“I remain convinced that the German ruling class remains faithful to a pro-European vision, but the situation is objectively complex and we cannot think that Germany will take on the debts of all of Europe: its fidelity to Europeanism also depends a lot on us and on the our behaviors. If we are virtuous, it will also be easier for the Germans to defend the European project”. This is supported by Alessandro Profumo, the Italian banker who perhaps knows Germany best, its ruling class and its economic and financial system.
In Germany, with the purchase of Hypovereinsbank in 2005, Profumo built a milestone in the transformation of Unicredit into a large European bank and, also because he descended from a grandmother who came from Germany, he has always been considered the most German of our bankers. CEO of Unicredit until a year ago, Profumo, who in the meantime founded the consultancy firm Appeal Strategy & Finance, has precise ideas on the scenarios of the crisis and on the importance of Germany's role.
Here is his point of view in this interview granted to FIRSTONLINE.
FIRSTONLINE – Dr Profumo, the Greek crisis and the risk of default continue to keep the markets anxious, but everyone is looking to Germany and the vote by the German Parliament at the end of the month on the bailout fund, in the knowledge that the fate of the euro and the Europe are in the hands of the Germans. How do you think it will end and what should we expect?
PROFUMO – I believe that the German political and economic ruling class has a clear idea of the complexity of the situation. But I am equally convinced that he hasn't abandoned his pro-European vision at all and that they have no intention of screwing up the euro and the entire European project.
FIRSTONLINE – Merkel's wavering on the Greek crisis such as the outcry and resignation of Jurgen Stark from the ECB on the purchase of Italian and Spanish government bonds, however, offer another reading of the German orientations: don't you think?
PROFUMO – It is true that mistakes have been made, above all in the slow and wavering management of the Greek crisis, and it is equally true that faced with a complicated situation such as the current one, it is completely natural that there is a dialectic in Germany as well. But the point is another: Germany, in its current majority, remains anchored to the euro and to Europe but cannot accept nonchalant moral hazard behavior from other countries. It is precisely these undisciplined behaviors in terms of financial stability that put Germany's Europeanism in difficulty and it is difficult to blame the Germans when they ask why they should pay for the adventures of others.
FIRSTONLINE – One thing is moral judgment and another is political logic. Taking charge of the Greek crisis and its costs or supporting the BTPs and the Bonos can be unpleasant but even for the Germans it can be the lesser evil, because the failure of the euro would be a very serious blow for Germany too: don't you think?
PROFUMO – All true, but one cannot realistically think that Germany will take on the debts of all of Europe. Moral judgments aside, it would be an unsustainable operation for the Germans as well. However, there is one thing that countries that complain of a weakening of German Europeanism can do.
FIRSTONLINE – What?
PERFUME – Assuming more virtuous behavior in crisis management, especially in terms of reducing public debt and supporting growth. In this way they would offer Germany a bank to relaunch the Europeanist policy and they would find it in turn. I repeat: the current situation is very complicated and we and the Germans must make an effort to understand each other without prejudice and bias.
FIRSTONLINE – Recently, ex-chancellor Kohl said that for some time now Germany is no longer reliable, because the world does not understand where it wants to go and whether it really wants to fully defend the euro or is thinking of certifying what is already in reality, namely a double euro monetary system, one for the virtuous countries of the EU and one for the more undisciplined ones which would also include Italy: what do you think?
PROFUMO – I don't think that most of the German ruling class has in mind alternative solutions to the euro, which also remains the preferable option for Germany. This does not exclude that, if the situation were to become even more complicated, the opposite of what is now thought could happen. In any case, I would like to say that an internal German dialectic on the strategies to follow is completely natural and it is true that the current political summit has shown a leadership deficit, but it seems to me out of place that in Italy or in other parts of Europe expects to teach the Germans a lesson: first let's look in the mirror and do our homework, we have no qualifications to teach the Germans what they should do.
FIRSTONLINE – However, Stark's controversial resignation from the ECB bears witness to the fact that even in Germany there is a fierce battle between hawks and doves over the management of the crisis and the future of the euro: who will win?
PERFUME – I don't like reading the dialectic present in Germany as a clash between hawks and doves. It is a caricature that does not accurately capture the state of the ongoing debate in the face of an unprecedented global crisis. There have certainly been fluctuations in the management of aid to Greece that have delayed decisions too long, but it is not a question of hawks and doves. It remains desirable for all of Europe that, once objectives and sacrifices have been decided, we proceed in a more rapid and incisive way without starting chases that never end. However, unloading the blame on one or the other is too easy a game: everyone has to play his part.
FIRSTONLINE – If unfortunately Greece defaults, what happens to German banks that are full of Greek government bonds?
PERFUME – At first the German banks would be able to withstand the effects of the default, even if with heavy losses. It has been calculated that the write-off already achieved for the European banking system deriving from the Greek crisis is of the order of 20-25% of total exposure. But the real problem would arise immediately after: from the day after the bankruptcy of Greece, the market would begin to wonder who is the next victim and whose turn is the next default with a devastating domino effect for everyone.
FIRSTONLINE – And at that point?
PERFUME – You don't have to get to that point. We need to plan ahead and never forget that making Greece go bankrupt would be sheer madness with impressive economic and political costs. It would be a very hard and mortal blow not only for Greece and for the banks but for the euro and for Europe. That's why the priority can only be one: to save Greece to save the euro.
FIRSTONLINE – Beyond the effects of the Greek crisis, what is the state of health of the German banking system today?
PROFUMO – It is a very complex system which operates at two speeds and which has its weak point in the so-called Landesbanks, the banks of the Lander controlled by the public power, which no longer have a sustainable business model and therefore are no longer standing. because they are medium and long-term lenders of capital but do not have adequate funding. They would need privatizations and aggregations with the savings banks, as happened with us. Then there are Deutsche Bank and Unicredit, while the rest of the banking system is essentially public. The paradox of Germany is that it has the strongest industrial system in Europe and the weakest banking system.
FIRSTONLINE – At least in the banking field, is Italy better off than Germany?
PERFUME – Certainly yes. We started to privatize and modernize the system with the Amato-Ciampi law and then we did a lot of internal and external mergers and acquisitions which eventually led to the creation of two European champions.
FIRSTONLINE – Mr Profumo, based on your experience as a banker who built the first Italian international bank by making a qualitative leap in Germany, what does the German financial community appreciate and what irritates us Italians?
PERFUME – They appreciate our creativity but criticize our institutional disorder and the quality of our decision-making processes. And they are not entirely wrong.
