Italy eyes plan to stop crisis hurting economy

19 Oct, 2008,

ROME: Italy’s government is readying a new plan to guarantee the debts of companies in distress to prevent the global financial crisis from spilling over to the real economy, an Italian newspaper said on Sunday.

Under the plan, the Italian state will guarantee the loans of troubled companies that are unable to secure financing from banks due to the credit crunch, La Repubblica reported, citing a draft of the plan being prepared.

Prime Minister Silvio Berlusconi’s government has already passed a decree injecting liquidity into Italy’s financial system by offering to guarantee new bank bonds, help banks seek refinancing and provide cash for recapitalisations.

Government aid to companies under the latest plan would be valid for a maximum of six months, and subject to the approval of the European Commission, which has strict limits on state aid, the newspaper said.

The company must also present an adequate restructuring plan to receive the guarantee, which would be administered via a public fund, the newspaper said. The plan could be ready as early as next week, it added.

Italy’s exposure to the global financial crisis has been small relative to its European neighbours, but policymakers fear the turmoil will worsen prospects for Italy’s sluggish economy.

The plan comes as Luca Cordero di Montezemolo, chairman of auto maker Fiat, warned the financial crisis had begun to weigh on the real economy and called for greater financing of companies.

"If we don’t want the recession to become a depression, every available euro should be utilised to finance companies that invest," he told La Stampa newspaper. "By now, this crisis is weighing on the real economy and consumption."