Even in the context of a pandemic that continues and a severe crisis that Italy is going through, the governor of the Bank of Italy, Ignazio Visco, is already looking beyond: “The pandemic, with its enormous economic costs and human lives, it is not overcome and the margins of uncertainty about its evolution remain high “but” it is possible, by cultivating a longer-term vision, to do better than what the trend projections suggest “for the economy. Visco spoke on Saturday 6 in his speech in connection with the 27th Assiom Forex conference of financial operators, which takes place this year in virtual form. Mario Draghi’s successor at the helm of Via Nazionale recalled that “the second wave of infections and containment measures led to a new decline in product in the fourth quarter, equal to 2% on the third and 6.6% on 12 months . Our projections see a resumption of production activity from spring; this scenario crucially depends on a progressive attenuation of the epidemic ».
The quality of the policies needed to reduce the spread
“A newfound confidence in the quality of policies and in the economic prospects could allow a further reduction in the yield differential between Italian BTPs and German Bunds, which is still close to double that of Spain and Portugal,” he explained. “With the improvement of the economic situation – he added – an adequate strategy of gradual rebalancing of public accounts could strengthen these effects of confidence and further accelerate the reduction of the debt / product ratio”.
Cohesion is needed for recovery
“Our economy has shown resilience, the country must now find the necessary cohesion to resume development, taking advantage of the opportunity offered by the response from the European Union and addressing the structural problems that are holding it back”. This was stated by the governor of the Banca d’Italo’ia Ignazio Visco, speaking to Assiom Forex who hopes for “a common strategy, which has at its center the challenges of environmental sustainability and the digital transition”.
The reforms go hand in hand with the recovery plan.
Visco also draws the attention of politics to the most delicate issue that caused the crisis of the Conte II government, the Recovery Plan. Be careful not to assume that alone, it can be enough for the recovery. The implementation of the National Recovery Plan (the Recovery Plan) “although essential for the modernization of the production structure, risks not being sufficient to guarantee a lasting increase in the rate of growth if it is not accompanied by reforms that dissolve the knots that hold back development and private investment “. And he specified: “It is not a question of paying formal respect to the specific recommendations of the European Commission, but of addressing in a concrete way problems that have been debated for years”.
The indispensable but in the future more selective aids
In this context, the “relief” measures for households and businesses “remain indispensable” at the moment but “with the reduction of uncertainty about the economy” it is necessary to think of a progressive reduction of them, making them “gradually more selective,” Visco said. “Access to institutions that are now broad-spectrum and significantly more generous than ordinary ones may be reviewed by conditioning the ability of companies to safeguard employment levels and at the same time easing the generalized block on layoffs”. More generally, “once the emergency has been overcome, the measures aimed at alleviating the difficulties of those most affected will have to build a bridge towards the implementation of reforms and investments that make it possible to rediscover the way of development that has been lost for too long”.
The call to banks but no worries about a peak in NPLs
Banks too must do their part in supporting businesses and households in this difficult phase. The credit moratoriums, extended until June 2020, “will allow” companies to maintain high liquidity but must remain “an instrument to allow debtors to overcome transitory difficulties, not a means of concealing clear and irreversible crisis situations”. This is the warning of Governor Visco to Assiom Forex, according to which «never before as in this phase the banks will have to exercise their role with expertise, acting promptly». However, Visco has allayed fears about a jump in banks’ non-performing loans due to the Covid crisis, especially after the moratoriums end. Although increasing, “the deterioration rate (of loans, ed) should nevertheless remain well below the peaks reached during the sovereign debt crisis in the euro area ”. According to Visco, not worrying signals are also perceived by the impact of the new European rules on defaults: the new system “does not involve substantial changes in the reports to the Central Credit Register” and “appears to have a moderate impact on the consistency of impaired loans”. «To minimize the effect – he reiterated – we urged intermediaries to launch an adequate information campaign on the new rules and to intensify bilateral contacts with customers. The objective is to prevent any non-fulfillment not connected with actual difficult situations and to effectively manage the latter ».
Visco criticized Europe on the issue of bad bank: “The recent communication from the European Commission identifies potentially useful initiatives to strengthen the secondary market for non-performing loans, but is not very ambitious about the possibility of creating asset management companies that can benefit from public support ”, which is a proposal that the Bank of Italy has been pursuing for years.
Caution on dividends
In any case, he also called the institutions to “extreme prudence” in the distribution of dividends since “in this very particular moment it is necessary to maintain a sufficient degree of capitalization of profits”: profits, he stressed, “were favored by the enormous public support for businesses and families, which has helped to reduce the impact of the crisis also on the balance sheets of credit institutions ».
Finance is also committed to tackling climate change
“Finance cannot fail to take an active part in strategies to combat climate change with speed, decision and foresight and, at the same time, not include the resulting risks in its assessments”, recalled Visco. «The growing interest of investors is leading to a strong expansion of sustainable finance, expanding the availability of capital to finance the transition towards a low environmental impact economy. This trend must be supported by better corporate information; companies that lag behind in increasing transparency will face difficulties in attracting capital. The correct identification and quantification of the exposure of its assets to climate risks is also an essential tool for their accurate and effective management ».
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