The annual report of the Governor of the Bank of Italy is usually the more cautious economic public document, whose topics are selected and measured with almost the precision of sling used for weighing gold and gemstones. The attempt to bring it into many of the lowest common denominator has been designed to support the recent move of budget cuts is a bit ‘provincial and limited. Rather we should share the concern of the governor at the widespread corruption, lawlessness not only for tax and the failure to reorganize the public administration.
In our view, however, disagree Mario Draghi has some major weaknesses that would require more study. Immediately evident that he repeated several times that “central banks have provided liquidity to an extent unprecedented in both the case of Lehman Brothers in the most recent euro. “The exceptional expansion of liquidity measures have avoided a systemic crisis,” he recalled.
But this liquidity is going to cover, inter alia, “deficits and public debts have risen dramatically.” For the euro area, “the massive creation of debt, in a phase where it is due on the outstanding amount of bank bonds markets has suddenly increased the risk premium on a number of sovereign debtors,” said Draghi, highlighting this great and grave concerns that plagued all the heads of institutions of governance and control of the economy and finance.
The public debt of the euro countries, which will come to an end in 2010, to 540 billion euros, to which you are adding new debt for a total of almost 930 billion of new issues. In 2010 Italy will have to repay 250 billion for licenses. Then 192 in 2011 and 168 in 2012. Repay, as noted, means simply issue new securities to replace the old ones. The problem is finding buyers willing to buy at a fair interest rate and not punitive.
In addition to the growing problem of sovereign debt, emerging strong competition among banks to win European and American institutional buyers of bonds. According to some estimates, about 40% of the 2,000 billion dollars of large U.S. funds consists of 16 major titles of European banks. Draghi also said that with the onset of the Greek crisis, severe liquidity strains in the interbank market have returned and the operation is focused on the short term. ” Currently, U.S. investors for roughly $ 500 billion in short-term credit operations of European banks.
The wind is changing and some U.S. funds are beginning to withdraw their funding from Europe. It is not only financial game of geopolitics, but employees are decisions by the situation in U.S. debt. An example is given by the recent request of the insurance giant American national interest, real estate, Fannie Mae, new emergency aid to 8.4 billion dollars. Fannie Mae, which was saved from bankruptcy in 2008 with public funds, the portfolio has 3 trillion in mortgages whose value is deteriorating. He recorded 11.5 billion loss in the first quarter 2010. Its total losses accumulated by the explosion of subprime is 145 billion. Almost half the GDP of Greece, for instance.
Albeit quietly, Draghi warned that “banks must be prepared to face even prolonged and recurrent periods of market anomalies.” After recent experiences, it would be irresponsible to leave the market the magic task of responding to this emergency. Therefore become extremely urgent agreements between states and governments of the G-20 to prepare a new governance and new rules on finance in the dragons has stood up as president of the Financial Stability Board.
Facing then, with regard to our country, the core of the relationship between the economic recovery and access to credit and solvency of small and medium enterprises, the governor reported that “credit companies was down 3.7% in December 2009 compared to September, because of year. ” Percentages, the main decrease was recorded for more industries than the North already a tight access to credit in the South. Signs of improvement have been swept away by the euro crisis.
As is clear from the report of the Bank of Italy, “the recession worsens the liquidity of bank loans and credit losses in 2009 of the five largest Italian banking groups accounted for almost 70% of operating profit.” Despite the recent financial aid package EU, the ECB estimates, optimistically, that European banks will face write-downs suffering credit equal to 187 billion between now and end 2011. During the same period the same banks will compete in European and EU countries because “it will thicken deadlines for significant amounts of bank bonds.
In this race of governments and banks to finance their securities, SMEs, the engine only with the resumption of productive work, could be closed taps credit. It would be naive to rely only on a newfound willingness of banks.
We believe the government’s emergency operational plan of Deposits and Loans Fund to create a special fund to finance long term projects and technologically advanced of Italian small and medium industry. SMEs are the only camel working. It can withstand long drought, but he died without water!