Rome

Italian businesses first to receive govt debt payback

40-billion-euro plan 'to jumpstart demand this year' says Grilli

Italian businesses first to receive govt debt payback

Rome, March 28 - The Italian economy minister on Thursday said the government's decision to pay back 40 billion euros in public debt will go to private-sector companies before it goes to banks over the next two years and will produce positive stimulus results by mid-2013. In repaying government debt, the government foresees "a chronological order in two phases: first, non-financial institutions, then the banks," said Vittorio Grilli before a special parliamentary committee. "Injecting liquidity into the economy will jumpstart domestic demand already by the middle of the year". To meet all of its commitments, including social spending, the government announced plans last week to pay back debt by 20 billion euros in 2013 and 20 billion euros in 2014, with the hope of a major stimulus for the economy. The repayment plan had been fiercely criticized by the anti-establishment 5-Star Movement (M5S) of Beppe Grillo, which holds the balance of power in parliament which remains divided after elections last month produced no clear majority nor consensus to compromise. On Thursday the populist M5S warmed to the plan. "We find it favorable that the banks must wait their turn," said M5S House Whip Vito Crimi. Grilli also said the 3% ceiling set for Italy's budget deficit in relation to its GDP was "insurmountable" and would remain unchanged. Relaxing its budget-deficit targets was made possible after the European Commission (EC) in Brussels gave Italy more flexibility in its national debt levels despite a stability pact signed by nations including Italy that fixed those debt levels. The measure was intended to help companies facing a credit crunch and recession. The outgoing government, led by caretaker Premier Mario Monti, has raised its deficit target for 2013 to 2.9% of gross domestic product - a dramatic increase from its earlier target of 1.8% of GDP. It has also slashed its economic forecasts for 2013, predicting a 1.3% contraction, compared with an earlier prediction of a 0.2% fall in GDP. Grilli predicts next year will see an improvement, with Italy's economy expanding by 1.3%. That's slightly higher than a previous forecast of 1.1% growth in 2014.

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