Italy’s dilemma after Merkel-Hollande agreed loose banking union

 European Council meeting 22/5/2013: Herman Van Rompuy, President of the European Council, Enrico Letta, Italian Prime Minister From (from left to right). (European Council photographic library).


European Council meeting 22/5/2013: Herman Van Rompuy, President of the European Council, Enrico Letta, Italian Prime Minister From (from left to right). (European Council photographic library).

Last week the President of the European Council Herman Van Ropmuy went to Rome, to meet the Italian Prime Minister Enrico Letta. This was a very significant move by the EU Council President. Italy is the third largest economy of Eurozone with large and more or less competitive private sector productive structures in manufacturing, services and agriculture, which support millions of jobs and constitute its only hope to exit from the present difficult conjuncture.

Yet the country is in a most unfavourable position in respect to banking credits to the business sector. Its SMEs have to pay more than triple interest rate costs for the same business risks as their German or French counterparts, a result of Eurozone’s financial fragmentation and persistent substantial country risks.

Italy’s dilemma

At the same time the new Italian Prime Minister’s political position is very unease. He is supported by a grand coalition of left and right and his manoeuvring space is very limited. In this respect Letta has warned Brussels, Berlin and Paris that Italy will not endanger its productive infrastructure, because Germany and probably France want to use the fragmentation of Eurozone’s financial market to break down his country’s competitiveness, by depriving its private sector from adequate financing.

He said that this will mean “the absolute catastrophe”, meaning obviously that Italy could possibly search refuge outside Eurozone and return to the lira. In this way the country would regain its lost competitiveness by a large devaluation. Not to forget that Italy produces such a large array of products as France and Germany taken together and exports annually a wealth of more than €400 billion of goods and services. It is the only south Eurozone country which can survive outside Eurozone, an impossibility for Spain, Portugal and Greece.

In this context the Italian demand for the creation of a strong and effective banking union, a new institution which could guarantee a seamless financial market, must be taken seriously under consideration by Brussels, Berlin and Paris. This is of particular importance now, after the French President Francois Hollande and the German Chancellor Angela Merkel agreed last week, that the banking union may not be that much effective and strong so as to guarantee the elimination of the country risk as Letta demands. The European Sting writer Elias Lacon produced a relevant analysis on 31 May. If this is true Italy and the Franco-German axis must be now in dense negotiations.

Rompuy’s attempt

Seemingly in order to discuss and ponder the Italian reaction to the Paris-Berlin agreement, Rompuy went to Rome on Friday 31 May. The President of the Council however took a step forward and reassured Letta that Brussels do not agree with a loose banking union, which will not be able to secure that the Italian SMEs would have the same borrowing options, as their German and French competitors for the same business risks. Already the entire Brussels bureaucracy in the Commission and the Council has supported the position of the European Central Bank favouring the creation of a banking union that matters to countries in difficulties, like Italy.

To make this clear Rompuy after meeting with Letta said, “In June we will also discuss (in the EU leaders summit) the issue of credit to the economy, particularly to Small and Medium-sized Enterprises (SME). The current situation is not satisfactory. In several countries, including Italy, access to credit for SMEs is more difficult and more costly than for SMEs with similar characteristics in other Member States. This is probably one of the biggest obstacles to the recovery right now. The European investment Bank (EIB) can help solve this problem. We expect the EIB to significantly expand the volume and the scope of its activities in support of SMEs. The European Central Bank is also looking at options of addressing the current fragmentation in financial markets and there is scope for joint actions between the EIB and the ECB. To succeed at our June European Council we all need to work hard. And I look forward to continue working with the President and the Italian government“.

In this passage Rompuy tries to marry the Paris-Berlin decision for a loose banking union, with the need to cover the financial needs of the SMEs in Italy and elsewhere in the European south. He offers a more strong intervention of the EIB which can offer substantial volumes of cheap loans to the SMEs. By the same token he also reminds everybody that the ECB is in favour of a strong and effective banking union.

The problem is however that on the one side the EIB cannot cover all the financial needs of the Italian and other SMEs in Greece, Spain and Portugal. On the other side the ECB cannot by itself create a banking union, being unable to overcome the Paris-Berlin political prerogative. If things are like that, Eurozone is once more before another dead-end, with the south being faced with the dilemma. Either stay in and confront the difficulties of the productive structures with other means, like labour market liberalisation and administrative burden reductions, or get out and face alone their over-indebtedness problems.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

A multipolar world brings back the national champions

Latest Eurobarometer survey (July-August): Economic situation is EU citizens’ top concern in light of the coronavirus pandemic

Commission announces actions to make Europe’s raw materials supply more secure and sustainable

ECB to support only banks not Peoples

Transition between education and employment: how the internship culture is threatening the foundations of our education

The European Sting @ the European Business Summit 2014 – Where European Business and Politics shape the future

€2 billion to fast forward the creation of the European Innovation Council

Financiers can turn the world into a dirty and dangerous place

UN chief hopeful for Libya, after Quartet meeting in Tunis

Final vote on European Solidarity Corps

Global South cooperation ‘vital’ to climate change fight, development, Guterres tells historic Buenos Aires summit

Two peacekeepers killed in an attack against UN convoy in Mali

‘Endemic’ sexual violence surging in South Sudan: UN human rights office

This Indian school accepts plastic waste instead of fees

Insurer CEOs Reveal Marketing Strategies that Communicate the True Value of Insurance Products & Services to the Customer

After globalization what? Europe’s long, straining shake-up post Davos wreckage

Large parts of the world are growing more fragile. Here are 5 steps to reverse course

More answers from Facebook ahead of Parliament hearing today

Digital business is Europe’s best hope to get back to growth

Children in crisis-torn eastern Ukraine ‘too terrified to learn’ amid spike in attacks on schools

I went blind at age 5, but managed to stay in education. We must ensure 93 million children with disabilities get the same chance

Brexit: reciprocal visa-free access for EU and UK nationals

In 1975 NASA envisioned future life in space would look like this

Climate Change : An Already Health Emergency

China Unlimited Special Report: The trip to China

Commission publishes EU Code of Conduct on countering illegal hate speech online continues to deliver results

UN rights chief calls for release of hundreds abducted and abused in South Sudan

Peace in the Gulf ‘at a critical juncture’ says DiCarlo, urging continuation of Iran nuclear deal

European Vocational Skills Week: ‘VET for Green and Digital Transitions’

Commission to decide on bank resolution issues

Conditions deteriorating alarmingly in Yemen, warns senior UN official

Federalist EU ‘naively’ believes Washington shares her TTIP high fever

Lessons in disaster relief from the world’s most cyclone-battered state

Violence against women a ‘mark of shame’ on our societies, says UN chief on World Day

Global economy faces gravest threat since the crisis as coronavirus spreads

COVID-19 has ushered in the age of the ‘intangible company’. Here are 4 ways it will change business

Vaccination challenges for middle and low-income countries

Youth not prioritised in new Commission

Two refugees explain what COVID-19 means in their precarious world

Team Europe contributes €500 million to COVAX initiative to provide one billion COVID-19 vaccine doses for low and middle income countries

EU-Ukraine Free Trade Agreement sees the light as Moscow’s reaction once more looms

FROM THE FIELD: Photos highlight agony of West African civil wars

90% of plastic polluting our oceans comes from just 10 rivers

Estonia is making public transport free

These are the world’s best universities by subject

COVID-19: Commission creates first ever rescEU stockpile of medical equipment

Can we create an empathic alternative to the capitalist system?

Gender Equality Index 2019: Still far from the finish line

5 things you may not know about Dubai

In this Tokyo cafe, the waiters are robots operated remotely by people with disabilities

What does leadership mean in an age of perpetual change?

Economy and living standards of Gaza ‘eviscerated’ by crippling blockade – UN trade and development report

EU Copyright Directive: Will US tech giants comply or ditch the EU market?

Thousands of health professionals call on world leaders to prioritize a greener future, post-pandemic

Tobacco-free public space – how is the European law executed in my country?

Turning waste into wealth: World Habitat Day focus on cleaning up cities

EU Budgets: Europe hoping for Xmas gifts

These are the world’s most competitive economies

What lies ahead for the Korean Peninsula?

6th Edition of India m2m + iot Forum to open its door on 14th January, in association with The European Sting

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s