Italy’s companies and small businesses desperately need the 740 billion euros ($807 billion) the government pledged to keep the economy afloat through the pandemic recession. By the time the money arrives, it might be too late.
Banks, which have to channel most of the aid to recipients, “have to follow standard procedures because part of the financing risk remains on their books,” said Carlo Alberto Carnevale Maffe, professor of business strategy at Bocconi University in Milan. “This normally takes weeks. With banks working at 30% of their workforce, it may take months.”
That is too long for one of Europe’s weakest economies, which was already headed for a recession before the pandemic and has a huge public debt burden. Prime Minister Giuseppe Conte is well aware that bankruptcies and lay offs today will hamper any future recovery. On April 10, he promised to exert maximum pressure to “de-bureaucratize” the relief.
For now, though, managers and entrepreneurs have seen few concrete results. Some of the measures approved since March still lack the guidelines and other legal acts needed to make them operational. Banks that should advance cash or extend credit are wary to do so without further clarifications. Italy’s notoriously clunky bureaucracy only adds to the complexity.
“Banks tell us: If you want a normal loan you can have it immediately, if you want to have the new state guaranteed loan, you’ll have to wait,” said Luca Businaro, chief executive officer of Novation Tech SpA, a supplier of carbon-fiber parts to high-end companies like Ferrari and Luxottica.
He is referring to one of the planks of the government stimulus plan: 200 billion euros of state guarantees for loans to larger companies through a state-owned company called SACE. This should theoretically spur banks not to cut off liquidity to companies, but there’s long list of approvals and conditions to be met. The money might arrive only in June or July, according to Businaro.
Italy’s opposition, already incensed at Conte for failing to convince euro-area countries to issue joint debt, has jumped on the delays. The premier “goes on television promising money that isn’t there,” League leader Matteo Salvini said.
Finance Minister Roberto Gualtieri rebutted the criticism in an interview with Il Sole 24 Ore, saying that bureaucracy was reduced to a minimum and “SACE and the banks are already working on the operational phase with IT connections, protocols, forms to fill out, all very simple, to be ready shortly.”
Italy’s slowness compares with Germany’s swiftness. In Berlin, about 1.3 billion euros are already being paid out to freelance workers and small companies, with about 140,000 applications processed in just a few days. In some cases, the money arrived within 24 hours.
To be sure, Italy is not the only country struggling to funnel massive resources to a paralyzed economy. In the U.K. just 1% of companies reported successful applications for emergency loans. In the U.S., the Small Business Administration’s loan processing platform has been beset by delays and technical issues.
Angelica Donati of Donati Spa, an infrastructure company in Rome, said she called four banks after stimulus was announced on April 6. All responded they still didn’t have the information even to implement older measures approved in March. Roberto Mogranzini, owner of UniChess, a small company that arranges chess events and tournaments, said his bank still couldn’t help him even after a whole week of repeated calls.
The effort to channel money where it’s needed highlights the centrality of Italy’s financial sector, which is still recovering from the global financial crisis. Banks have pledged to help the government but they also need clarity to make sure that new loans aimed at stemming the emergency don’t weaken their balance sheets.
One thing hampering the relief’s effectiveness is its sheer complexity. The government will shield banks completely for loans of up to25,000 euros.
Beyond this sum, the guarantee declines progressively, falling to 70% of possible losses for companies with more than 5 billion euros in turnover. The cost of the guarantees is also variable, rising up 2% for large corporates, and there is a vast array of government entities legally backing the loan.
“The law goes in the right direction, but it should simplify the procedure to get guarantees,” Corrado Passera, former Economic Development Minister and CEO of Illimity Bank, said.
For some small business owners, though, asking for another loan, even at favorable conditions, is a non-starter. They prefer to keep their activity shut and apply for unemployment support.
“I don’t need another mortgage,” Mariagrazia Ferrandino, a restaurateur in the southern town of Apricena, wrote in an open letter to Conte. “The one I have is enough.”
— With assistance by Carolynn Look
By Alessandra Migliaccio, Sonia Sirletti, and Alberto Brambilla