“Monte dei Paschi di Siena expresses in extreme terms the evils of the Italian banking system: high volume of non-performing loans, low profitability, low capitalisation. The plan that is being finalized presents passages fraught with difficulties starting from the sale price of the tranche of loans at Atlante 2 and the market, with the related JP Morgan bridge loan, to arrive at the capital increase of 5 billions which appears extremely difficult unless you incentivize bondholders to convert their securities into shares in a 'voluntary' manner, which appears rather complex”.
Marcellus Messori he has a deep knowledge of the Italian economy and the banking system. He is a professor at Luiss and directs the school of European Political Economy which in recent years has produced various studies of great scientific value and also rich in practical indications for political decision makers. Here is the interview he gave to FIRSTonline.
Professor, MPS is therefore taking a path that risks not leading to positive results. Furthermore, the controversy over the role and costs of JP Morgan does not help lighten the climate.
“I actually believe that between commissions and guarantees on the bridge loan regarding the third tranche of NPLs, the cost of JP Morgan is quite high. But above all it worries that, in the event of a failure in the operation, the higher cost would be passed on to Atlante 2 and therefore to the banks that have subscribed its capital. In essence, the rescue of MPS would be paid for by the credit system which already has various problems to deal with on its own. In fact, the crisis points are numerous, just think of the banks in the Veneto region or Carige as well as the arrangement of the four banks that have already gone through the resolution procedure”.
Are you therefore saying that the Italian banking system is deeply ill and that intervening on a case-by-case basis does not allow the difficulties to be overcome? A systemic approach would be needed, even if the recent stress tests carried out by the ECB have clarified that, apart from MPS, the other banks fall within the European parameters and do not run risks even in the event of adverse economic conditions such as those envisaged for carrying out the test?
“To clarify the situation, it is necessary to carry out a medium-term analysis and understand what are the real weaknesses of our banking system and consequently identify the right remedies. Italian banks did not engage in financial speculation, but until 2010 they provided an excess of credit to the economy, often to sectors that benefited from positional rents, and to small businesses that were unable to adapt to the profound changes that have taken place in the world economy following globalization and the technological revolution. When the financial crisis hit the real economy in full, the banks, particularly exposed, suffered the blow of the crisis. It should be added that many banks were and still are of modest size and based their business on relationships, also driven by an often opaque governance, based on foundations or on a network of political-business relationships with the reference territory. This illusion of being exempt from the crisis has prompted our system to delay the reorganization of both the branches, still too numerous, and the business model, now finding itself in a rather delicate situation".
So is it the entire Italian banking system that we should consider at risk?
“No, be careful. From a capital point of view, apart from the cases of full-blown crises mentioned above, the system is in good solidity. The problem is that he has to remain still, as in a plaster cast, because he is totally committed to getting rid of the bad debts and reorganizing himself, thus not being able to make that positive contribution to the country's economy which is instead essential for growth. Wanting to be academically correct, the sequence that the system should follow would start from the reorganization to increase profitability, and then move on to the securitization of the NPLs on a financial market in the meantime also strengthened by the new business model of the credit institutions which should switch from direct lenders to consultants for the placement of loans on the market (the investment banks should do it), and finally to the strengthening of the capital that could be placed with investors who would clearly see the prospects of earnings. But this sequence is not possible. It would take too much time and thus leave the productive economy short of oxygen for a long time. The growth that would certainly be a panacea for everyone, would find it difficult to restart”.
It would therefore be essential to shorten the recovery period as much as possible in order to give Italy the possibility of reaching a growth rate at least equal to that of the rest of Europe, which is certainly not very brilliant. But there is only one way to do it: that of public intervention which in turn can be done directly by the Italian State or by Europe through the ESM, the European fund which could directly recapitalize the banks without going through our public budget.
“The impasse situation that I have described configures, in my opinion, what the current rules already envisage as a "systemic crisis" which would allow public interventions without triggering the current resolution regulations and therefore the bail-in. Of course, this is an obstacle course, obviously not without political costs. If we go it alone, it would be necessary to demonstrate to Brussels the solidity of our public budget and debt and therefore accelerate both the reform policy and the cuts in public spending, going to hit without hesitation the many positions of income that characterize our society. On the other hand, if one intends to resort to the ESM, a memorandum would have to be signed which would commit our government to following a very binding recovery policy. Certainly the rigor would be much less the more well-targeted and incisive reforms will be able to free up resources and energies to accelerate the growth rate. But to do this, we must increase the productivity of the whole system, push technological and organizational innovation. The latter would involve a passage of many workers from obsolete sectors to sectors with higher growth potential and therefore, to avoid accentuating the social malaise, it would be necessary to have a different welfare system from the current one, employment centers that function as redeployment channels , and more modern industrial relations that bring the worker closer to the company's results”.
A complex program that is not easy to implement, especially in a country like the current one based on the overlapping of powers, all endowed with the right to veto. For this reason it was essential to start with constitutional reforms to try to give more stability to governments and more efficiency to the political-administrative machine.
“My teacher Claudio Napoleoni used to say that ours is a country based on positional income (whether large or small) and that it is difficult to find consensus to make those changes which, even by accelerating the growth rate, would ultimately benefit everyone . This is why I believe that the referendum is important, but we must also bear in mind that those favorable conditions that arose two years ago (low interest rates, devaluation of the Euro, collapse in the price of oil) are not destined to last forever : maximum we still have a year, a year and a half, and we can't waste this last window of opportunity. We need to make our priorities clear to ourselves and to the rest of the world. Towards Europe, for example, we cannot continue to ask for a bit of everything and disperse our strength in a thousand streams. We have to be credible to focus on a few big things. Among these I would put the question of the definitive recovery of the banking system, which is also an overall problem of Europe, as the IMF underlined, and above all on a more robust plan of European investments. The Juncker plan was a success. Italy obtained about 70 billion. It will be necessary to multiply it by two or three and then find innovative financing methods. Our homework is to increase productivity, pushing for innovation and at the same time keeping public spending under control with a reduction in rents”.
Among the Western countries, the Italian economy has proved to be the least ready to adapt to the great changes in the scenario of the international markets. We have companies of excellence but by themselves they cannot transmit innovation to the rest of the system. Organizational changes are the most difficult to implement, but we must go down this path.
“Our growth has stopped for at least two decades. Now we have little time ahead. We cannot delude ourselves that there is only one lever to get us out of stagnation. I share the thesis of those who maintain that a large and rich continent like Europe cannot base its development on exports alone. However, for countries like Italy, a Keynesian policy based on deficit expansion would still risk financing only rents and would not affect those obstacles which, as we have seen above, are the country's real ball and chain. We are called to do many things together. We have to step up the pace. But if we make a correct diagnosis of our problems, we will be able to find effective remedies”.
