Coordinator: STEFANO VISALLI
Contributors: STEFANO VISALLI, CARLOTTA DE FRANCESCHI, CLAUDIA BUGNO, ANDREA CROVETTO, ALESSANDRO DECIO, COSIMO PACCIANI, AMBRA REDAELLI, DARIO SCANNAPIECO, ALESSANDRO TAPPI, NICCOLÒ GAMALERI, PAOLO GENTILI, ANDREA COLOMBO
External contributors: –
“As a consequence of the sovereign debt crisis, Italian banks have seen a substantial increase of their cost of capital over the medium-long term lending. They acted as underwriters of last resort of the government debt released on the market by foreign investors. At the same time, the deep recession has greatly increased the riskiness of bank assets, which are affected by credit losses. The banking system has responded to this dual shock with a deep contraction of credit supply to the economy, which in turn slows the recovery.
The contraction of the bank credit supply is not a temporary phenomenon, it is intended to last for years, in order to allow banks to rebuild their balance sheets and reduce leverage. The low profitability of banks will result in a major restructuring and in a contraction of the intermediation role of banks. This process is in part already begun, as evidenced by the reduction in the number of bank branches occurred in different provinces, which so far has been always registered a positive growth rate. In addition, there will not be only a short supply of bank credit, but also its cost, very low during the decade following the introduction of the euro currency, is likely to remain high. ”
These considerations, taken from the report “Idee per la Crescita” of April 23 2013, exemplify the situation of the main financial source for Italian companies and households – Bank financing.
A lower flow of credit means less purchasing power for households, lower investments for businesses and a weaker economic growth and jobs creation.
In addition, much has been written about the loss of competitiveness of Italian firms due to a higher increase in labour costs compared to the increase in productivity. In the meantime, the same attention has not been placed on the competitive disadvantage resulting from the difference in the cost of credit. For example, an Italian company has to sustain a higher financing cost of about two percentage points compared to the same German company, equivalent to 4-5 percentage points in terms of labour costs.
Action Institute believes that the credit crunch problem should be tackled with high priority and that a higher rate of financial flows is required as soon as possible for both businesses and households, in order to avoid a dangerous point of no return for the Italian production system, which will result ultimately in dramatic job losses, high rates of unemployment in the long run and finally social tensions.
In this regard, our working team aims at building consensus over practical proposals able to enhance credit flows to the economy and to reduce the related costs.
Let me remind you that credit is the lifeblood of business, the lifeblood of prices and jobs.
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