October 20, 2010
New rules on late payments will pump €65 billion into the European economy – but member states don’t have the cash to comply
The European Parliament is set to pass tough new rules forcing governments to pay their bills within 30 days, something the EU says will be a major boost for small businesses.
The problem is severe: in some countries, SMEs with government contracts have to wait two years before they see any money (and are often handed VAT bills even when they have not been paid).
The worst offenders are in southern Europe: Greece, Portugal, Spain and Italy, none of which are in particularly strong financial positions. (Can I point out that Ireland isn’t in this particular group of PIGS ?!)
So if Greece is the worst offender, and is currently slashing budgets and raising taxes in a desperate effort to restore order to its balance sheet, where is it going to find the extra billion in cash required to reduce its payment time?
The punishment for those who do not comply with the Late Payments Directive will be fines and hefty penalties in the form of interest rates.
The logic seems to be that if governments can’t pay their bills they will be fined, thus increasing the amount they owe. Presumably they’ll end up having to borrow in order to comply with the new rules. The phrase “robbing Peter to pay Paul” comes to mind…Author : Gary Finnegan