Liquidity decree. A powerful knockout blow for small and medium Italian companies


“I announce to you, with the decree just approved, we give immediate liquidity for 400 billion euros to our companies, whether they are small, medium or large. [...] It is a firepower: I do not really remember such a powerful intervention in the history of our Republic. " (Giuseppe Conte)

With the signature of the Head of State, the so-called "liquidity decree" officially entered into force, which only a few nights ago was pompously announced by the Prime Minister with the words mentioned above. After having carefully read the text of the provision, I unfortunately believe that this "powerful" intervention is completely insufficient to alleviate the serious difficulties that all Italian small and medium enterprises are facing at the moment.

It is necessary to clarify immediately that the decree is not only "sack flour" of our government, since in reality it implements in our country the communications of the European Commission dated 19 March 2020 and 3 April 2020 containing a "Temporary framework for aid measures of State in support of the economy in the current emergency of COVID-19 "and subsequent" Amendments ". So the criticisms that are raised against the decree in this article are addressed to the Italian Government and the European Commission in equal measure.

In essence, the decree on the one hand enhances the instrument of the "Central SME Guarantee Fund" as regards aid to smaller companies, on the other hand it provides that the company "SACE SpA" can issue guarantees for banks on loans which the latter will supply to larger companies. In this way, SACE, which is a public company of the Cassa Depositi e Prestiti group specialized in export support, is transformed into a real state financial intervention agency in the Italian economy.

So far I have nothing to complain: on the contrary, in the exceptional context of a profound economic crisis due to the health measures that have necessarily been adopted to combat the pandemic of COVID-19, a form of state aid to private companies becomes essential to guarantee of the economic and social fabric of our country. In these circumstances, the decision to entrust the decision-making responsibility on the disbursement of this aid to a public company such as SACE, which already had the necessary credit evaluation skills of the companies, seems appropriate.

Unfortunately, however, in my opinion the general structure of the decree contains four serious mistakes that risk greatly debilitating the possibilities of this measure to achieve its objectives.

Firstly, I contest the choice of making this aid pass through traditional financial channels, ie banks. In the approved decree, in fact, the company interested in a loan guaranteed by SACE must first request it from the bank, which will handle the request according to its internal procedures; only once the bank's resolution has been obtained does the bank transmit the request to SACE which proceeds to a second examination of the request and to issue the guarantee. This "double procedure" in our opinion will have the inevitable effect of slowing down the delivery of this aid. In my opinion, however, SACE should have been able to provide financial aid directly to companies (even at the cost of modifying European state aid legislation), at least to speed up the effective arrival of this aid.

Second, the provision provides that collateralised loans do not exceed the greater of 25% of 2019 turnover and double the personnel costs in 2019. At first glance, the intent to link aid to the maintenance of employment levels may sound commendable, but in my opinion it does not make any sense to calibrate the aid to be paid today to the 2019 budget data. In any period of sudden crisis like this, survival of a company does not depend on the turnover of the previous year. Instead, it depends on having the necessary liquidity in the company current account to meet the incompressible expenses until the end of the emergency. For this reason, in my opinion, the aid had to be tailored to the real liquidity needs of each company to date (and not last December 31st).

All Italian entrepreneurs (plus their accountants and their accounting staff) have spent the last 18 months dealing with the costs and stress associated with implementing the new electronic invoicing legislation in all our companies. This electronic invoicing would now have a golden opportunity to demonstrate its usefulness: it would have been sufficient to give SACE access to the daily updated framework, company by company, of all invoices issued to customers and not yet collected, plus all invoices received from suppliers and not yet paid, and SACE would have had a precise, complete and updated picture of the real liquidity needs of each company. In my opinion, it would have been much more effective to base the aid on such an updated framework of actual cash flows, rather than on turnover and personal costs of 2019.

Thirdly, for smaller companies that will have to apply to the Central SME Guarantee Fund, loans are envisaged "in any case not exceeding € 25.000". Now, however small an activity may be, and with modest management costs, I consider this maximum amount absolutely insufficient to guarantee the survival of all the innumerable personal and / or family-run activities that have been seriously damaged by this crisis.

Fourth (and perhaps most serious of all), aid is expected to be granted "also to companies that, after December 31, 2019, were admitted to the composition with creditors procedure". I am deeply convinced that in a situation like this, state aid should have as an essential objective not only the maintenance of employment levels, but also the maintenance of regular payment flows from customer to supplier. Any measure that allows (or even incentives) tools such as the concordat that download most of the company's problems to the non-financial creditor (i.e. the common supplier) has two negative effects. The first is that instead of helping the company in difficulty, it is forced to propagate its problems to its commercial chain. The second (and much more serious in a situation like this) is the relationship of trust between customers and suppliers is destroyed.

Whether we like it or not, the economy is not only made up of economic accounts and cash flows, but also and above all of relationships between people, which they are built in decades and destroyed in 1 minute. This is especially true in a country like ours, where the vast majority of companies are led not by managers, but by entrepreneurs and traders who see the company as an extension of their body. And these entrepreneurs in all likelihood will no longer want to serve their customer after losing money due to the fact that the latter has been induced by our system to resort to tools such as the arrangement. Not even a tomorrow with the crisis over, simply because of "a matter of principle". This is my fear now: that the ever more widespread use of tools such as the arrangement will lead to the destruction of human relationships between entrepreneurs so vast as to make any recovery impossible, even tomorrow when this crisis is over.

Many commentators around the world now claim that the economic damage that this pandemic has already caused is so profound as to call into question the very survival of the free market economy as we have known it in Italy and throughout the West from the end of the Second World War until today. And it is absolutely no coincidence that the liquidity decree renders the new role of SACE SpA definitive (and not temporary), stating that "even in the future, having overcome the current crisis situation, in the reconstruction phase and also over time, guarantees can represent a tool for public intervention in the economy ".

However, it is very likely that many entrepreneurs fond of their companies will find it very difficult to accept the reality that this crisis, this firepower, actually represents a powerful knockout blow for many small and medium Italian companies.

Paolo Silvagni

(Economics graduate, former financial advisor, entrepreneur)