Italy's "war" with international debt markets has sent borrowing costs soaring for its traditionally prudently managed private companies, stifling their efforts to invest in competing more strongly with rivals in Germany and beyond.
Just as Prime Minister Mario Monti tries to fix the problems that have hindered Italy's private sector for decades, notably its legendary official red tape, companies are paying significantly more to borrow than competitors to the north.
The European Central Bank has slashed its interest rates and showered banks with cheap cash in the hope they will lend to companies and consumers in the struggling southern nations such as Italy, which have been worst hit by the euro zone crisis.
But at the same time, a jump in Italy's borrowing costs on the sovereign bond market has dragged up interest rates on bank loans to Italian industry.
"We used to be able to borrow at 2.5-3 percent. But since this war of the sovereign bond spreads began, things have changed dramatically," said Paolo Bastianello, Chairman of textiles group Marly's. "The cost of credit has certainly risen by a couple of percentage points."
Marly's is the kind of Italian manufacturer that typically competes strongly on international markets, making high-end women's clothes under its own label and for top fashion brands such as Carlo Pignatelli and Kathleen Madden.
A company with annual sales of 16.5 million euros, Marly's is based near the historic city of Vicenza in the Veneto, a region thick with small and medium-sized companies (SMEs) which have long exported goods and components to the huge German market across the Alps.
Even though the ECB's benchmark rate has fallen to a record low 0.75 percent, the cost of corporate credit in Italy now reflects more the general risk associated with the state and the cost of sustaining its mammoth 2 trillion debt.
Italy's conservative companies, which have avoided taking on the huge debt burdens typical in the Anglo-Saxon world and fellow euro zone struggler Spain, are paying the price for a state debt equal to 120 percent of annual economic output.
At 81 percent of gross domestic product, total net indebtedness of Italian non-financial companies is significantly lower than in Britain, France and Spain, although slightly higher than in Germany, according to Bank of Italy data.
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