They serve "rapid progress in setting up a European bank resolution fund. The transition towards a uniform system of rules and supervision of the financial sector, especially in the euro area, must be accelerated“. Proceeding with the creation of a mechanism of this type "would help to reduce uncertainty on the markets". This is the appeal launched by the Governor of the Bank of Italy, Ignazio Visco, in his final remarks at the Annual Meeting of Participants. Only yesterday the European Commission opened up the possibility of using the permanent European bailout fund (ESM) to recapitalize European banks in crisis. Hypothesis relaunched today also by the president of the ECB, Mario Draghi.
Furthermore, according to the governor, the crisis the euro area is experiencing is affected "by the lack of fundamental characteristics of a federation of states" and it is therefore necessary "a path that has the final goal in the political union“. Today "there is none" and this "makes the monetary union more difficult to sustain in the long run". Also because "political inertia, non-compliance with the rules and wrong economic choices - continued Visco - have favored the emergence of internal imbalances, long obscured by the euro and ignored by the markets, which today risk jeopardizing the entire construction" .
The relaunch also passes through "the immediate launch of common and co-financed investment projects, with particular attention to the weakest countries". Operations that can "constitute an important signal for citizens and investors who today look above all at the scarce development prospects of individual states or regions". The governor's reference seems to look at the hypothesis of project-bond, which could get the green light as early as the next EU summit in June.
ITALY: RECESSION IN 2012, POSSIBLE RECOVERY FROM THE END OF THE YEAR
“According to consensus forecasts – underlined Visco – on average for this year and next, the product of the euro area will record a slight increase. For Italy, 2012 can only be a year of recession, due to financial uncertainties and the drastic, albeit indispensable, measures to correct the public budget”.
In not too unfavorable scenarios, the governor explained, “the drop in the product can be contained around 1,5%. A recovery could emerge towards the end of the year, with greater probability the more effective the structural interventions aimed at improving the use of public and private resources are, the clearer and more decisive the cohesion shown by the European Union will be”.
TAX INCREASE IS TEMPORARY: BET ON EVASION RECOVERY AND EXPENDITURE CUTS
“The price of one has been paid raising the tax burden to levels that are no longer compatible with sustained growth – Visco said again -. The tightening can only be temporary. The challenge moves: it is necessary to find, in addition to wider ones evasion recoveries, spending cuts that compensate for the necessary reduction of the tax burden. If carefully identified and inspired by equity criteria, the cuts will not compromise growth and will be able to contribute to stimulating it if they are aimed at removing inefficiencies in public action, simplifying decision-making processes and containing administrative burdens”.
FORWARD WITH REFORMS: EDUCATION, HEALTH AND JUSTICE
As for the work of the Monti government, according to the governor, “the action of the structural reforms has met with greater and more widespread resistance, but has in any case already achieved important results. He has opened a vast construction site, the work of which must be continued, with increased energy and broad vision, from education to justice and health care. The commitment is to reduce and rationalize the rules, not to increase overall public spending. Expenditure priorities can however be reviewed with the same budget balance, for example in favor of education and research”.
BANKS: BOARD OF BOARDS TOO CROWDED, REDUCE MANAGER SALARIES, CORRECT MANAGEMENT OR CHANGE OF TOP MANAGERS
“The mergers between banks – Visco said – were not followed by incisive streamlining of the corporate structure of the groups and a reduction in the number of members of the administrative bodies. The top 10 groups have a total of 1.136 positions, excluding foreign companies; over 700 for the controlled banks alone. Also among the other intermediaries plethoric compositions are often observed, which remove responsibility from the individual directors and have a negative impact on the functionality of the collegial bodies".
“These structures – underlined the governor – are in themselves expensive and not justified by the professional skills necessary for the effective management of the group or the bank. The recent ban on cross-holding offices between companies in the financial sector is also an opportunity to intervene on the number of boards of directors”.
Furthermore, “incisive interventions are needed in terms of operating costs. The current level of labor costs is hardly compatible with the growth prospects of the Italian banking system”, therefore “even the remuneration of directors and top management must be directed towards the objective of cost containment”. Finally, “lThe management of the banks must be correct, and where inconsistencies emerge, the top management must be changed and collaboration with the judicial authority must be initiated".
Read the full text of Ignazio Visco's speech.
