Small businesses spell big problems for Italy and Spain

Source: Reuters

(Reuters) - Small companies struggling to repay loans in Italy and Spain signal bigger problems on the horizon for the euro zone after the dust has settled on Cyprus's last-ditch bailout this week.

Defaults by small and medium-sized enterprises (SMEs), easily the biggest employers in Spain and Italy, are rising at a worrying clip, spelling trouble for the banks and two countries at the heart of Europe's debt crisis.

"You can be sure that if these companies' bad debts rise, you're going to see more bad loans to families, and credit card bills that won't be paid," said Javier Santoma, finance professor at Spain's IESE business school.


The ability of Italy and Spain, which account for 28 percent of the euro zone economy compared with Cyprus's 0.2 percent, to pull themselves out of crisis and avoid full-blown bailouts depends on the health of their banks; weak banks conserve capital rather than lend to get the economy moving.

Read more: http://uk.reuters.com/article/2013/03/28/uk-italy-spain-banks-idUKBRE92R03H20130328