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Italy May Have to Spend EU10 Billion a Month on Lockdown Aid

Italy May Have to Spend 10 Billion Euros a Month on Lockdown Aid

Italy may need to spend as much as 10 billion euros ($11.8 billion) a month to aid businesses and workers hit by coronavirus restrictions, according to people familiar with the matter.

Authorities are working on plans that would help the country navigate through a surge in infections that’s derailed the rebound from one of Europe’s worst recessions.

Lockdown measures similar to the ones imposed earlier this year are estimated to cost the government between 40 billion to 50 billion euros, or about 3% of Italy’s output, if they last until March, said the people, who declined to be identified because the discussions are confidential.

Under softer curbs, the aid bill would be at least 6 billion euros a month, they said.

Italy May Have to Spend EU10 Billion a Month on Lockdown Aid

A Treasury official said that, at this time, only the approved spending plans and forecasts are confirmed.

Italy had 35,098 new coronavirus cases on Tuesday and is set to surpass one million cases this week. Hospitals are under severe strain across the country, with more than half of hospital beds occupied by Covid-19 patients.

The euro area’s third-largest economy has struggled to deal with the fallout from the coronavirus, largely because the government lacks the fiscal space to spend its way through the crisis. Saddled with one of the world’s highest debt burdens, it has relied on exceptional support from the European Central Bank to tap bond markets.

That’s helping to keep borrowing costs in check. Italy’s 10-year yield was at 0.77% as of 9 a.m. in Rome. That’s less than half the average seen in 2019.

To cushion the impact of a partial lockdown covering several regions, the government has already approved 8 billion euros in additional support. Spending would have to increase if virus cases rise and tougher restrictions are needed, the people said.

Bloomberg Economics estimates the economy will shrink 1.8% in the last three months of the year if the current restrictions don’t change. That’s much less than the 13% drop recorded in the second quarter.

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While the November relief package will probably come from savings and won’t create extra debt, any spending beyond that would likely have to be financed with additional borrowing. As of early October, Italy planned to run a deficit of 10.8% of GDP in 2020.

The escalation of the pandemic has thrown economic planning into disarray, with Finance Minister Roberto Gualtieri hastily rewriting a budget law that was supposed to be presented to parliament on Oct. 20. Gualtieri foreshadowed further spending, saying that nobody will be left behind and any needs will be met.

“The government supports families, workers and companies with an extraordinary effort that has no precedent and it will continue to do so as long as needed,” he said on Facebook on Nov. 7.

Prime Minister Giuseppe Conte said Italy is ready to extend compensations for businesses to 2021 if restrictions continue, according to an interview with Italian daily La Stampa.

He approved 100 billion euros in stimulus earlier this year to provide support during the first wave of the pandemic. Any extra spending is set to send debt above 160% of GDP at the end of this year.

©2020 Bloomberg L.P.