A PUBLICATION ON ITALIAN ECONOMICS, POLITICS AND FINANCE
FEBRUARY 2011
I N S I D E Politics . . . . . . 3 & 5 EU Helps With Migrants Olympic Chair Named Italy’s Tunis Ties Tighten Solar Energy Shines Italy’s Women Walk Out President Calls A Truce.. ...And Italians Back Him EcoNoMY . . . . 7 & 8 Consumers Act Skittish Inflation Edges Up Quarterly Growth Lags Retail Results Dip coMPANY NEWs . . 9 Fiat CEO Flags Change Insurer Loses A Director Lavazza Looks East Ferrari Falls In With Ford Metroweb Mulls Sale FiNANciAl NEWs . .12 Banks Face Tough Times Italian Savings Are Ripe Wealth Tax Is Touted Prada Ponders HK IPO oPiNioN . . . . . . . . 14 Time To Get Serious A Banker Remembered
FOUNDED IN 1995 BY MARIO CALVO-PLATERO
VOL. 11 / NO. 2/ $15
Berlusconi Cabinet Approves A Justice Reform Prime minister Silvio Berlusconi's cabinet gave initial approval to changes to Italy's justice system, shortly after prosecutors said he should stand trial for sex with an underage prostitute and abuse of power. The measures include a proposal to reinstate full parliamentary immunity, which would cover Berlusconi as he is a deputy. They were immediately slammed by magistrates as an attempt to punish them for investigating the prime minister. "The cabinet agreed with and approved unanimously a report by Justice Minister Angelino Alfano on constitutional reforms of the justice system," the government said in a statement after the cabinet meeting. The government is also thinking of making judges liable for their actions, sources said. The draft changes still needed definitive
approval from the government and would then require a lengthy approval process with two-thirds majorities in parliament. The reform would restrict telephone taps--one of the main investigative methods used by prosecutors in inquiries against Berlusconi. It would also separate the careers of prosecutors and judges--a key demand of Berlusconi supporters who accuse the judiciary of ganging up against him. Critics say the move would undermine the independence of the judiciary as it would place prosecutors under the authority of the justice ministry. A few days before, a magistrate had given her approval for Berlusconi to stand trial from April 6 on charges of having sex with a 17-year-old prostitute and then using his status to try to cover it up by getting her out of police custody.
Berlusconi Drafts Economic Reform Plan Premier Claims He Has The Support To Spur Growth Italian prime minister Silvio Berlusconi said that financial markets see his government as a guarantee of fiscal stability and insisted that he has the political support to push through reforms to accelerate economic growth. Berlusconi said his economic plan--which he expected would boost Italy's economic growth rate to 3% a year, or twice the average rate Italy posted in the decade leading up to 2008-would require "full collaboration" from a broad array of political parties, labor unions and business associations. The plan will be presented in detail to the European Union by April, and "won't be easy or quick," Berlusconi said. Mustering bipartisan support for a longterm project will be a challenge at a time of daily calls for Berlusconi to resign. Only 34% of Italians think Berlusconi
should remain at the government's helm, while 30% want elections and 19% want a "technical" government, the ISPO polling institute reported. The prime minister also made bipartisan agreements harder to forge when he said that his parliamentary majority had emerged smaller but stronger following a set of defections from his People of Freedom party. The departures came in the wake of proposed judicial reforms that critics said were tailored to provide Berlusconi with immunity from several legal actions. See Also Page 5
Europe’s Model May Not Be Libya’s, Says Italy Europe should support national reconciliation in Libya but shouldn't export its democratic model, Italy's foreign minister said, voicing fears that the country could split in two. Franco Frattini called for a stability and development plan for the region similar to the "Marshall Plan," the U.S.-led reconstruction program for post-World War II Europe. He urged Libya to draft a new constitution but "Europe shouldn't intervene, Europe shouldn't interfere, Europe shouldn't export,” except to encourage peace, he said.
Italy And Russia Kick Off A Year Of Cultural Exchange And Medvedev Visits The Vatican... See Page 3
ad page 2
FEBRUARY 2011
I N
B R I E F
Rome Names Olympic Chair Former Italian Olympic Committee Chair Mario Pescante, a deputy chairman of the International Olympic Committee, was named Monday to spearhead Rome's bid to host the 2020 summer games. Pescante, 73, a former middle-distance runner, was named head of the 'Roma 2020' promotion panel hours after Ferrari chief Luca Cordero di Montezemolo, widely tipped for the post, declined the government's offer to take it up.
Italy Affirms Tunis Ties Italy is closer than ever to Tunisia, according to Italy's ambassador to Tunis, Pietro Benassi, who met with Tunisia's Education Minister and official interim government spokesman Taieb Baccouche. Benassi underscored that the approximately 700 Italian enterprises in Tunisia will be continuing with their activities, according to press agency TAP, confident that the investment climate after the revolution is improving and that Tunisia due to its competences, human resources and strategic position - is the ideal place to attract foreign investment. The ambassador also noted Italy's commitment within the culture and educational sectors. Baccouche, on the other hand, focused on the solid ties binding the two friendly populations, reaffirming the interim government's intention to further strengthen them.
Italy Is A Friend To Egypt The first steps to be taken by Italy in order to support Egypt's new phase of political development were revealed during a congress in Rome organised by the Italy-Egypt Friendship Association. They include continuity in bilateral relations; providing greater impulse for Italy's diplomatic activity at the European level for the Middle East area and a redesigning of the Union for the Mediterranean (UpM).
POLITICS
REVIEW ITALY 3
EU Commits Funds To Help Italy With Migrant Influx Unrest In North Africa Sends Boatloads Of Migrants To Italy Seeking Work The European Union is ready to help Italy cope with thousands of Tunisian migrants who have fetched up on the island of Lampedusa, the spokesperson for European Internal Affairs Commissioner Cecilia Malmstrom said. "The Commissioner has already identified a series of concrete measures to meet Italy's needs," the spokesperson said. The EUR100 million of aid Italy has requested to deal with the emergency could be granted "quite quickly". Malmstrom is in "constant contact" with frontier agency Frontex, which is ready to launch a mission, she added. Berlusconi requested an EU summit on the migrant crisis. Maroni said he feared other risks from the "institutional earthquake" in Egypt. Maroni has already raised the risk of terrorists posing among the asylum seekers from Tunisia. Earlier, Foreign Minister Franco Frattini reiterated a charge that the EU had not been ready for the exodus from Tunisia. The 800-bed reception centre on Lampedusa, which is closer to Tunisia than Italy, has been reopened after the arrival of more than 2,000 migrants, many of whom have moved on to centres in other parts of southern Italy. Europe's top rights body said Italy must not expel thousands of illegal migrants who arrived
in recent days, mainly from Tunisia, but it should take responsibility for them. The Parliamentary Assembly of the Council of Europe called on Italy to involve the United
Nations and other aid agencies in dealing with the migrants, about 5,000 of whom have arrived on Lampedusa in recent weeks. Boats carrying Egyptians also landed in Sicily this month.
Italo-Russian Leaders Kick Off A Year-long Cultural Exchange A year-long cultural exchange program between Russia and Italy kicked off the first of 550 planned artistic events in Rome. The Palazzo delle Esposizioni opened an exhibit of 80 works by the Soviet master of realism, Aleksandr Deineka (1899-1969), which runs until May 1st. Premier Silvio Berlusconi attended the show's inauguration with Russian president Dmitri Medvedev, thereby launching the Year of Russian Culture and Language in Italy, and the Year of Italian Culture and Language in Russia, featuring events across a range of artistic fields, from exhibits to concerts. Medvedev also met Pope Benedict XVI in the Vatican, the first visit to the Holy See by a Russian leader since the establishment of full diplomatic relations in 2009, a sign that the once frosty relations between the Vatican and Russia are gradually thawing.
Italy’s Solar Energy Exertions May Lead To A Glut Of Sunshine Power
“Anonymous” Hackers Launch A Protest On Italy’s State Site
Italy’s senate heard from regulators whose recent subsidy offer for solar-generated electricity had elicited 2.5 times more applications than predicted, reports said. The sunny southeastern region of Puglia has so many new solar farms that its Ecology Party president is begging for a moratorium. At this rate, Italy would add more solar capacity this year than world leader Germany, and the "feed-in tariffs" paid to Italy's new solar generators would raise the country's electric bills exponentially. Forecasters had expected Italy to install about 1.8 gigawatts of solar power in 2010. Instead, the country's renewable-energy agency, Gestore Servizi Energetici, got applications for 3.77 gigawatts and counting. Italy has already reached the level targeted for 2020, it said.
Software hacker group "Anonymous" launched attacks against the Italian government's website, citing political grievances, a report said. "Anonymous" announced its distributed denial-of-service assaults saying they were protesting "the political and economic situation in Italy has become unstable." Police had alerted the site to the potential attack ahead of time, allowing it to put counter measures in place and the website did not appear to be blocked. DDoS attacks are efforts to overload websites with so many simultaneous requests that computer servers can't handle the load and freeze or crash. A loose-knit group of online global hackers, "Anonymous" previously attacked government websites in Egypt and Tunisia.
ad page 4
FEBRUARY 2011
U P D A T E
POLITICS
Napolitano Calls For A Truce In Italian Politics A President Weighs In With His Faith In The Rule of Law
Italian Women Protest Premier In Call For Women’s Rights Thousands of women protested across Italy demanding that Silvio Berlusconi resign over a recent sex scandal that has deepened the conservative prime minister's troubles with the law and galvanized a nationwide movement calling for greater dignity and women’s rights. "This country is not a brothel," chanted protesters gathered in squares in Rome, Milan, Florence, Palermo and hundreds of other Italian cities. Groups of women also gathered in cities abroad, including New York, Tokyo and Brussels. The protest came days after Italian prosecutors requested that Mr. Berlusconi stand trial on charges of patronizing an underage woman for sex and abusing his powers in an attempt to cover up the relationship, charges the premier strenuously denies as groundless. "We felt the moment had come for Italian women to show their power and pride," said Francesca Comencini, a filmmaker who organized the protests with her sister. "We want to call on the government to promote welfare measures for women." Supporters of the 74-yearold Mr. Berlusconi dismissed the demonstrations as political antics fueled by left-wing politicians, continuing to back him despite months of media coverage of the premier's late-night parties with young women and the defection of a key political ally, Gianfranco Fini, last year that almost toppled the government. "Half the country loves Berlusconi and the other half thinks he's a monster," said Pierluigi Battista, an editorialist for Italian newspaper Corriere della Sera. Italy ranks 74th out of 134 in the World Economic Forum's Gender Gap Index.
REVIEW ITALY 5
Silvio Berlusconi has “his case to put and good legal means to defend himself against the charges. Our constitution and our laws guarantee that trial proceedings like this, where serious charges have been brought and the prime minister rejects them, are conducted and concluded in accordance with justice. I place my trust in the rule of law,” said President Giorgio Napolitano in a report. This is precisely what the president urged Mr Berlusconi to do at their last one-on-one meeting in the presidential palace, in an attempt to avert strained or broken relations with, or pre-emptive strikes against, what the premier has condemned as “the senseless, unforgivable initiatives of some magistrates”. The interview with
the President Napolitano was published yesterday on the eve of his visit to Germany. It reveals the depth of his concern at this critical moment in Italy’s never-ending transition especially the idea that Italy is sliding into barbarism even in the way it administers justice. For the first time, however, the president used an unusually strong image in his guarded language, admitting that “all too often, over-emphatic tones are used and there is a lack of moderation when making judgements. Many views are characterised by a certain extremism. All this contributes to raising political tensions. Political parties clash and split, and although this is normal enough in a democracy”, in Italy “it is degenerating into out-and-out political guerrilla warfare”. Unfortunately, after the collapse of the old party system in Italy, electoral reform has failed to build “a stable structure or solid two-pole system,” he said.
Italians Lose Confidence In Institutions But Back President
Court Rejects Jail Term For Parmalat’s Tanzi Pending Appeal
Public confidence in Italian institutions is down to a new record low, a survey showed. 68.5% of those interviewed said their confidence in institutions fell last year, the highest figure since 2004, said the Eurispes research agency. There was a 22% increase in the number of people who felt let down, it said. Some 12% said they were less confident in government. Only 2.2% of the sample said their confidence in institutions grew in 2010. It remained unchanged for 27.5%. The only institutional figure in which trust rose was that of the Italian president, Giorgio Napolitano, whose rating rose from 62.1% in 2009 to 67.9% last year and 68.2% this year, Eurispes said.
Calisto Tanzi will not go to jail. The ruling came from the criminal chambers of the Court of Cassation, which upheld the appeal submitted by the former Parmalat boss, ordering a new examination of the case before the Milan review court. The supreme court’s decision overturns the ruling of the Milan court’s indictment division. The Milan public prosecutor’s office had already applied for Mr Tanzi’s arrest in the context of the Parmalat affair, claiming there was a risk of flight. Currently, Mr Tanzi, 73, is under house arrest. The first warrant for his arrest dates from 2003. On 18 December 2008, Mr Tanzi was convicted in the court of first instance and was sentenced to ten years’ imprisonment for marketrigging by the court of appeal in Milan.
I N
B R I E F
President Vetoes Fiscal Decree Italian president Giorgio Napolitano declared he cannot approve a government decree that grants municipal administrations greater taxation powers, the president's office said. A key parliamentary committee set up to supervise the introduction of "federalism" reforms did not approve the set of measures in a parliamentary vote so premier Silvio Berlusconi held a cabinet meeting to approve them anyway by decree. Italy's constitution requires that a government inform Parliament that it intends to promulgate a decree even when the legislative chamber does not approve it.
League Says It Backs Premier Northern League leader Umberto Bossi pledged his support to Premier Silvio Berlusconi in a late-night coalition summit after the premier was sent to trial April 6 on charges of using an underage prostitute and abuse of power in getting her out of police custody in another case. "I'm with you, let's push on with reforms, let's keep our word," Bossi told Berlusconi, according to those present. Bossi, the premier's key ally, however asked him to "shake up" the government in order to secure reforms, especially a federalism programme that is dear to the League's heart, the sources said. Berlusconi, for his part, pledged to widen the centre-right's House majority to 325 seats to make sure federalism passes key commission tests, they said.
German Doubt Dogs Draghi Bank of Italy’s Mario Draghi was redoubling his efforts to win Germany’s endorsement as Europe’s central bank head.
ad page 6
ECONOMY
FEBRUARY 2011
Consumer Confidence Takes A Dive But Businesses Are Still Bright
Italian Businesses Are Chipper But Consumers Shudder Italians have suddenly become more pessimistic about their ability to maintain their legendary savings skills, raising doubts about the country's main line of defense in the sovereign debt crisis. Consumer confidence in the euro-zone's thirdlargest economy unexpectedly plummeted in January, driven entirely households' fear of the future, a monthly survey published by national statistics agency Istat showed. The headline confidence index fell to 105.9 from 109.1 in December, which included a 14-point drop in people's belief they can save for the future. The reading sank back to the levels of the summer of 2008, when the global financial crisis first emerged to public view. The dented savings prospects are a critical point for Italy, where high household wealth levels - more than five times
shopping in Milan
gross domestic product - have helped shield the country's government bonds from the sovereign-debt crisis engulfing the rest of southern Europe. Now, some 35% of Italian households -- and half the population in the poorer southern regions - find making it to the end of the month without tapping savings, said Gian Maria Fara, president of the Eurispes think tank in Rome. In contrast, business confidence rose slightly more than expected in January, reaching its highest level in three years, led by improved outlook for production. The confidence index for Italy's manufacturing sector rose to 103.6 from a slightly upwardly revised 103.1 in December, national statistics agency Istat said. Italian business confidence had been expected to climb to 103.5, according to economists polled.
Italy’s Trade Deficit Is Wider Again As Energy Import Needs Take A Toll
Growth Of Italy’s Inflation Tops Levels Not Seen Since 2008
Italy’s trade deficit widened in December as imports grew faster than exports, the national statistics agency Istat said. Italy posted a seasonally-adjusted EUR3.2 billion trade deficit in December, the largest-ever gap in nominal terms, compared with a EUR399 million deficit in the year-earlier period, and a EUR3.04 billion deficit in November 2010, Istat said. Total exports rose 1.1% on the month, and 21.2% on the year, with intra-European shipments driving both figures, Istat said. Imports rose 1.5% on the month and 32% on the year, both driven by goods entering from outside the European Union, Istat said. On a full-year basis, Italy had a trade deficit of EUR27.3 billion in 2010, Istat said, using unadjusted numbers. More than a quarter of gap was posted with EU partners, as deficits with Germany, the Netherlands and Belgium more than offset surpluses with France, Spain and the U.K., Istat's data showed. Italy's trade deficit reflects the country's high reliance on imported energy. Italy posted a EUR51.2 billion full-year deficit in energy goods, and a EUR5.1 billion energy-trade deficit in December alone, Istat said. Net of energy, Italy had a EUR2.4 billion trade surplus in December and a EUR23.9 billion surplus for the year, Istat said.
Italy's inflation in January rose to 2.1% on an annualized basis, its highest rate since December 2008, reports the government statistical body ISTAT. The inflation rate tipped above the European Central Bank's goal of 2.0% last month, whereas it hovered a point below, at 1.9%, in December. The monthly inflation rate for January was 0.4%. Price increases were fueled by rising costs for life's necessities, particularly fuel and fresh food, whereas entertainment took a hit. On an annualized basis, transportation costs saw the greatest rise, at 4.3% in January, whereas the annualized rate of inflation for housing, water, electricity and combustibles was a somewhat more modest 3.9%. Big culprits in January were gasoline and diesel fuel, which rose 3.5% and 4% for an annualized rate of 11.3% and 15.7% respectively. But ISTAT reckons the overall pace of inflation will relent over to the course of the year, amounting to 1.2% for 2011. Subtracting fuel and food, the annualized background inflation rate in January was 1.4%, unchanged from December 2010. As every year, the list of goods counted on the inflation index changed to keep pace with contemporary consumption habits. Out went DVD rentals. In came the tablet PC (such as the iPad), ethnic fast food, smoked salmon, and entry tickets to national parks, zoos and botanical gardens. More weight will be given this year to transport, housing, water and electricity.
REVIEW ITALY 7 I N
B R I E F
Joblessness Level Stable For Some Italy's unemployment rate was 8.6% in December, unchanged from the month before but down from 8.8% in December 2009, national statistics agency Istat said. Istat revised the seasonally adjusted November jobless rate to 8.6% from a previously reported 8.7%. But youth unemployment, for Italians aged 15 to 24, rose slightly to a new record level of 29% from 28.9% in November and 26.6% in December 2009, Istat said. The Bank of Italy expects Italy's economy to expand 0.9% this year and by 1.1% in 2012. Business lobby Confindustria says a 2% rate is needed to generate net job growth.
Public Finances See A Shortfall Italy's state-sector deficit, a key indicator of the overall trend of public finances, stood at about EUR2 billion in January, compared with a EUR4.2 billion surplus in the same month of 2010, the Economy Ministry said. The ministry said the deficit stemmed mainly from a EUR1.2 billion loan issued for Greece, aimed at safeguarding the financial stability of the euro zone. It added that a growing trend in tax receipts partly offset higher payments in January.
Tourism Jobs Suffer Fallout 2010 ended with a 1.2% drop in foreign visitors, compared to an already tough 2009, according to Agriturist, the farm holiday association run by Confagricoltura, which specified that spending by foreign tourists dropped by 2.3% compare to 2009 during the January/October period. A drop that had major consequences on employment: according to Federalberghi, in 2010 sackings of full time workers in the hotel sector amounted to 3.6%, while in the entire tourism sector more than 20,000 jobs were lost.
ECONOMY
8 REVIEW ITALY
FEBRUARY 2011
Italy’s Fourth Quarter Results Falter GDP Growth Slows In The Final Quarter Of 2010 As Italy’s Current Account Deficit Widens Italy’s economy expanded less than expected in the fourth quarter but continued to grow thanks to the services sector, the national statistics institute Istat said. Italian gross domestic product grew by 0.1% in the final three months of 2010 from the third quarter and by 1.3% from the final quarter of 2009, Istat said, using preliminary data
adjusted for the number of working days and seasonal effects. Economists polled had made an average forecast of 0.3% quarterly growth and 1.3% annual growth. German GDP expanded by 0.4% in the fourth quarter and the French economy by 0.3%, both less than forecast, according to other data releases.
Italy's economy had expanded by 0.3% in the third quarter from the second quarter and by 1.2% on the year, Istat said, revising up the annual figure from a previously reported 1.1%. Italian GDP grew by 1.1% in 2010 after contracting 5.1% in 2009, Istat added. The growth stemmed from the farming and services sector while the indus-
Consumer Skittishness Stifles Prospects For Italy’s Domestic Economy
Retail Sales’ Drop Puts Pressure On Italy’s GDP "The brakes will remain on Italian consumer dynamics due to labor-market difficulties," Italian business lobby Confindustria warned. Despite companies’ efforts to boost productivitym hiring expectations by companies remain negative in 2011, according to a survey the group conducted recently. Fuelling concern, Italian retail sales declined unexpectedly in November, led by falling food sales, national statistics agency Istat reported. The surprise drop augurs badly for Italy's economic expansion at the end of last year, and higher commodity prices and a troubled labor market will likely keep the brakes on the euro-zone's thirdlargest economy in 2011. Retail sales fell 0.3% from October in seasonally adjusted terms, while climbing 1% from November 2009 in unadjusted terms, Istat said. In October, Italian retail sales rose 0.3% on the month and had been expected to post a 0.1% increase on the month, according to a poll of economists. Fabio Fois, an economist at Barclays Capital in London, said the new disappointing data, coupled with his own assessment of volume trends in Italian retail sales, "suggest some downside risk" to his expectation that real private consumption in Italy would be flat in the final three months of 2010. Unicredit expects Italian gross domestic product would expand 0.2% in the last three months of
2010. The Bank of Italy revised down its 2011 growth forecast for Italy to 0.9%, while the International Monetary Fund also revised down its 2012 GDP forecast to 1.3% from 1.4%. Rising oil and commodity prices will further squeeze corporate margins and household spending power, Confindustria said, adding that this should have a "tranquillizing effect" on inflationary trends countering what it called the "anxiety" expressed by the European Central Bank. Food sales declined 0.5% in November from October, while nonfood sales fell 0.2%, Istat said. The drop in food sales was exacerbated by a shift in habits as Italians increasingly shopped at discount food stores, where sales rose 2.6% on the year, it noted.
I N
B R I E F
Industrial Order Levels Are Up Industrial orders rose by 13.9% in Italy in 2010, the biggest annual rise since 2001, Istat said. In 2009 orders fell by 22.4%, the national statistics agency noted. The boom was led by orders from abroad, 21.2% up. Industrial turnover rose by 10.1% in 2010, again the best result since 2001, compared to an 18.7% fall in 2009. December’s Italian industrial orders rose 5.4%, more than expected, even though actual turnover fell during the month, it said. Industrial orders rose 17.4% on the year in gross terms, Istat said. Orders had fallen 4.3% on the month in November.
Output Levels Keep Pace
Italy’s Households See Their Income Decline The financial crisis has been cutting into the wealth enjoyed by Italians. A fall of 2.7% in disposable incomes was registered in 2009 - the first such downturn since 1995, says the nation's statistical bureau, ISTAT, in its report on 'Disposable Household Income across the Regions'. According to the institute, the ongoing recession has led to ''a progressive reduction in the rate of growth in the nation's dispos-
trial sector contracted, it said. Manufacturing data released earlier in the month pointed to a 0.2% quarterly contraction. Italy's current account deficit widened to EUR54.3 billion last year from EUR31.7 billion in 2009, the Bank of Italy said, a sum that amounts to around 3.5% of GDP. Italy's sovereign debt rose to 4.5% last year to reach EUR1.84 trillion.
able income,'' which in 2006 ahead of the outbreak of the financial crisis - had been showing a healthy 3.5% growth-rate. And for once, the North-South gap is in favour of the southern end of the country - with the North being hardest hit, while southern Italian families seemed to have come off a little lighter from the effects of the recession. In 2009 there was a sharper decline in incomes in the North.
Italian industrial output continued to expand in December, driven by growth in non-durable consumer goods production, statistics office Istat said. Italian output rose a seasonally adjusted 0.3% in December from November, after rising 1.3% the month before, Istat said. In annual terms, for which the data are only adjusted for the number of working days, output rose 5.4% in December, up from 4.1% growth in November. Production of non-durable consumer goods rose 1.7% in December, it added.
ad page 9
ad page 10
FEBRUARY 2011
U P D A T E
Fiat CEO Urges Italy To Enact Change For Business Practices Fiat Chief Executive Sergio Marchionne urged Italian lawmakers to enact more business-friendly policies, once again waving the prospect that he might one day move the auto maker's headquarters out of the country. Mr. Marchionne, who also runs Chrysler Group, caused a ruckus in Italy when he suggested that Fiat might one day be headquartered in the U.S. The Italian government summoned the executive to meetings with several ministers, including prime minister Silvio Berlusconi. Speaking before a parliamentary committee, Mr. Marchionne reiterated Fiat's commitment to invest EUR20 billion ($26.97 billion) in Italy in coming years. But he suggested the heavy investment was against his better judgment. It also reduces the total amount of break time during an eight-hour shift from 40 to 30 minutes and introduces industrial action restrictions that aim to stop wildcat strikes at the traditionally militant loss-making plant. If the plan had been rejected and Fiat had opted to abandon Mirafiori it would have proved a painful break with a big part of its past. Turin is Fiat's home town it stands for Fabbrica Italiana Automobili Torino (Italian Automobile Factory of Turin) - and it has produced millions of cars at Mirafiori since it opened in 1939. Marchionne claims Fiat is trying to usher in necessary changes to industrial relations in Italy to help make it competitive out of ''affection'' for its native land. His comments received a mixed reaction from the centre-left opposition. Premier Silvio Berlusconi further ruffled feathers by saying firms would be justified in quitting Italy if the deal were rejected.
COMPANY NEWS
REVIEW ITALY 11
Luxottica Founder Del Vecchio Resigns From Board Of Europe’s No. 3 Insurer
Generali Loses A Board Member
Leonardo Del Vecchio, founder and chairman of eyewear manufacturer Luxottica, resigned from the board of Assicurazioni Generali, the Italian insurer said. The resignation is in protest of the growing interference by board members of the management of Italy's No. 1 insurer, according to people familiar with the situation. "He believes that the top managers of the Italian insurer are not being left to work in a calm climate," one person said. Clashes between shareholders and Generali Chairman Cesare
Geronzi erupted following some strategy remarks the latter made in an interview. Geronzi made remarks suggesting Generali may invest in Italian banks-some board members see this as a way to gain influence rather than to obtain long-term returns in current economic conditions. The resignation of Del Vecchio-who handed over the operational reins of Luxottica despite owning two-thirds of the shares-isn't meant to be a "nice" gesture toward those trying to curb the chief executive's powers, another person said. Sources close to Geronzi said
he was disappointed by Del Vecchio's decision but insisted that there had "never, repeat, never" been any points of conflict over strategic guidelines at the company. Earlier the board named Philippe Setbon as chief investment officer of the group. Setbon, 45, became chairman and chief executive of Generali Investments, a unit of the Italian insurer, in May 2009. Setbon will report to Chief Financial Officer Raffaele Agrusti. For more on Generali, please see page 12
N E W S W I R E skY - FAstWEb News Corp. satellite unit Sky Italia and broadband operator Fastweb have agreed to combine Sky's satellite TV offer with Fastweb's broadband internet and landline services in a deal aimed at boosting customer numbers in Italy. Consumers will be able to choose entertainment, connectivity and telephony with a single bill that combines the Sky Italia subscription with Fastweb's broadband services. Sky Italia and Fastweb said the new offer is better priced than purchasing the single services separately. lAvAzzA Historic Italian coffee maker Lavazza has chosen India for the first plant it will build outside Italy, the Turin company said. Analysts said the choice reflected the growing importance of the Indian market to the Italian coffee retail leader. "Our dream is to turn India into our second market after the Italian one," top executive Giuseppe Lavazza said. The EUR20-million plant will be built at a new model town called Sri City on the borders between the states of Tamil Nadu and Andhra Pradesh in southern India, it said. It will produce ground coffee as
well as beans and capsules for the Barista chain it bought in 2007. MEtroWEb Metroweb, which owns a fiberoptic network in the Milan area, has hired an adviser to explore the sale of the company, valued at between EUR400 million and EUR500 million. Metroweb's sale comes as Italy debates the best way to develop broadband infrastructure in the country and create a fiber-optic national network able to deliver high-speed services to clients. Metroweb is currently owned by domestic utility A2A and Stirling Square Capital Partners. Telecom Italia was reported to be interested in the company. rcs - dAdA Italian publisher RCS MediaGroup denied a news report saying it had decided to sell its 50.7% stake in digital music unit, Dada, to a private equity firm, following reports that RCS had hired a merchant bank last year to explore options for its assets. RCS publishes Italy’s leading newspaper, Il Corriere della Serra. The company said its board was currently reviewing ways to increase the value of assets that it no longer considers strategic.
UNicrEdit UniCredit has appointed JeanPierre Mustier to head its investment banking business. Mustier formerly ran the corporate and investment banking division of Societe Generale. He replaces Sergio Ermotti. sAiPEM A subsidiary of Italian energy giant ENI and five managers will go before a judge in Milan over charges of bribery in Nigeria, legal sources said. A Milan judge has decided that Saipem, controlled by the gas and oil group ENI, and five managers involved in the case will go on trial on April 5, they said. FErrAri Italy's Ferrari said it has agreed "in good faith" to use the full name of its new Formula 1 race car after Ford complained that its abbreviation was a copy of the name of its pick-up truck, the F150. Ford sued Ferrari for referring to the racer as the F150, saying it was an infringement on its trademark. Ferrari said it would refer to the racer by its full name--the Ferrari F150th Italia, which refers to the country's 150th anniversary celebration this year.
FINANCIAL NEWS
12 REVIEW ITALY
FEBRUARY 2011
Tough Funding Conditions Ahead For Banks Italy’s Bankers Meet To Assess The Sector’s Profit And Balance-Sheet Prospects Italy’s banks face costly funding challenges, largely due to weak global interest in eurozone debt securities, the Bank of Italy said following a meeting of senior central-bank officials and executives of the country's main commercial lenders. "The weak propensity for global institutional investors to underwrite euro-area securities...make raising funds on the market particularly onerous for Italian banks," the central bank reported. Credit growth is expanding in Italy but banks' profit margins are "very compressed," it said. UniCredit, Italy's secondlargest bank by domestic assets, lost money in its main home market last year, according to unconfirmed press reports. Low interest rates coupled with loan losses linked to the 2009 recession have hurt profitability at Italian banks. Unlike their counterparts in France, Germany, the U.K., Spain and Ireland, Italian banks required almost no help from the national government during the global financial crisis, winning them plaudits from credit rating agencies for their resilience. But Italy's banks tap the nation's large pool of retail savings as well as capital markets for funding. Alluding to how fiscal and financial-sector problems and imbalances elsewhere in the euro area are causing trouble in Italy, the Bank of Italy said one reason that market funding costs have risen is due to "the emergence of strong interest-rate dif-
ferences between countries inside Europe." While the euro-zone sovereign debt crisis has seen dramatic moves in spreads--interestrate differentials between one country's debt and German bunds--yields on Italy's own 10year sovereign debt have stayed
within their 4% and 5% range of the past decade throughout the global financial crisis, as Bank of Italy Deputy Governor Fabrizio Saccomani noted in a recent speech in Berlin. Most Italian banks have plans to boost efficiency and cut costs and should continue them, es-
pecially given that the "higher funding costs are probably of a structural nature," the Bank of Italy said. It urged Italy's banks to adopt "prudent" dividend policies and to continue to insure they could withstand possible macroeconomic shocks as measured by "severe" stress tests.
Banca Generali Guru Sees Window For New Clients As Bank Bonds Mature
Banker Says Italy’s Savings Need Managing Banca Generali, the Italian asset manager controlled by insurer Assicurazioni Generali, aims to win market share in Italy in coming quarters by poaching more of the vast household savings currently being managed by financial advisors and private banks, Chief Executive Giorgio Girelli said. "Italians are starting to understand that there are different ways of managing their assets and savings, and they can have different returns on their investments," Girelli said. He noted that savings in Italy are currently overwhelmingly controlled by retail banks as well as the country's postal bank, most of which are in short-term securities yielding less than inflation, he added. Italian families have an estimated EUR3.6 trillion in financial assets, according to the Bank of Italy. Only 7% of that sum is managed by specialized financial intermediaries, Girelli said. Most of the rest is managed for capital protection or simple cash-
Saipem’s Profit Surge Will Boost Dividends Saipem, Europe's biggest oil services company by market value, said preliminary fourthquarter net profit rose 26%, to EUR237 million for the three months to December, compared with EUR188 million during the same period a year earlier, more than expected, on the year, as it benefited from a strong order backlog and the onshore segment, allowing it to propose a record-high dividend. Saipem, which is 43% controlled by Italian oil firm Eni, said it estimates 2011 revenue to increase by about 5%, gross operating profit by roughly 10%, and adjusted net profit to increase by around 5%. The board is proposing to shareholders a 2010 dividend-per-share of EUR0.63, or 15% more than for 2009 earnings.
management purposes, goals Girelli sees as "hardly efficient" given the long-term savings needs Italians face at a time when future pension benefits are slated to decline. The emergence of asset managers has been blocked by the powerful retail branch networks of the country's banks whose client funds could supply their own capital needs. Around 10% of Italian household savings are in bank bonds--10 times higher the European average-which tend to offer yields similar to Italian government bonds but nothing like the liquidity. The large share of Italian bank debts held by households is a "big anomaly," Girelli has said. Meanwhile, EUR452 billion in Italian wealth has been entrusted to asset managers, with more than 20% of that figure run by foreign groups, according to the Assogestioni trade group. But that sum could grow quickly as a whopping EUR470 billion in government and bank bonds mature this year.
Premafin To Sell Stake Italy Seizes Assets From Dealmakers As It Hikes Capital Level Premafin Finanziaria shareholders approved a capital increase for up to EUR250 million, which will allow French insurer Groupama to take a minority stake in the Italian holding company, as well as its insurance unit Fondiaria-SAI, or FonSai. Premafin's investors approved the capital increase at an extraordinary shareholder meeting in Milan, according to reports. Premafin Chief Executive Officer Giulia Maria Ligresti said she expects the capital increase to take place by June. Premafin, which the Ligresti family controls, will in turn use the proceeds to take part in a capital increase of up to EUR460 million proposed by its unit FonSai, Italy's No. 2 insurer and will also pay off debt.
Italian prosecutor Fausto Zuccarelli demanded the seizure of EUR7.3 million worth of assets from Credit Suisse and Lehman Brothers after accusing them of failing to pay taxes in a multi-billion securitization deal. Credit Suisse Securities Europe and Lehman Brothers International Europe failed to declare a combined EUR66 million in fees they received in 2007 for the EUR2.2 billion securization of health sector debts belonging to the Campania region, Zuccarelli stated. "We seized the amount of money equivalent to the evaded taxes," Zuccarelli said. Teamed with French investment bank Calyon, a unit of Credit Agricole, the two firms acted as financial advisors for the company that was handling the health sector debts securitization in 2007.
FEBRUARY 2011
I N
B R I E F
Banks Extend Loan Terms The Italian banking association, or ABI, said that domestic banks have agreed to extend an existing mortgage payment moratorium to July 2011 in a move to support Italian families with financial difficulties because of the ongoing economic crisis. As of the end of November over 35,000 families in Italy were granted a suspension of monthly mortgage payments worth around EUR4.4 billion, it added.
Prada Renews IPO Plan Italian fashion powerhouse Prada has chosen Hong Kong to make its debut on the stock market. The Intesa Sanpaolo, Credit Agricole and Goldman Sachs banks have been chosen to handle the operation, Prada said. Italian media have speculated the IPO will come in June or July. Poor market conditions have forced Prada to postpone making its market debut four times in the last ten years. Prada is believed to have chosen Hong Kong over Milan because individual investors are more active in Asia.
Toymaker Is Seen In Play Mode Several buyout funds are eyeing Italian toymaker Giochi Preziosi ahead of a planned auction after the company pulled its plans for an initial public offering last year, reports said. Private equity firms likely to bid include Axa Private Equity, Cinven Group and Charterhouse Capital Partners, according to some sources. In September, when the IPO was planned to take place, the company was valued at EUR1 billion.
AXA Forays Into French Fitness AXA Private Equity said it has bought a 22% stake in FitnessBoutique, a French retailer of fitness equipment and food supplements.
FINANCIAL NEWS
REVIEW ITALY 13
Strains On Italy’s Saving Capacity Leads Some To Consider New Tax
Wealth Tax Idea Gains Some Support As Premier Trounces It Giulio Amato, who as prime minister presided over the drastic budget cuts of 1992 when the country was forced to devalue the lira, has called for tapping Italy's estimated EUR8 trillion in private wealth to cut Italy's EUR1.8 trillion in public debt represents. Prime Minister Silvio Berlusconi rejected the idea of a wealth tax as a form of "intellectual and strategic paralysis" that would only spark capital flight in a newspaper interview. Senior debt and central bank officials are nervous about rolling over more than EUR500 billion in Italian government and bank bonds this year given political stability caused by allegations regarding Berlusconi's private lifestyle. The International Monetary Fund, the Bank of Italy and the Italian Treasury itself all expect Italy's economy to expand at only half the 2% annual pace that businesses say is needed to generate new jobs. Amato's suggestion has triggered debate over a wealth tax that would cut Italy's public debt burden to 80% of GDP from its current 120% level. That would require EUR10,000 from each of Italy's 60 million residents. Amato, who held senior government posts in the 1980s when Italy's public debt ballooned, has suggested a temporary levy on the richest 10% of Italians. Despite a public outcry of opposition, in private conversations, businessmen and even dealmaking investment bankers quietly acknowledge it might be necessary and even a good idea. Italy would immediately be able to slash spending on interest payments and be on course for budget surpluses that would boost its credit rating. Moreover, Italy's unusual high level of tax evasion - officially estimated at 17% of GDP or a third of all private-sector national income - gives a fillip to the usual horror at the idea of confiscation. "Evaded taxes are transformed into wealth," noted Mario Sarcinelli, a former director-general of the Bank of Italy and now chairman for Italy of Dexia-Crediop, the public and
project-financing bank, who added that he wouldn’t “theoretically” be against a wealth tax. Currently, Italian income taxes on declared labor income are the highest in the euro area, while those on capital income are among the lowest. Last year Tax Police uncovered more than EUR49 billion in undeclared income, up 46% from 2009, the general command of the force said. Almost half the sum, more than EUR20 billion, was hidden by 8,850 "total" tax evaders who had declared no income at all, the Tax Police said.
Global Bank Board Warns Italy’s Banks On Capital Levels
Telecom Italia Cuts The Line To Cuba And Dials South America
Italian banks may need to bolster their equity and authorities may need to make sure they do so without triggering a credit crunch, the Financial Stability Board said in its recent peer review of Italy. "Further strengthening the capital base of the banking sector, without undermining the supply of credit to the economy, may require the authorities' attention going forward," said the FSB, a global body presided over by Bank of Italy Governor Mario Draghi. The Italian financial system showed "much resilience"" to the recent global financial crisis, due to its predominant relationship-oriented business model and stable retail funding bases as well as conservative mortgage lending practices and a prudent supervisory framework that discouraged banks from participating in complex securitization activities and offbalance sheet vehicles Italian banks should be the "first movers" in a panEuropean process of recapitalization of bank balance sheets, according to Mediobanca, which recently downgraded its European banking sector rating.
Telecom Italia, Italy’s largest telecommunications company, said it has sold its 27% stake in Cuba telecoms operator Etecsa for $706 million to Cuban company Rafin, continuing a reorganization that aims to cut debt and refocus its operations. "This deal completes the sales process, reaching the targets set three years ago," said Telecom Italia (TI) chief Franco Bernabe. The sale allows the Italian operator to focus on "Brazil and Argentina operations, with a strong expansion potential," he added The sale of the Etecsa stake, is the latest in a series of measures under Bernabe's 20102012 industrial plan to reduce Telecom Italia's debt pile and to focus on growth markets in Argentina and Brazil and its domestic operations. TI’s earnings in Brazil have risen 24% in the first nine months of the year. In August, Telecom Italia reached a deal with the Werthein Group to increase its stake in the company that controls Telecom Argentina to 58% from 50%, leaving the Werthein Group with 42%. The deal ended more than a year of acrimony between the parties.
14 REVIEW ITALY
OPINION
FEBRUARY 2011
Time To Get Serious Gianni Alemanno
A L M A N A C The government of prime minister Silvio Berlusconi was supposed to last until the next general election in 2013. It looks increasingly likely instead that his centre-right majority, the largest in Italian postwar history, may not survive for the full duration of its five-year term. Berlusconi is set to appear in court in Milan on April 6 on charges of paying a minor for sex and abusing his power to have that same minor, a nightclub dancer nicknamed Ruby the Heartstealer, released from police custody after she was arrested for theft. Those who think Berlusconi's judicial troubles may spell his political end must consider however that he has never been convicted despite dozens of indictments, and has won two elections while facing criminal charges. And last December he survived, if narrowly, a no-confidence vote in parliament. The tide may be changing for him, though, after this month's massive demonstrations demanding his resignation. Scathing editorials in the Catholic press indicate that he has also lost the support of the church, perhaps a more important factor in a country where the Vatican wields considerable influence over politics. Early voting would likely not produce a clear majority with a mandate to take action against Italy's economic stagnation. A
general election under Italy's current electoral system, adopted in 2005, would rather produce a stalemate and block the emergence of new figures with the clout needed to take on Italy's long-standing problems. The trouble with the present election system is that party elites have the ultimate say on who gets put on the ballot: voters can only choose a party over another, but not indicate a name. The slate of candidates and their order is decided by parties, which have little interest in putting reformers in parliament. It's time for the left and right to come together and give Italians an electoral law that truly allows them to have a say in who represents them in parliament. The opposition to Mr Berlusconi should also look within its ranks to find a credible leader. Years of internecine squabbling have weakened the centre-left and failed to produce a figure with the uniting appeal needed to win a general election in a country so divided along regional lines. For all his faults and alleged crimes, Mr Berlusconi has been in the past fifteen years the only Italian leader capable of winning a decisive majority in the North, Centre and South. Those who aspire to replace him need courage and vision equal to the challenge – something that they have so far failed to show.
Rome’s mayor Gianni Alemanno is demanding that from now on all cabbies have to issue a proper automated receipt indicating their driver's license along with the date, time and length of the trip. Italian taxi drivers, who are known for declaring abnormally low incomes and frequently stage paralyzing strikes against any move to regulate their activity, usually release pieces of paper in lieu of receipts. Rome's cabbies have pledged to strike if forced to adopt the ruling. * * * Roberto Saviano, whose debut work revealed the underworld of the Neapolitan Camorra syndicate to the international public and led to mobsters putting a death sentence on him, will release a new book on March 2. Vieni Via Con Me (Come Away with Me), is based on monologues on organized crime that the award-winning author gave on a recent hit TV show on state broadcaster RAI. It is published by Feltrinelli. * * * The nearly extinct Marsican brown bear has failed to increase its numbers despite legal protection and less poaching. The latest census found just 50 Marsican bears still exist in the wild, and are largely confined to the National Park of Abruzzo, Lazio and Molise. A 1969 census counted 60 bears. Whereas poachers once killed 5% of the bears each year, they now extinguish 3.2% of the population. A new EUR3.6-million program for conservation efforts has been launched. * * * Pisa is pushing for an extraordinary collection of ancient Roman ships to be given UNESCO world heritage status. Similar recognition is being sought for the outstanding value to humanity of southern Piedmont’s white truffle, whose recent harvest of around 2000 kg at prices around EUR300 per 100 grams showed a slight decline over 2009’s season. * * * A consortium led by Italian-American entrepreneur Thomas R. DiBenedetto offered to take over AS Roma, the Serie A soccer club. * * * After 20 years’ renovations, Rome has reopened the Forum’s House of the Vestal Virgins.
FEBRUARY - VOL. 11 – NO. 2 - PUBLISHED BY: Economic & Management Consultants, New York, NY ANNUAL SUBSCRIPTION RATE: $300; 2 YEARS: $550; single copy: $15 (write for rates in other countries) EXECUTIVE, EDITORIAL, CIRCULATION AND ADVERTISING OFFICES: Economic & Management Consultants, 10 East 53rd Street, 30th Floor, New York, NY 10022 – TELEPHONE: (212) 303-8392 – TELEFAX: (212) 755-8825 EDITOR-IN-CHIEF AND FOUNDER: Mario Calvo-Platero – EDITOR: Juliet Faber EDITORIAL STAFF: Alberto Riva - GRAPHIC DESIGN: Pier Paolo Bozzano ADMINISTRATION MANAGER: Audrey Toporoff - PRINTER: Vanguard Offset Printers Inc., Hillside, NJ COPYRIGHT: ©2002, 2003, 2004, 2005, 2006, 2007 by EBD, Inc. All rights reserved – PHOTOCOPY PERMISSION: Copying for other than personal or internal reference use without express permission is prohibited. Address requested for customized bulk reprints to Review Italy, 10 East 53rd Street, 30th Floor, New York, NY 10022 or call : (212) 755-7000. Fee is $2.50 per copy of each article.
OPINION
FEBRUARY 2011
REVIEW ITALY 15
Tommaso Padoa-Schioppa, RIP, Is Remembered By His Peers
Padoa-Schioppa: His Legacy To The EMS By Ignazio Visco Deputy Director General of the Bank of Italy. A prominent (but non-academic) economist, a leading central banker (in Italy and in Europe), a “non-political” politician (dedicated to the “polity” rather than to the politique politicienne), Tommaso PadoaSchioppa spanned all of these professions in the course of his eminent career. Tommaso’s achievements were substantial, as everyone recognizes. He is rightly considered as one of the “architects of the euro.” A man of vision, an independent mind, an indefatigable civil servant – we have been fortunate indeed to have had Tommaso Padoa-Schioppa as colleague, friend, mentor. He was the head of the Money Market Division of the Bank’s Research Department from 1975 to 1979, when he left to become Director General for Economic and Financial Affairs at the European Commission. He returned to the Bank in 1983, was named Deputy Director General in 1984 and served in that capacity for thirteen years. The three areas comprise the “reshaping of monetary policy”, as he came to define it, the promotion and implementation of a ground-breaking reform of the payment system and the process of European monetary unification. Let us remember that in the 1970s the Italian economy was plagued by substantial nominal and real instability. High and volatile inflation rates preceded, accompanied, and followed a series of large and sometimes sudden depreciations of the currency, in a context of social unrest and substantial rigidities. Meanwhile, Italian society was racked by violent waves of terrorism. The policy challenge was enormous, as Italy’s financial markets were very underdeveloped, public debt management non-existent, and capital flights massive. In 1981, while Tommaso was serving with the European Commission, an epoch- making regime shift took place, to which he had contributed directly and indirectly: the so-called “divorce” between the Bank of Italy and the Treasury. The Bank ceased to act as residual buyer at Treasury bill auctions, the fundamental first step towards full independence for the Bank’s monetary policy decisions. This was followed in the 1980s by a thorough transformation of the financial infrastructure: direct controls were suppressed, reserve requirements reformed, competitive-bid auctions for Treasury bills introduced, longer-term Treasury bonds (with the introduction of uniform price auctions) and indexed Treasury credit certificates were instituted, a screenbased secondary market was established for government securities (the MTS, with the introduction in 1994 of market specialists) as well as a screen-based market for inter-bank deposits (later to become the e-MID), futures and options on Treasury bonds were launched on LIFFE, and more. Tommaso PadoaSchioppa contributed much of his time, energy, and vision to these radical changes.
tommaso Padoa-schioppa
Many other changes took place over those same years. The European Monetary System (EMS) was established, in the second half of the 1980s exchange controls were removed and capital movements were completely liberalized (by 1990), the Bank of Italy was granted not only de facto but also de jure independence, the wage indexation system was substantially revised and eventually put to rest, and a major currency and financial crisis struck the Italian economy as budget deficits and the public debt seemed to be out of control. Eventually, of course, the crisis was overcome, inflation was tamed, the public finances were brought under control. The reforms that Tommaso Padoa-Schioppa promoted at the end of that decade successfully bridged the gap between Italy’s system and that in place in the other major economies. At the time [Tommaso] was deeply involved in the process of European monetary unification and soon realized that the creation of a single currency would have to be accompanied by the institution of a unified mechanism for its circulation throughout the European economy. A workshop that he organized at the Bank’s conference centre in Perugia (SADiBa) in November 1991 revealed how fragmented the procedures and mechanisms of the various European countries were and paved the way for the payment system agenda of the years following. From 1991 to 1995 Tommaso chaired the Working Group on Payment Systems of the central banks of the European Community; he resumed this project when he joined the Governing Council of the European Central Bank. In that position he promoted a revolutionary arrangement by which each country would delegate the largevalue settlement of inter-bank transactions to a centralised system run by three central banks on behalf of the entire Eurosystem. I believe that Tommaso’s ambition, and the founding role that he played in this process,
from the initial ideas to the (indirect) negotiation of the details of the Treaty articles and the actual establishment of the Union, was exactly to create a proper institutional set-up for an idea of Europe designed to improve the wellbeing of its citizens and ensure fruitful interaction with the rest of the world. So Tommaso Padoa-Schioppa has been widely identified as a (if not the) “founding father of the new currency,” “architect of the euro”. I believe that this is proper, but I wanted to emphasise that Tommaso was also deeply convinced of a notion clearly expressed by James Tobin, namely that as “Policy and structure become inextricably combined, their joint product is what matters. ... One way to alter the operating properties of the system ... is to change the policy rule. Another way is to change the structure”. And it was to changing structures that he devoted much of his intellectual and professional life. For several years ... he was [also] Chairman of the Basel Committee, where he initiated a process that would lead to what came to be called the “Basel II” Accord. The regulatory system was built around the basic notion that banks should set aside capital to guard against the various types of risk: credit, market, operational. The financial crisis has taught us that both the assessment of and the allowance for these risks were vastly inadequate. Tommaso recognized this. Still, he maintained that Basel II was definitely better than the previous accord precisely because it sought to specify in detail the various risks in banking and to provide, through its “three pillars” construction, a comprehensive framework to deal with them. He conceded that substantial changes at the technical level of the Accord were necessary, but he emphasized, in his Per Jacobsson lecture last June, that “what really went wrong is on the side of the government [which] was captured by the myth that finance can regulate itself spontaneously and hence retreated too much from the regulatory and supervisory role that is necessary to ensure stability.” To conclude, Tommaso Padoa-Schioppa was a true leader, a man with whom it was always instructive to engage in a conversation, but at your own risk – always with the assignment, that is, be it explicit or implicit, of producing a concrete, real-world result. His professional life may well be compared to the work of a creative and passionate architect. He was not, and he did not pretend to be, “always right”. But, like the builders of the medieval cathedrals that enrich Europe, he was a “man of vision,” a believer but also a very practical man. He worked tirelessly and effectively for a better country, a better Europe, a better world than the one into which he was born. Excerpts from a personal testimony at a memorial for Tommaso Padoa-Schioppa, European University Institute, San Domenico di Fiesole (Florence), 28 January, 2011.
ad page 16