Kicking off discussions at this national conference was the observation that the current financial crisis, evidently systemic in nature, is predominantly being shaped at this stage by perceived risk factors linked to vulnerabilities in the real economy and the banking system. Efforts in the political, economic and monetary arenas – both at national and European levels – seem to have eased speculative pressures on the markets and tentatively restored international investor confidence. Nevertheless, the stabilization of financial markets – efforts towards which, it was conceded, must continue – was viewed by the participants as merely a necessary but insufficient precondition to kick-starting the recovery process in the real economy.
With the ongoing sovereign debt crisis, the banking system – which in Italy as well as in the rest of continental Europe serves as a crucial bridge between financial markets and industry – continues to face a challenging funding environment, marked by unfavorable if not prohibitive capital-raising costs. The result is an increasingly restrictive lending policy which, among other things, has led to a growing mistrust of banks by Italians. Moreover, the unfolding of the crisis has also rendered the “pro-cyclical” effects of international regulation (in relation to capital, ratings and liquidity) more palpable, ironically further exacerbating the situation and impeding the banking system’s return to full functionality.
It was stressed that if appropriate means were found of channeling the huge mass of accumulated Italian savings towards financing business and infrastructure, such a valuable resource could play a crucial role at this juncture in reactivating investment in and development of the country’s industrial base. As Italian household wealth is predominantly invested in real estate rather than financial assets, providing stimulus to the housing market, by for instance introducing mortgage guarantee schemes for homebuyers, could deliver a boost to the sector, thereby also enabling a more even share of household wealth to be gradually redirected towards financial investments, which in turn might also eventuate in risk capital becoming available for Italian firms, thus allowing them to increase their levels of capitalization and raise resources for expansion and growth.
Strengthening the financial underpinnings of Italian firms was therefore seen as vital, not just to overcome the squeeze in – if not the drying up of – traditional credit channels, but also to ensure the effective recovery of the real economy. Indeed, it was felt that investment in research and development, or much-needed growth in the size of Italian firms through mergers and acquisitions abroad, should be supported particularly through risk capital rather than debt. In this regard, it was suggested that tax incentives which encourage the capitalization of firms and listing on the stock exchange would help overcome the customary resistance on the part of many Italian business owners to opening up their capital to external investors.
The participants were at pains to emphasize, however, that the Italian banking sector, households and firms are not the only actors with a key role to play in the revival of the Italian economy. The public and political sphere was also called on to make a clear unequivocal commitment towards fiscal consolidation, which must first and foremost translate into an improvement in the quality (more so perhaps than a reduction) of public spending. Indeed, the participants pointed to many areas of public administrative inefficiency that are currently hampering or slowing down economic recovery stimulus efforts. The severe delays experienced in payments by public authorities to the private sector were cited as a clear example of this: legislative rationalization measures could easily discourage or rectify such practices, which have serious knock-on effects for industry.
Fiscal consolidation was therefore identified as providing the necessary framework for a range of measures aimed both at removing obstacles holding back growth in private investment and at reinvigorating production and consumption. Objectives that the participants felt should be pursued as priorities included: efficiency improvements in the civil justice system and a reduction in the length of civil proceedings, increased productivity to be achieved not just by lowering the tax burden on employers but also by investing in human capital for research and innovation, and the restabilization of the capital position of businesses and banks. Finally, viewed as no less important was the need to restore trust and confidence to the relationship between the real economy and the financial sector, so as to galvanize entrepreneurial spirit and instill a climate of optimism, without which the country cannot hope to revive its fortunes.