If we don't want to end up like Japan – which for twenty years has given up on growth because it can't emerge from a too-debt-trap – we should focus more on the future, that is, on financing growth.
The Barroso Commission has just done so, by approving a Green Paper (the “color” means a consultation document) with the ambitious title: “Long-term Financing of the European Economy”. It serves to avoid the danger that we are concerned only with Cyprus - i.e. with past mistakes - and above all that the debate (as often happens in Italy) is limited to having to choose whether we prefer to be on the side of the "cheat debtors" or on the side of the " obtuse creditors".
In practice, to deserve a future, we must be able to manage on tracks - contemporary but distinct - three policies:
1) how to get to Monday, i.e. emergency management (see Cyprus: who's next?);
2) how we reduce too much debt, i.e. how we achieve medium-term deleveraging, avoiding the destructive credit crunch (the topic is well explored in the work by Buiter and Rahbari last November, entitled "Debt of Nations");
3) how we can grow again, by financing the necessary public and private investments.
We had already dedicated an initial reflection to this last aspect on 13 March, citing the work Swiss Re – Institute of International Finance. But the issue deserves a much more in-depth analysis, as Brussels now invites us to do; as the Group of Thirty had already done recently; and as the Bank of Italy has now underlined.
To give a future to the creative destruction of businesses, and provided that Europe wants to continue to be a developed-area-that-does-not-give-up-development, we need to improve and direct the creative fantasy of finance that brought us to trouble today. To this end, especially in countries such as Italy which have always been "bank-centric" and equipped with many small and medium-sized enterprises, it is necessary that operators and markets develop that are somehow intermediaries between banks and the Stock Exchange, and therefore capable of link investments to be made with savings wherever they accumulate. The role of insurance companies and pension funds is obviously central to this perspective. As is the rethinking of many aspects involving legislation, regulation, taxation, accounting principles, and so on. Furthermore, as the Bank of Italy also points out, the complementarity between banking activity and market growth must be valued.
The many questions that the Green Book lists need to be answered. The Commission awaits the replies from interested parties - by 25 June next - at the following address: markt-consultation-long-term-financing(at)ec.europa.eu. From Italy, what will he write?
