Much has been said in the popular press about Italy's surprising economic recovery (which based on recent data is starting to lose steam), as well as its much improved fiscal picture (even if the country's public debt hits record highs quarter after quarter and the bad debt within its banking system just rose by 24% from the prior year, to €169 billion the highest since 1998). Little has been said about just how Italy managed to pull this economic miracle off. The answer: robbing private suppliers to pay Paul, or rather, the public sector.
According to Reuters, the Italian state owes some 75 billion euros ($102 billion)to private suppliers, as reported by the Bank of Italy. The unpaid bills have starved companies of cash and triggered layoffs, factory closures and bankruptcies.
Italy will settle the debt arrears it owes to private sector suppliers by the end of this year, Economy Minister Pier Carlo Padoan said in a newspaper interview on Sunday, pushing back previous commitments. "We will ensure that the arrears are paid off by the end of the year," Padoan told Corriere della Sera daily.
That's funny, because back in March, PM Renzi promised all debt would be paid back by, well, right now. One week later, he said September. We look forward to September to learn that not only will the debt not be paid back by the end of the year, but the total amount of money due to the private sector from the government has in fact, growtn.
Remember when they said Italy is undergoing an unprecedented economic recovery? They lied:
The government is finding it hard to tackle the problem because of public finance constraints, inefficiency, uncertainty over exactly how much is owed and a reluctance on the part of some public bodies to acknowledge their debts.
In June, the European Commission opened a formal infringement procedure against Italy because of its failure to comply with the Late Payments Directive, which orders governments to reduce payment delays to no more than 60 days.
Well, yes: if one starves the private sector to pretend that the public one is doing ok, that works. For a few months. Then everyone remembers that aside from the Europe's epic ECB-sponsored Ponzi scheme where bond yields no longer reflect anything at all, a properly functioning economy starts always and only from the private sector. Sadly, in this case it is the cancer that is Italy's corrupt government that will certainly be the reason for what is already shaping up as a triple dip recession. We give it 6-9 months.