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European Commission


Brussels, 18 March 2013

Statement by Vice Presidents Rehn and Tajani on commercial debt of public administrations

The recovery in the European economy must be built on the solid foundations of sound public finances. Moreover, we need to unleash productive investment and restore lending to the real economy. The excessively tight financing conditions, especially in southern European countries like Spain, Portugal and Italy, are hindering the flow of credit to households and businesses. This is holding back export growth and economic activity.

We also need to reverse the decline in Europe’s industrial competitiveness and industrial employment. Industrial jobs have a significant multiplier effect on the rest of the economy, through the impact on the supply chain and on the services sector. And this is a multiplier that can lift the growth potential of our economies in the long term, not just the short term.

To help our industry, we need to keep on cutting red tape, to ensure simple rules for businesses. We need to embrace the opportunities offered by global growth, with the US-EU free trade talks as an extremely encouraging example, with tremendous potential to boost growth on both sides of the Atlantic. And we need to do what all we can to ensure businesses will be paid for the goods and services they have delivered, also in order to address existing liquidity constrains.

In this respect, the Late Payments Directive is very important. It establishes clear rules on payments for goods and services purchased by the public sector. Member States must transpose and apply the Directive as of 16 March 2013. All Member States should ensure its timely and effective implementation, so as to put an end to further accumulation of commercial debt by public administrations and thereby avoid the interest charge for late payment envisaged by the Directive.

However, the Directive does not necessarily apply to the outstanding stock of commercial debt. In particular, In the case of Italy, the authorities have decided that the new rules will apply only to contracts signed since 1 January 2013. A realistic solution to the commercial debt overhang – which is estimated to be sizeable – is likely to involve a liquidation plan with the objective of bringing such debt to levels not related to payment delays within a relatively short timeframe. The plan should include adequate safeguards against moral hazard by the administrations responsible for the debt overhang.

A liquidation of commercial debt would be reflected in a corresponding increase in public debt. The proportion of arrears related to investment expenditure would also impact on the government deficit.

While the existing EU framework for budgetary surveillance does not envisage a special treatment for specific debt and deficit increasing items, the Stability and Growth Pact allows taking into account relevant factors in the assessment of compliance with the deficit and debt criteria. In this context, the liquidation of overdue commercial debt would represent a mitigating factor.

The Commission is ready to cooperate with the Italian authorities to help with the technical implementation of the liquidation plan and would welcome the provision of more detailed and timely information on the current stock of debt by level of government.

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