Italy’s caretaker government said yesterday it was delaying approval of a decree to pay back some €40 billion of state debts to private firms, adding to the confusion already created by February’s deadlocked election.

According to Mario Monti’s outgoing administration, the legislation can provide vital liquidity to cash-strapped companies and help tackle a deep recession.

The present situation underlines the uncertainty created by the election, which has left Italy facing weeks in political limbo with no party able to form a government while economic problems continue to pile up.

Monti, the former European Commissioner appointed in 2011 after the fall of Silvio Berlusconi’s centre-right government, remains in office until a new government can be appointed.

The massive backlog of unpaid bills owed by Italy’s public administration has been a longstanding source of complaint by companies which have struggled to raise credit from banks facing increasingly tight credit conditions themselves.

The government says settling the bills will provide a sorely needed cash injection for an economy now stuck in its longest recession for 20 years.

But it has proved difficult to find the money to pay the companies, most in the healthcare and construction sectors, which have total accumulated claims estimated by the Bank of Italy at some €90 billion at the end of 2011.

According to sources close to the negotiations, Grilli had originally envisaged an increase in income tax before the idea was rejected by political parties. Monti spent almost an hour yesterday outlining the planned legislation to European Monetary Affairs Commissioner Olli Rehn and assured him Italy would respect the EU’s deficit limit of three per cent of gross domestic product this year.

But there was no sign he had managed to persuade Brussels to allow Italy to exempt the funds used to settle the bills from its deficit calculations, which could have given it some much-needed breathing space.

Italy’s long-running recession and the two-trillion-euro public debt have severely limited the scope for any extra payouts, with edgy financial markets ready to punish signs of slackening on commitments to shore up public finances.

But with 15,000 firms put out of business since 2008 because of unpaid bills, according to skilled trades association CGIA Mestre, the cost of the late payments has hit prospects of economic recovery.

“For some companies the issues of the unpaid bills is a question of life or death,” said Maurizio Carbellese, owner of Puglia-based medical devices reseller Abasan, which since 2010 has accumulated credits worth two million euros with local health authorities.

The government last month raised its deficit forecast for this year from 1.8 per cent of GDP to 2.9 per cent, just within the EU limits, of which 0.5 percentage point is due to the €20 billion set aside this year for settling the late payments.

The Cabinet statement gave no further details although Graziano Delrio, head of local government association ANCI, said after a meeting with ministers that approval would come by Monday at the latest.