic problem across the board in Italy, with 47,000 official complaints last year. The research group CGIA di Mestre said half of small companies could not pay their staff on time.
The pleas for action come as a new report by Standard & Poor's warns that default rates in Europe have reached the highest level since the global crisis in 2009, with most of the carnage concentrated in the Club Med bloc.
S&P said the default rate for Italian non-investment grade bonds jumped to 9.5pc last year from 5.7pc in 2012 as local banks shut off funding. It was even worse in Spain, doubling to 14.3pc. The default rate in France rocketed from 0.8pc to 8.7pc, the latest in a blizzard of bad news from the country as the delayed effects of tax rises, fiscal tightening and the strong euro do their worst. Britain and Germany bucked the trend, falling slightly to 5.4pc and 4.4pc.
The combined effect of a worsening credit crunch and political paralysis in Rome is becoming a dangerous cocktail, with the risk of social revolt increasing as the months drag on. Analysts say fresh elections are unlikely to solve anything in this economic climate.
Spain still has a solid government but the unemployment rate is already 26pc and lay-offs are continuing at an alarming pace. Labour specialists AML Afi-Asempleo said the economy would shed 300,000 jobs over the first three months of this year.
The ratio of unemployed to the number of jobs available has risen to a record 107. Spain's workforce is shrinking so rapidly that the social security system is running out of contributors.
Calls for fresh monetary stimulus from the ECB are growing by the day. Christine Lagarde, the head of the IMF, said the bank still had some scope to "cut rates further".
Commentator Nouriel Roubini said the ECB was in danger of doing "too little, too late", warning that the bank could not stand aloof as the rest of the world intervened to drive down currencies. "The euro should be 10, 20 or even 30pc weaker to restore the competitiveness of the periphery," he said.
Pier Carlo Padoan, the OECD's chief economist, called on Brussels to slow the pace of fiscal tightening. "They have to take account of the economic situation, and that is deteriorating," he said.
The credit crunch in Italy and Spain has deepened despite the sharp fall in sovereign bond yields since the ECB's president Mario Draghi promised to do "whatever it takes" to back-stop the two countries.
There has been little or no feed-through to the parts of the economy that need funding most. Even strong Italian and Spanish firms must pay over 200 basis points more than German rivals to raise money, a handicap that makes it even harder for the Club Med countries to close the North-South economic gap. (© Daily Telegraph, London)