In a recent letter sent to the European Commission and the Swedish Presidency of the EU, Confindustria and BDI asked for the rules governing Basel II to be changed. This is usually a long procedure. How could you make it shorter?
Changing capital requirements for banks and Basel II rules is indeed a process which takes a long time. It requires an international consensus. New rules would not enter into force before the end of 2010, or 2011.
This process is useful to avoid repetitions of crises like the one we are living, but it will not help to face the immediate credit crunch. In order to tackle it, we need short-term actions. We need a temporary softening of the rules on capital requirements. Banks should be allowed to keep less capital for a limited period in order to lend more in the current phase.
Would national interventions not be quicker?
It is always better to avoid non-coordinated actions [Competition Commissioner Neelie] Kroes has intervened well so far, helping states to act under the European umbrella. All aid to banks was meant to support credit. However, this has not happened yet. Access to credit remains tighter than before the crisis. Excessive prudence has a negative impact. Many companies, especially small and medium-sized ones, see the difference in the field. In this situation, European intervention would be appropriate.
Can you give us an example of a company in difficulty?
Last spring, one of our members, a small textile company in Tuscany, was not paid on time by its clients, mainly retailers. The company had to ask for a bridge loan to support current expenses, so-called working capital. It required financial help from its usual bank.
For how much?
It was something small that does not have a big impact on a bank's balance sheet. We are talking about €150,000 for a short-term loan. The risk for a bank is a few thousand euros. But what was easy a few years ago is now difficult. The request took a long time to be processed. In the meantime, the risk of failure is around the corner. The company did not fail, but was forced to reduce its workforce.
This was a typical scenario last spring. Now we are seeing signs of recovery…
Indeed, there are positive signals. In Asia we see a recovery. China, India, also Brazil, are coming back to levels of growth like the ones they had before the crisis. Our growth is therefore linked to the capacity to export. This increases the quest for fresh capital, because sound companies, usually focused on the internal market, will need to develop new channels to export in emerging markets. They need capital to face the post-crisis scenario. Otherwise we'll experience a W-style recovery, with a new fall after the recovery.
Thus, the European internal market will not be enough to sustain a durable recovery?
The economic perspectives for next year for Europe show timid growth. The real growth is in foreign markets, far away from Europe.
The request to temporarily ease access to credit has so far been signed only by Germany and Italy. Why did other national industry representatives not participate in the initiatives?
The German industrial sector is structured in a similar way as the Italian one, and suffers the same problems, especially concerning exports. That's why co-operation in this field was easier than with other partners. However, after the publication of the letter, many colleagues within BusinessEurope are showing their support for the initiative. This will likely be one of the main requests that BusinessEurope will raise before the European Council. It is a problem that is felt well beyond the Italian and German borders.
You represent small, medium and large companies. Which do you think need more help at the moment?
It is evident that smaller companies are those suffering more from the credit crunch. Many little firms are family-run businesses which do not raise funds in financial markets. They depend entirely on banks' credit. Bigger companies usually have other financing channels, but also middle-sized enterprises can suffer from the credit crunch.
Public debts and deficits have swollen during the crisis. Sooner or later governments will launch exit strategies and will try to recover part of the money spent so far. New taxes might be an option. At whom should fiscal intervention be targeted? Companies or consumers?
It is not an easy situation for governments. Debt is rising, but fiscal pressure is already very significant in many states. If there is eventually fiscal intervention, I think the less-damaging way should be targeting consumers, because indirect taxation could be shared on a wider basis.
But it will also hit those who have less...
That's why these possible tax increases should go with social measures to help people paying their bills.
From the point of view of small and medium-sized companies, how do you judge the work programme that Commission President José Manuel Barroso has just presented to the European Parliament?
We welcomed the fact that Barroso raised the targets concerning better regulation. In a context of crisis, we feared this topic could have slipped away from the agenda, and instead it is still there with more ambitious targets. It's clear that when we talk of cutting red tape, we are doing so in the interest of small companies.
