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Small Businesses Feel Crunch Of Italy's Debt Woes

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Small Businesses Feel Crunch Of Italy's Debt Woes

Business

Small Businesses Feel Crunch Of Italy's Debt Woes

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STEVE INSKEEP, HOST:

OK, the financial markets are watching Italy this week. The country is plagued by high debt and rising interest rates. The new government faces steep fiscal challenges, the latest government to be severely tested by the ongoing European debt crisis. Now, Italy is a country of small and medium sized businesses, and the debt crisis is making it much tougher for them to hang on. NPR's Jim Zarroli reports.

JIM ZARROLI, BYLINE: Thirty-six-year-old Enrico Frare isn't a well-known name in Italian business. He runs E-group, a small clothing company in the commercial region around Treviso. Here, women sit behind sewing machines making winter sportswear.

But last month, Frare did something that attracted a lot of attention. He bought a full-page ad in Milan's main newspaper appearing in what might politely be called his birthday suit. The caption read: every day in Italy, an entrepreneur risks losing his shirt.

ENRICO FRARE: (Through Translator) Every businessman puts himself into his product. I decided that in a difficult time like this, I had to put my body into it as well.

ZARROLI: Frare was trying to draw attention to the difficulty Italian businesses are having getting credit. He says he has orders from retailers he can't fill because he can't get a loan.

FRARE: (Through Translator) I want to underscore that in a difficult time like this if you can't get credit, it blocks production, creates unemployment, and prevents you from doing research and development.

ZARROLI: Frare's methods are unorthodox but his sentiments aren't. Italy's many small and medium-sized businesses have long complained about how hard it is to get credit. Economist Francesco Giavazzi of Bocconi University says, in other countries businesses raise money through the stock market or investment banks. Italian companies tend to depend on commercial banks.

FRANCESCO GIAVAZZI: So these are not investors that are going to invest in an idea. No, they want to say do you have a building to put up as collateral for my loan? And these entrepreneurs often have good ideas, but often they don't have the collateral needed for that.

ZARROLI: With the debt crisis banks have become even more reluctant to lend. And when they do, they charge higher interest rates. Gianfranco Librandi owns an electronics company and also started a small political party. Librandi says the credit crunch makes it harder for Italian companies to compete in the global economy.

GIAFRANCO LIBRANDI: So it is a big problem, and many companies, they close because they don't have money for buying new tooling and new projects to do, and that is the only way to export to or have new products.

ZARROLI: To compete, many young businesses have headed north to Switzerland or Austria, where the system lends more support to entrepreneurs. Enrico Frare doesn't want to do that.

FRARE: (Through Translator) I'm an Italian and I believe in my potential and in my products. And in Italy there are a lot of young entrepreneurs who have talent, and I don't see why I have to leave this area to work and come back just for Christmas or vacations.

ZARROLI: But without more access to credit, companies like Frare's will have trouble growing and it will be a lot harder for Italy as a whole to emerge from the fiscal trap it finds itself in.

Jim Zarroli, NPR News.

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