AMELIA, Italy (Reuters) – When the COVID-19 pandemic forced Roberto Ferraro to close the pastry shop he runs in Amelia, a picturesque hilltop town in central Italy, he had just rented a new site to increase the production of ice cream and start selling it abroad.
Ferraro would like to prepare for the reopening of his business in the coming weeks, working on how to secure supplies and ensure social distancing between customers. Instead, the 51-year-old is spending his time and energy going through the pile of documents he has to file with banks for state-guaranteed loans.
Its struggles are just one example of how the bureaucracy is blocking the state aid needed to keep businesses afloat in the eurozone’s third-largest economy and a country that has suffered the deadliest coronavirus outbreak in the world. ‘Europe.
“When can I get the money? The banks don’t know. It depends – days, weeks, they don’t know, ”Ferraro said. “In March, we paid the electricity bills and salaries even though the government had closed us, and unlike supermarkets, we couldn’t sell Easter cakes.
Rome’s problems getting money to businesses are mirrored, to a greater or lesser degree, in other countries with coronavirus restrictions around the world, from the UK to the US.
Italy, the first Western country to close its doors, is now at the forefront of measures to cautiously reopen its economy. From May 4, stores like Ferraro’s will be able to offer take-out food, and they will restart completely from June 1.
But the numbers of aid deployment to date worry business leaders as much as politicians.
The government says debt guarantees made available by the state can unlock up to € 740 billion ($ 803 billion) in financing for companies that have been crippled by a seven-week foreclosure.
So far, only € 3.1 billion in funds have been released, the Treasury said over the weekend. Of this amount, only 115 million euros is in the form of loans worth up to 25,000 euros fully guaranteed by the state, which do not require banks to perform credit analyzes on borrowers.
The financial stakes are higher for Italy than for many others in Europe as its economy faltered even before COVID-19, and the pandemic has hit hardest industrial centers in the north which generate a third of its production.
If the lifelines come too late for the 2.1 million businesses that failed to function, Rome is unlikely to be able to prevent a string of bankruptcies despite aid spending that is expected to bring public debt to 156 % of GDP this year, according to economists.
“One of the most controversial aspects of the measures is the impression that the government gave the money was just there and that all people had to do was go to their bank,” Salvo Politino said. , vice-president of the Unimpresa business lobby.
The Italian Treasury declined to comment.
Economy Minister Roberto Gualtieri has dismissed criticism of the liquidity measures, saying they are immediately effective and offer “impressive firepower”.
Prior to the pandemic, the popularity of Ferraro’s rum-soaked “baba” cake, the secrets of which he had learned in his native Naples, had allowed his business to grow without any bank debt in the five years since it opened.
He now seeks two different types of government guaranteed loans, one of which is fully guaranteed.
The rollout of these loans began last week, sparking a flood of complaints about bureaucracy and prompting the ABI banking lobby to tell lenders to stop demanding unnecessary documents and not ask borrowers to pay off existing debts with new loans.
This represents a big cultural shift for an industry that has spent most of the past decade cleaning up bad loan balance sheets after being criticized by supervisors for lending too freely.
Ferraro, who declined to say how much he was looking for, said the two banks he applied to had requested his 2019 and 2018 tax returns, which are not required under the government decree.
Its experience echoes those of other companies struggling to survive as the Italian economy sinks into its fourth recession in a decade, with an expected 8% contraction this year.
Mara Bartolini, 42, owner of a gift shop in Cremona, in the northern Lombardy region that has suffered the brunt of the outbreak, said her bank had told her it might be necessary two to four weeks to get the loan fully secured.
At the other end of the Italian boot, Michele Mandala has also been told to wait a month for the money he needs because he does not expect to be able to reopen his cinema in the Sicilian town of Caltanissetta before the start. ‘summer.
Bank officials say they just can’t keep up with the workload after being hit by debt moratorium demands, which the Bank of Italy says so far amount to 1.3 million for more than 140 billion euros in loans.
The government fund that provides some of the loan guarantees has advised banks to download applications en masse at night when online traffic slows down.
Banks need to assess creditworthiness because they bear part of the risk, but the COVID-19 crisis makes it difficult to assess the ability of borrowers to repay their debt.
Lenders say they run a legal risk under Italian law as they can be held liable for credit abuse or bankruptcy assistance in the event of a debtor’s default.
“The problem is that only drops are coming out of the government’s liquidity tap,” said Roberto Sambuco, partner of leading financial advisory firm Vitale & Co.
In addition to the 100% guarantee on small loans, Italy provides a 90% guarantee up to 800,000 euros, which can go up to 100% with co-insurance schemes. It guarantees between 70% and 90% of the largest loans, depending on the size of the business.
Sambuco said the government needs to modify the package to make the process more straightforward, as is the case in France, the United States or Switzerland where loans of up to 500,000 Swiss francs ($ 514,000) are fully guaranteed.
“The risk that tens of thousands of businesses will die of thirst is significant. The situation is much more serious than the measures put in place by the government can remedy it.
The ABI is calling for legal protection against prosecution at least for loans worth up to 100,000 euros.
HOW TO REFUND?
In a study by three of its economists, the Bank of Italy said direct transfers from the state, with no obligation for companies to repay them, would be needed.
The US government offers loans that can be canceled if most of the money is used for salary costs. Italy has also announced its intention to introduce them, but its public finances, already strained to the extreme, leave little room for maneuver.
Sambuco said Rome would need help from the European Union and not just the European Central Bank. “Without the EU umbrella, we don’t have the necessary resources,” he said.
EU leaders agreed on Thursday to create a trillion-euro emergency fund to help the bloc recover from the pandemic, but postponed any decision on divisive details until the summer.
Their maneuvers are a far cry from Ferraro to Amelia who, like many other businesses, is faced with borrowing without quite knowing how the economy will perform.
“I venture abroad, but those who bet on the recovery of Italy, how will they repay all this debt in two years if this recovery is not visible?
Additional reporting by Giuseppe Fonte and Emilio Parodi; Editing by Pravin Char