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 that 29% of Italian firms cannot meet ?operational expenses? and are starved of liquidity. It said that a ?third phase of the credit crunch? is under way that matches the shocks in 2008-09 and again in 2011.
The Italian economy is being suffocated. The country must intervene rapidly to reinject funds into the economy
It said the economy was caught in a ?vicious circle? where banks are too frightened to lend, driving more companies over the edge ? with 1,000?going bankrupt every day.
Franco Bernabe, head of Telecom Italia, said firms are ?dying from lack of liquidity? and called on the Bank of Italy to take bold action to head off a 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 euros 48-billion in 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 that half of small companies cannot pay their staff on time.
The pleas for action come as a new report by Standard & Poor?s Wednesday 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 9.5% last year from 5.7% in 2012 as local banks shut off funding. It was even worse in Spain, doubling to 14.3%.
The default rate in France has rocketed from 0.8% to 8.7%, 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 5.4% and 4.4%.
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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 unemployment is already 26% 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 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 European Central Bank are growing by the day. Christine Lagarde, the head of the International Monetary Fund, said the bank still has some scope to ?cut rates further?.
Commentator Nouriel Roubini said the ECB is in danger of doing ?too little, too late?, warning that the bank cannot stand aloof as the rest of the world intervenes to drive down their currencies. ?The euro should be 10, 20 or even 30pc weaker to restore the competitiveness of the periphery,? he told CNN.
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 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 economic gap.
The Daily Telegraph
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