The Covid-19 crisis requires a rapid response to safeguard Italian production capacity. Everyone and even the Bank of Italy seem to agree on this by now, through a study signed by economists Giorgio Gobbi, Francesco Palazzo and Anatoli Segura, entitled "Post-Covid business support measures and their medium-term implications", intervened in the debate. “The recovery of economic activities – argues Bankitalia through its experts – is linked how government measures distribute losses between firms, banks, households, governments and central banks, as well as the distribution of these losses over time. Government interventions to mitigate the impact of the crisis on companies, households and banks shift losses from the private sector to the state budget”.
But are the answers received so far adequate? “Public guarantees on loans are an effective tool to incentivize banks to grant the necessary liquidity to businesses. However, the medium-term effects of public guarantees are more controversial. In fact, when a publicly guaranteed loan disbursed to a company expires, the bank will have less convenience in renewing it if there are not the same guarantees", warns the Bank of Italy, recalling that in addition to the loan guarantees, it is essential to activate economic measures for better financial sustainability of corporate balance sheets. “A part of the losses suffered by the companies will not be recoverable and businesses will be less able to undertake the investments needed to accelerate the economic recovery,” argues the study.
The work, available on the Bank of Italy website, suggests three complementary economic policy measures, in the short/medium term: direct transfers to companies from the government; creation of a vehicle with public capital for debt restructuring of medium-large companies; introduction of tax incentives for the recapitalization of companies. The first is feasible in the short term: “It is a matter – explain the three economists – of compensate for the loss of revenue and cover operating expenses. Additional non-repayable transfers would avoid or reduce the need for firms to borrow from the financial system. Even the banks would have less risk of losses on existing loans”.
The second and third suggestions are instead more suitable for the medium term. “Governments could create a special vehicle to purchase the loans granted from the banks for the liquidity needs of companies. The vehicle would be financed with public capital resources and with long-term debt placed on the market, with an amount of capital sufficient to make the securities issued by the vehicle eligible for the ECB purchase programmes. Finally, the government could introduce tax incentives for example through a reinforced ACE”.
