MILAN (Reuters) – A 6.3 billion euro ($7 billion) state-backed loan for Fiat Chrysler (FCA) (FCHA.MI) financed by Intesa Sanpaolo (ISP.MI) is crucial to safeguard Italy’s economy, the head of the country’s biggest bank said.

The loan for FCA, which will be 80% guaranteed by the state through credit export agency SACE, has stirred controversy in Italy as the car maker, which has moved its legal headquarters to the Netherlands, advances towards a merger with Peugeot-owner PSA (PEUP.PA).

Speaking on Corriere TV, Intesa CEO Carlo Messina said the loan was essential to protect a sector which accounts for 6% of Italy’s national output, as its terms tie the financing to payments for employees and suppliers, as well as investments.

“With this transaction we’re supporting a key sector of the economy, its suppliers and employment,” Messina said.

“It’s a key plank (of efforts) to safeguard (the economy in) the current phase, if we don’t support sectors which are crucial to GDP such as automotive and construction … instead of a 10% GDP contraction we’ll have a 15% drop,” he added.

Reporting by Valentina Za and Elvira Pollina; editing by Giulia Segreti

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