Non-performing loans that Italian banks in difficulty must get rid of as soon as possible “amount to around 20 billion. If they were sold at the very low prices offered by the few large specialized operators present on the market today, who seek very high profit rates, the amount of the additional adjustments would be in the order of 10 billion”. The governor of the Bank of Italy, Ignazio Visco, said it today in his annual considerations. Also present at Palazzo Koch was the president of the ECB, Mario Draghi, a clear sign of confidence in the current Governor, as was the presence of the Secretary General of the Quirinale, Ugo Zampetti.
In any case, Visco has also launched a reassuring message on the credit front. Without making any explicit reference to Mps, Veneto Banca or Popolare di Vicenza, the Governor said that the crises of Italian banks "have been resolved or are in the process of being resolved. In Italy and in Europe, work is being done with intensity and determination on those still open. The legacy of the double recession, which our banks have suffered, not determined, must be closed. The banking 'system' is not in crisis, but its strength is inextricably linked to the strength of the economy”.
But the number one of Bank of Italy didn't spare a dig at Brussels, emphasizing that “in applying the new rules it is necessary to avoid compromising financial stability. In compliance with the principles underlying the new European order, the interventions of the authorities must be aimed at preserving the value of the banking activity, to the advantage of savers and entrusted businesses. We cannot run the risk of undermining trust in banks and in the savings they hold". In this case the reference seems to be to the two Venetian banks, at risk of bail-in after Brussels asked them to find another billion in capital from private investors.
The Governor then noted that in banking crises and in the protection of stability, the "fragmentation of powers" among many authorities in Europe "sometimes ends up making it difficult to identify the measures to be taken, slows down actions which, to be effective, would instead require extreme speed".
ITALEXIT? A RISKY ILLUSION
Visco then took a position in the debate on the possibility of an Italexit. To think that abandoning the euro would solve the problems of the economy or even “magically reduce” Italy's public debt “is an illusion – explained the number one of via Nazionale – The exit from the euro, by which is often spoken of without knowledge of the facts, would not serve to cure the structural ills of our economy; it certainly could not contain interest expenditure, much less magically bring down the accumulated debt. On the contrary, it would lead to serious risks of instability. Italy's competitiveness does not suffer from an overvalued exchange rate: the current account of the balance of payments is in surplus”.
WORK IS THE REAL URGENCY
Rather, the Governato underlined that “it is above all in the labor market that we see the most painful legacy of the crisis. The issue of employment is central” and “interventions are needed that can favor the lasting creation of jobs even in the short term. In 2014, the unemployment rate was almost 13%, more than double that in 2007. The gap between the quality of the jobs offered and the aspirations of workers has widened. The living standards of families have worsened, especially the most disadvantaged ones”. An "exceptional effort" is still needed to return Italy to stable growth and solve the problems of the labor market.
REFORMS: COMMITMENTS AND SACRIFICES ARE NEEDED TO STRENGTHEN GROWTH
To improve this situation, Italy must strengthen the recovery of the economy with reforms and "the changes will require time, commitment, sacrifices - continued Visco - Interventions to support demand will be able to alleviate the economic and social costs of the transition, but the policies economics must have a long view, highlight the benefits for citizens”.
In particular, according to the Governor, "we can help strengthen economic growth and facilitate the decline in the debt-to-product ratio by increasing public investment, reconsidering the structure of transfers and tax breaks and exemptions, rebalancing the burden on on the various taxable bases, continuing vigorously in the fight against tax evasion”.
If, on the other hand, nothing changes, "at current growth rates, GDP would return to 2007 levels in the first half of the next decade", underlined the number one at Palazzo Koch, explaining that the braking factors are represented "by the rigidity of the context in which firms operate, with weak productivity dynamics and an insufficient employment rate. I am confident that, beyond the political uncertainty, our country will be able to obtain results that serve the general interest, taking into account those who fall behind and those who retreat, freeing the economy from useless constraints, positional rents, ancient and new delays. All the opportunities that innovation offers today to develop a robust economy, stable and useful finance, a more just social system will be seized”.
THE PROBLEM OF EDUCATION
“Both the levels of formal education and the reading and comprehension, logical and analytical skills in Italy are far from those of other advanced countries, even among young people. There are widespread shortcomings in the school and higher education system, public and private funding for research and tertiary education remain among the lowest in international comparison".
PUBLIC DEBT MAY FALL BELOW 100% OF GDP IN 10 YEARS
As for the public accounts, it is possible to get back on the slope of the debt: "With an annual growth rate of around 1% - added Visco - inflation at 2% and with the average debt burden gradually rising towards the values observed before the crisis, a primary balance (i.e. net of interest) in surplus of 4% of GDP, substantially in line with the government's programmatic framework, would make it possible to bring the debt-to-product ratio below 100% in approximately ten years. With higher growth, which can be achieved within a framework of incisive reforms, a recovery in investments and with a different composition of the public budget, times would be shorter".
CRITICISM AND ACCUSATIONS, BUT OUR COMMITMENT IS MAXIMUM
At the end of his speech, Visco raised his eyes from his right and began to speak off the cuff: “The Bank of Italy has been criticized in recent years – he said – Sometimes even in rather harsh tones, often with even serious inaccuracies. She was accused of not understanding what was happening in some banks. Or that I intervened too late. It's not for me to judge. We have written and talked about that and how it was done and there will still be an opportunity to explain and clarify. I can only assure you that the commitment of the personnel of the Bank of Italy and of the Directorate has always been maximum”.
“Today more than ever it is important to start from the evaluation of the people who lead a bank – he added – When positions of absolute domination are consolidated, the risk that one's untouchability is exploited for abuse and favoritism increases. This can lead in a more or less short period of time to situations of instability. For less than two years, the Supervisory Authority has had the power to remove managers, which is different from the previous power, to dissolve the entire board of directors only in the event of controlled administration, a situation which required the occurrence of particular conditions. Now, if it is found that the shareholders, after having been notified, are delaying in taking the necessary measures, it will be necessary to intervene promptly and decisively. It has been done, it will be done when necessary”.
IN BANKING CRISES YOU NEED TO ACT FAST
When there is a banking crisis to deal with, according to Visco, “if we want to avoid, as we must, that customer distrust is triggered, we must act in a few weeks, not wait months or even years. But the complex articulation of the procedures and the number of authorities involved in the new regulation of the banking union do not help us, in a context in which the banks' liabilities may still not contain sufficient explicitly and knowingly usable tools for rapid recapitalisation. Of course, it is necessary for the banks to equip themselves quickly, but for those for which this will be too expensive it is necessary to envisage interventions that make it as simple as possible, and without costs for ordinary customers, to exit the market, with mergers, transfers or other".
Read also "Bankitalia, Visco and the bet on public debt"
Attachments: Bank of Italy, final considerations by Ignazio Visco
