The Italian government has approved a decree to pay €40bn owed by government entities to private businesses over the next 12 months to help relaunch Italy's stagnant economy.

Premier Mario Monti acknowledged today after his caretaker government adopted the decree that overdue payments had become "a bad habit" that put a heavy burden on business owners.

Italian state entities on an average pay their bills six months after services are rendered and 90 days after the official due date.

Mr Monti said that the payment delays put Italy behind Spain, Portugal and Greece.

Delayed government payments are a major factor behind liquidity shortages faced by many small and medium-sized Italian companies.

Reduced turnover in the recession means many businesses, in turn, are having trouble keeping up with even small debts.