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(Broke) Italy “Would Love To” But Can't Pay Its Bills This Year

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Wolf Richter   www.testosteronepit.com   www.amazon.com/author/wolfrichter

In most countries, it would be an act of mind-bending chutzpah, or perhaps a display of political insanity, but in Italy it barely made ripples: for a government official, a minister no less, to declare that the country cannot pay its long overdue bills, and not for a month or two, but for the rest of this year! Due to "technical" problems.

The Italian government is out of money. Not that the US government is in any better shape in that respect, or the Japanese government for that matter, but they have central banks that print the missing moolah with lavish abandon. Italy doesn't. It has the ECB which is run by an Italian who promised last year to print with lavish abandon to keep countries like Italy afloat. But that promise is not the same thing as having your own central bank.

On July 4, Italy's budget fiasco came to light once again. Wracked by the pretense of austerity, expenditures rose 1.3% in the first quarter, while revenues remained flat. So the deficit rose to 7.3% of GDP, up from 6.6% last year, bringing the national debt to 130% of GDP. Ballooning debt and deficits in a shriveling economy – Italy has been in recession since the fourth quarter of 2011 – is a toxic combination in the Eurozone.

How will Italy force its deficit under 3% of GDP, the line in the sand that would trigger the Eurozone’s excessive deficit procedure? The government is desperately trying. Economy Minister Fabrizio Saccomanni announced that he’d identified a1,600 “unused” properties that could be dumped. In the near term, this could haul in about €600 million, he said, though former Prime Minister Mario Monti's plan to do that had run aground on the reefs of the declining property market.

In any case, despite appearances to the contrary, "the trend of public finances in the first half is consistent with the achievement of a net deficit of 2.9%," he said. But €600 million, if they materialize, would be a drop in the rusty Italian budget bucket. Much more would be needed.

Hence, a eurocratic deus ex machina: José Manuel Barroso, president of the European Commission, told the European Parliament on Wednesday that the budget rules would be reinterpreted for 2014 so that some public spending on infrastructure projects could be excluded from the deficit figures – something Italy has long pushed for in its valiant efforts to keep its deficit under 3%. If all else fails, monkey with the rules. Abracadabra.

“For countries with high levels of public debt,” such as Italy, “this will be of limited use in the short term,” an EU official cautioned to appease any remaining Germanic deficit hawks. But these kinds of details didn't stop Italian Prime Minister Enrico Letta from declaring victory. “We made it!” he tweeted triumphantly. It would give “more flexibility in coming budgets for countries like Italy” that had their “accounts in order.”

What exactly he meant with “accounts in order,” given Italy’s deficit and debt spiral, remains a mystery – particularly in light of the fact that it cannot even pay its past-due bills.

Beppe Grillo, leader of the opposition 5-Star Movement, has long hammered on this point. In April, during the post-election interregnum, he’d clamored for “the immediate payment of about €120 billion” that the government and public entities owed the private sector.

The government’s refusal to pay its suppliers violates EU rules. But the EU has soft-pedaled the issue, for two very big reasons: payment of arrears would force Italy to sell a truckload of bonds when there might not be any demand; and it would push the deficit way beyond the 3% line in the sand. Thanks to cash accounting, only actual disbursements make it into the deficit figure. Italy has achieved its “austerity” goals by not paying its suppliers. Once again, abracadabra.

But it’s strangling businesses. So, paying a portion of those past-dues, namely €40 billion, has been kicked around. Most recently, Renato Brunetta, leader of the House and member of Silvio Berlusconi’s PDL party, demanded at a coalition meeting that payment be made by the end of the year. In a surrealist show of noble governance, Letta himself jumped into the fray and committed to pay those debts even faster – not in July or August, but sometime in the fall! Rousing applause!

"I would love to" pay the past-due debt of the Public Administration by 2013, "but I don’t know if it can be done," retorted Economic Development Minister Flavio Zanonato the next morning. "It's not ill will, but there is a technical problem,” he said. “The government has removed the obstacle; now all the various sources of expenditure must take action to pay." They don’t have the money, apparently. To say that it’s difficult to pay the debts of the Public Administration is "obvious and true," he conceded.

It would normally be an admission of default. But not for the Italian government. For them, it’s just another illustration of a budget absurdity: staying by hook or crook on this side of the 3% line in the sand – even if it strangles companies and the economy and makes the deficit and debt spiral worse.

Italy has become legendary about tax evasion, which is part of its budget absurdity. So now the G-8 wants to crack down. The first four items at the recent meeting was the need for governments to share information to “fight the scourge of tax evasion.” If only their primary targets were multinationals, banks, and hedge funds. But they’re going after the little guy. Read.... Beware, the Borderless Taxman Cometh

 

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Sun, 07/07/2013 - 14:01 | 3728361 SKY85hawk
SKY85hawk's picture

Let's stop wasting reader's time with talk about The 3% Limit.  It was killed by Germany in 2003!

Germany & France ignored their 2003 and subsequent violations of Maastricht treaty requirements on Deficit levels;  

Nothing has changed in the bookeeping frauds committed by most Euro members. 

-Spanish bad-banks hold their underwater mortgages as off balance sheet non-entities;

 -Abolishment of short-selling and mark-to-market  rules by all Euro financial authorities has blurred reporting accuracy.


Sun, 07/07/2013 - 13:54 | 3728334 skydrake
skydrake's picture

A NET deficit of 2.9% is better than the European countries average deficit. Look at French deficit (3.9%). Or USA deficit

http://www.deptofnumbers.com/misc/debt-revenue-and-expenditures-as-a-fra...

Sun, 07/07/2013 - 11:23 | 3728129 pachanguero
pachanguero's picture

Cheaper wine? I hope so....

Sun, 07/07/2013 - 08:42 | 3727950 darteaus
darteaus's picture

Dear creditor:
This is not your year.

Next year is not looking good either.

Signed
Italy, Portugal, Greece, Spain...

PS: Pay your taxes

Sun, 07/07/2013 - 07:08 | 3727884 Lumberjack
Lumberjack's picture

Mafia contributes 6% to Italy GDP

http://news.softpedia.com/news/Mafia-Wants-a-Piece-of-the-Wind-Power-Ind...

 

Mafia laundering via wind on rise

http://renews.biz/45548/mafia-laundering-via-wind-on-rise/

The mafia and other organised crime groups are increasingly targeting clean energy schemes such as wind farms as a way of laundering their dirty cash, according to a Europol report.

The EU law enforcement agency’s Threat Assessment on Italian Organised Crime study says the proceeds of criminal activity are increasingly being run through the legal business structures that renewables projects provide.

It also stresses that green schemes “offer attractive opportunities to benefit from generous EU grant and tax subsidies”, meaning the criminals are “effectively exploiting eco-friendly incentives for their financial gain”.

Italian police seized assets worth €1.3bn from a Sicilian renewable energy developer in April this year, in what was reported as the largest ever seizure of assets linked to organised crime.

The Europol document is available here.

 

http://www.bbc.co.uk/news/world-latin-america-23209170

Colombian police say they have caught the alleged boss of Italy's Calabrian mafia, who they described as Europe's most wanted drugs trafficker.

Roberto Pannunzi was detained in a shopping centre in the capital, Bogota, authorities said.

He had been on the run since 2010, when he fled from a clinic in Rome, where he was receiving treatment as a prisoner.

Italian prosecutors accuse Pannunzi of establishing the transatlantic cocaine trade between Italy and Colombia.

As alleged head of the 'Ndrangheta, the Calabrian mafia, he is suspected of helping to import up to two tonnes of cocaine into Europe per month.

 

http://dailybail.com/home/the-mafia-is-moving-into-green-energy.html

Sun, 07/07/2013 - 04:55 | 3727848 dunce
dunce's picture

Businesses that are not paid for their products or services go out of busuness and stop paying taxes as do their employees. The cycle grinds to a halt.

Sun, 07/07/2013 - 03:59 | 3727828 toadold
toadold's picture

long on Beretta?

Sun, 07/07/2013 - 12:06 | 3728159 Trampy
Trampy's picture

...

Sun, 07/07/2013 - 03:57 | 3727825 August
August's picture

If all else fails, monkey with the rules. Abracadabra.

Now, that's rayciss!

Sun, 07/07/2013 - 03:35 | 3727815 @Watcher
@Watcher's picture

Jeez, can the Vatican help???

I mean with all their shadow banking and etc...

(just askin...)

Sun, 07/07/2013 - 02:29 | 3727787 WTFUD
WTFUD's picture

In the land of ponzi the one eyed shaftmeister suffers double vision in only one eye!
We can all rest easier knowing the italian.gov at least did not fritter away any of that delura! Anyway it's not real money is it now.
Everything will be swept under the carpet, including default, as it might interfere with an up and coming election in germany in september.
On returning to the lira soonafter the italians still have great food and other positives going for it so we can expect them to hold onto their gold reserves and rebalance economy.

Sun, 07/07/2013 - 01:14 | 3727717 GoldIsMoney
GoldIsMoney's picture

Whatever you call it it's not Austerity. The deficit is still there and the money still burned. It's defraud. And you should name it such.

Sun, 07/07/2013 - 03:09 | 3727809 All Risk No Reward
All Risk No Reward's picture

It is the way the Debt Star destroys entire economies...

Debt Money Tyranny

http://www.keepandshare.com/doc/4768883/debtmoneytyranny-6-1-pdf-60k?tr=77

Sun, 07/07/2013 - 00:59 | 3727698 dust to dust
dust to dust's picture

 The European Commission will keep interpreting the RULES till they get it right. It does not work. Each NATION is Sovereign.

Sun, 07/07/2013 - 00:06 | 3727612 toadold
toadold's picture

The important thing is will all this lead to me getting a discount on an Italian motor scooter?

Sun, 07/07/2013 - 01:55 | 3727769 Manic by Proxy
Manic by Proxy's picture

Long Vespa

Sun, 07/07/2013 - 03:58 | 3727826 toadold
toadold's picture

Piaggio for me (I know they are the parent company of Vespa) but their stuff is a tad easier on maintenace.

Sun, 07/07/2013 - 00:03 | 3727601 disabledvet
disabledvet's picture

Q Europe. move along.

Sat, 07/06/2013 - 23:59 | 3727588 JailBanksters
JailBanksters's picture

But they can, they have a 2,500 tons of Gold

It's just unfortunate that the Price of Gold has dropped so much, because once the IMF steals their Gold their still come for more money. Unfortunate or Planned ?-?

Sun, 07/07/2013 - 10:47 | 3728073 Non Passaran
Non Passaran's picture

What's up with this obsession with those countries' gold reserves.
Multiply those by PoG and you'll see it's a tiny fraction of their public debt.
PIIGS are beyond help and stories about the importance of their gold are complete nonsense, especially while they remain in eurozone.

Sun, 07/07/2013 - 08:34 | 3727946 darteaus
darteaus's picture

And Fort Knox is full of gold too.

Sun, 07/07/2013 - 00:41 | 3727676 Cast Iron Skillet
Cast Iron Skillet's picture

but is it unrehypothecated?

Sat, 07/06/2013 - 23:26 | 3727529 q99x2
q99x2's picture

Big fish happily eat little fish until the little fish become piranhas.

Sat, 07/06/2013 - 23:00 | 3727502 ebworthen
ebworthen's picture

I thought the borderless taxman was all the money that goes to the IMF from taxpayers the world over?

Taxpayer > IMF > Bank > Banker Pay/Bonuses > Politicians > Judiciary > Central Bankers.

But yes, no doubt more punishment and stone bleeding for us citizens.

Sat, 07/06/2013 - 22:44 | 3727477 Lokking4AnEdge
Lokking4AnEdge's picture

Mah KeKozah?

Bene,,,Bene...

Ah Domani...

Sat, 07/06/2013 - 22:44 | 3727476 holdbuysell
holdbuysell's picture

The trend (for all developed nations) is clear. The denouement awaits.

Sat, 07/06/2013 - 22:46 | 3727481 holdbuysell
holdbuysell's picture

And his name is Wimpy. Go figure.

Sat, 07/06/2013 - 22:29 | 3727458 Paracelsus
Paracelsus's picture

Canary in the coal mine?  Used to work for a shipyard on the west coast,doing mostly warships.The yard had such a lousy rep for being a slow payer that eventually one evening everyone (the creditors) got together for a few beers and moaning session. Result? From then on,cash only pal.This completely screwed things up.Can't just rock up to home depot for a pair of twenty ton bronze propellers for a destroyer.Only a few people do that kinda stuff.I find it odd that Italy is only now confronting this problem (because they cannot print their way out).I wonder if their central bank is as filled with worthless collateral as the FED and others.Certainly the ECB is. I guess all that Bunga Bunga stuff in the Italian news is just a diversion from the main point: END OF CAN KICKING,DEAD AHEAD..... 

Sat, 07/06/2013 - 22:30 | 3727451 MaxThrust
MaxThrust's picture

Tried to cancel this one but now have to write this line instead

Sun, 07/07/2013 - 00:58 | 3727696 Peter Pan
Peter Pan's picture

In future just write a full stop (.) and that will do the trick.

Sat, 07/06/2013 - 22:23 | 3727449 DeadFred
DeadFred's picture

Italians are so behind the times. Calvinball rules for finance have been in use for years and they just now figured this out?

Sat, 07/06/2013 - 22:03 | 3727421 mofreedom
mofreedom's picture

italians smell and grope our women.

Sun, 07/07/2013 - 01:59 | 3727772 Manic by Proxy
Manic by Proxy's picture

So they smell the women before groping? Va bene.

Sun, 07/07/2013 - 00:01 | 3727596 toadold
toadold's picture

Italian men doing the job our men won't do anymore.

Sun, 07/07/2013 - 00:57 | 3727695 Peter Pan
Peter Pan's picture

This is a conversation I witnessed some years ago between  Italian and Greek friends:

GREEK: We Greeks invented sex.

ITALIAN: Yeh, but it was us Italians that introduced it to women.

We were all left laughing for half an hour.

Strangely enough the Greek government has not been paying its bills either, but if the government owes you money and does not pay, the law does not allow you to offset that amount against taxes you owe the government.

Sun, 07/07/2013 - 09:47 | 3728021 agent default
agent default's picture

I wouldn't blame the government on this.  I would blame the people for putting up with this kind of crap.  And  we still wonder why Greece is headed well bellow failed state status.  You get the government you deserve.  Period.

Sun, 07/07/2013 - 03:11 | 3727810 All Risk No Reward
All Risk No Reward's picture

>>Strangely enough the Greek government has not been paying its bills either, but if the government owes you money and does not pay, the law does not allow you to offset that amount against taxes you owe the government.<<

That's not strange at all.

One rule applies to the bond slave class and another rule applies to the bond enslavement organization.

Sun, 07/07/2013 - 00:00 | 3727595 toadold
toadold's picture

Italian men doing the job our men won't do anymore.

Sun, 07/07/2013 - 02:33 | 3727790 economics9698
economics9698's picture

If you don’t service the account on a regular basis the business will transact somewhere else.  Any questions?

Sun, 07/07/2013 - 16:41 | 3728744 skydrake
skydrake's picture

Italy hasn't never been insolvent from his indipendence, in 1861. USA twice.

Italy is also paying the bailout for Greece, Ireland, Portugal, Spain and Ciprus. 

Beside all, Italian 10 year gov. bond yelds is at 4.4%

 

http://www.bloomberg.com/markets/rates-bonds/

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