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Bologna, 14 June 2011
THE ENTERPRISE HORIZON. Investments, development and new markets
Confindustria (association of Italian industries) - Emilia Romagna section
Contribution by Corrado Passera
PASSERA: We must thank Vincenzo Boccia, because he's one of those people who maintained the will and
the courage to think big. He may have provoked us by making a bit of an overstatement, i.e. "to become the
strongest country in the world", but his line of thinking is not too far off from mine. Perhaps in terms of
economy, if for no other reason than our size, we shall never become that, however as a country, as a
society, we must and can aim to be a great place to live, grow, prosper, produce work in etc., because there
are elements, such as the competitiveness of our businesses - and today we heard from a series of
entrepreneurs whose experience is truly "inspiring" - such as the cohesion of our society, which other
countries couldn't put together in a million years. We are missing some pieces, we are missing part of the
efficiency of the national economic system, but we can improve as we have shown in many cases, because
even the Public Administration - and I speak from direct experience - can be turned around and made
positive, if one really wishes to do so. We are then missing some elements which would help make the
country more dynamic: for instance, we have no adequate decision-making mechanisms, although we are
still speaking of things which we can improve without difficulty. Therefore, thought-provoking as it may
have been, we must believe in it because it is so: we have some of the elements to be able to be a great
country to live and grow in and from which to start to "conquer" the rest of the world, although, especially
from an economic standpoint, we must fix some pieces that are not functioning properly.
Let's move on to the crisis. I believe we all agree in saying that the worst is over, although, as a professional
and as an Italian citizen, I feel that we cannot consider ourselves safe from the crisis until we have started
creating jobs once again, which is yet to happen. The general feeling of social unrest that has inevitably
been mounting across the whole of Europe, not just in Italy, but evidently in Italy as well, is actually
concealed beneath the official statistics because we are only able to record the number of unemployed
people. In actual fact, the unemployment malaise comprises unemployed, discouraged jobless people,
underemployed, redundant workers who are recorded as being employed, such as workers on social
security benefits and this number, which none of us is likely to know, is a multiple of the statistically
recorded number of official unemployed. Therefore, we must not and cannot feel excluded, despite seeing
some positive signs of recovery: some of these were presented this morning with regards to Emilia
Romagna, which is one of the driving forces behind the country's economy and is leading the overall
recovery ahead of other regions. However, we are not completely safe and, as leaders, we must not get
complacent, as Boccia was saying earlier, until we have kick-started a sustainable growth, enough to create
a significant amount of jobs.
What do successful companies tell us? From last week's Confindustria analysis and from your analysis this
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morning, as well as from the words and experience of the entrepreneurs we have heard today, it is clear
that no magic formula actually exists. The virtuous circle to relaunch business competitiveness comprises a
high level of efficiency, but above all innovation, investments in human capital and the ability to get a
foothold on international markets, and all of the above have a lowest common denominator, in the sense
that none of these can be attained if there isn't enough critical mass, which varies from sector to sector, butwithout which one cannot produce innovation, internationalisation nor major investments in human capital
and one definitely cannot reach sufficient efficiency levels. If this is the lesson we can take away from the
companies that are once again pulling Italy out of the crisis, everybody, first and foremost the banks, the
entrepreneurs but also the Public Administration and the world of politics must work relentlessly on all such
elements. In terms of dimension, for instance, there is a lot we can do, and we just need to look at what
other countries have done to facilitate mergers, to reward investments and inject capital into businesses.
We must recognise, however, that our country was able to equip itself with instruments that were
previously missing altogether, such as the Italian Fund for small and medium sized businesses. This is good,
however we must also continue to think about all those things that are hindering growth to eliminate them
as soon as possible because not only do we not have any mechanisms for facilitating and boosting a size
growth but in some cases what we do have are mechanisms that penalise growth: bureaucratic limitations,
labour-law limitations, tax limitations, etc., such as to make it more worthwhile to have a small business
rather than a stronger and more extended group.
On this issue, what can we do as banks? We can do our job and put in a little extra in terms of capital and
this is what we have done in over a hundred cases and almost always with good results, making a positive
impact, because sometimes it is not enough to put in debt resources, it is also necessary to be able to put in
venture capital. We have done so by inventing, together with Confindustrias Piccola Industria, at the peak
of the crisis, some special mechanisms such as the moratorium, rather an instrument called "ricap", in other
words: you, as a business, put in 100 thousand euro or 1 million and the bank puts in 3, 4, 5 times in
additional long-term loans without guarantees. However I must say that this instrument did not work as
expected, in the sense that out of 2 thousand moratorium applications, we would only receive 10-12 ricap
ones, as evidence of how difficult it is in our country to drive and boost size growth. In terms of innovation,
we must on the other hand be able to finance even what is not immediately understandable, because there
is a technological-scientific component that the bank alone cannot master. Therefore, it is necessary to
collaborate with universities rather than with external competences and commit ourselves to acting as a
"bridge" between the world of research, which is often outside the scope of the company and the bank
itself, and the business world. There is a lot more we can do in terms of tax incentives to research: we see
other countries taking plants and laboratories away from across the globe, making research 30, 40, 50% less
costly than the initial investment. The countries who believe in this are showing a great deal of
determination and this can lead to excellent results.
On the internationalisation front, it is clear that, once the first step has been taken, i.e. towards boosting
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growth, the banks can obviously step in and give their contribution. We have decided to be present in a
certain number of countries with "complete" banks, i.e. with "universal" banks, leading institutions well
rooted in the reference countries, whereas in other 40 countries we only operate through our support
facilities, especially in difficult countries, because in the "developed" countries, entrepreneurs no longer
need to be sustained. However, we are for example operating in China, as we are able to put in place bothcredit, capital and advice mechanisms and this can make a difference. Of course if we managed to put
together and coordinate more efficiently all the efforts that the country can and must make - the diplomatic
structures, the foreign commerce structures, the Ministry for Foreign Affairs structures, the foreign cultural
institutes, the ICE (Italian Institute for Foreign Trade), the SIMEST (Italian Company for Companies abroad),
etc. - we would certainly be better off. These are only examples, if we then wish to examine the system
elements that contribute most significantly to the growth and strength of companies, we go back to
treading on a well-known territory which comprises elements that we can never get enough of. We most
definitely have a problem, as a country, with energy costs not being competitive. Some of the choices made
even recently and which were perhaps unavoidable, certainly do not go in the direction of solving this issue,
although it remains understood that we must continue to work on the issue of energy savings and research
into alternative energy.
Let's now move on to the issue of credit availability. The figures tell us that, even during the toughest time
of the crisis, the credit remained more or less the same as in the previous year and it never dipped even
when the crisis hit rock bottom. Let's take Emilia Romagna region as an example: in 2007-2008 it even rose
by +10%, to then drop, however still recording a positive +5%, until it "sank" below zero towards the end of
2009, even if just slightly. In 2010, the credit recorded a positive trend and in the first quarter of this year it
recorded a growth of almost 6% compared to last year, which means several times over GDP growth.
If we look at Italy as a whole in relation to the Eurozone performance, we can see that we have always been
in the black in terms of credit supply and we are now well above the European average. This does not mean
we do not have problems, it means we must strive to find the best solutions together, also with a view to
managing the post-Basel III with all its implications. However as a system we can say we have held our own.
It is clear that credit cannot be given automatically, but no entrepreneur would ever ask for that nor would
those who are not creditworthy: let us not forget that the crisis is also a result of poor methods of granting
and managing credit. Therefore, with regards to credit availability, we cannot say we are in a bad way; we
are behind in terms of decision-making mechanisms and the quality of the education and training system. In
terms of infrastructures, there is a great deal to do and it can be done without jeopardising government
funds. We must rethink our inland revenue system to offer more rewards to those who invest, grow, recruit
and inject capital into businesses. By contrast, compared to other countries, we have a welfare system
which, albeit requiring the necessary adjustments, is however solid. And the welfare system, along with
whatever else can guarantee social cohesion and whatever is able to dispel fears for the present and the
future is an extraordinary driver of growth.
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QUESTION by Marco Alfieri: With reference also to the introduction made by Boccia, I'd like to ask Corrado
Passera, and this may seem a paradoxical question to ask a banker, but, as we were saying earlier, everyone
knocks at the bank's doors in Italy: we are objectively an extremely bank-centred country and I must say this
isn't always a good thing. From a banker's point of view, could this present a useful diversification or a risk?
PASSERA: This time I shall start by correcting Boccia, but in a positive way. He says: My mandate is a
suicide mandate, because I must destroy associates. No, in actual fact, among his mandates, and among
the tasks we all have to fulfil, there is also that of giving birth to new companies, because often we tend to
speak solely of existing companies, of how to develop them and we do not speak of a formidable growth
driver in all the strongest countries in the world, i.e. the ability to give rise to new companies, which is
obviously part of the risk culture and entrepreneurialism. A starting point would be to reward young people
who start their own business rather than engage in other professions; other instruments would include
facilitators, mechanisms such as venture capital and other types of financing that are currently not yet being
rewarded, as well as streamlining techniques which we do not yet possess. However, I certainly hope that,
with the amount of enthusiasm you put into it, you will end up with more associates at the end of your
mandate, because you will both lose some from the top and acquire some from the bottom.
The bank-centrism is not an issue that holds true for all companies because the vast majority of large,
international companies, which can rely on their own strengths, have credit at their disposal and use credit
and finance from around the world, hence we can never speak of a general phenomenon because, once
again, size and strength do make a difference and a great part of the Italian business economy, especially
from a certain size upwards, is fully capable and able to rely on a wide array of alternatives to the sole bank
credit. In the small to medium business sector, Italy is more or less in line with the rest of the world.
Relations between SMEs and the banks tend to be tight-knit, because the bank is one of the few entities,
perhaps the sole financial entity, to be familiar with small and medium enterprises, to know and understand
their area, segment, history, competitive features and operations. We have about 1 million business clients
and the vast majority of these have been working with our bank for decades, in some cases for entire
generations and this mutual trust often goes beyond figures and official documents. Then there is the
availability of resources from the banking sector towards this sector, which is not the same throughout the
world. It is worth recalling that 80% of our credit portfolio in Emilia Romagna is concentrated on the
business world, 70% is specifically focused on very small, small and medium enterprises. Therefore we live
off credit to small and medium enterprises and the latter live off or at least derive a great deal of support
from our activity.
Fear of losing work. In many case, I would hazard to say the very opposite. Together with Boccia we have,
on many occasions, raised the issue of the injustice and inefficiency deriving from the fact that the Public
Administration and large companies fail to pay their suppliers or do so with extreme delays. Because of
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these delays, we have at least fifty billion's worth of wrong indebtedness, which perhaps is entered in our
books as loans but which we would rather do without in the first place because, if it weren't there, it would
mean having stronger and more flexible companies, companies more capable of generating growth and
investment. It is clear that, in order to have positive alternatives to bank lending, as in the rest of Europe,
we would need to have at least a certain amount of liquidity to be able to open business capital to externalinvestors, which doesn't happen very often. There must be a market for corporate shares that are often not
listed or that cannot be listed, hence there must be market mechanisms for these shares and the ability to
invest but also divest, otherwise investors would not find them appealing. And this can be done, it is
something we can work towards, taking examples from others. There is the Stock Exchange world, with all
its limits, but which, from a certain size upwards and for some company types, could be the answer we had
been waiting for. We must come up with methods other than tax incentives to mergers and acquisitions. For
instance, we must come up with a way to use corporate networks: it may not be an all-encompassing
solution but it is another method that might prove to be the right answer for some cases, some areas and
business segments. Here in Bologna, together with the university and the local Confindustria, we are
working on this and perhaps such mechanisms may easily give rise to novelties and options which were not
previously available in financing terms. With regards to the strong relations between small and medium
businesses and the bank, we must also work together, as Vincenzo Boccia was saying earlier, to deal with
the issue of the new regulations such as Basel III, which presents a series of positive aspects, greater mutual
understanding, visibility and transparency of relations, but which however entails some extra difficulties
which in many cases and, as Boccia is well aware, in many parts of Italy, including Emilia Romagna we are
transforming, as he says, into opportunities, because by working together, performing rating simulations,
discussing corrective actions, amending the technical form, timelines, etc., in some cases it is possible to
optimise the rating in an efficient manner. Basel III may help build a more mature credit relationship
between clients and banks by pushing towards a better representation of data, a more timely supply of the
same and above all of the forecasting plans. This is a fundamental point because when the accounting
results are not there, as it may happen in many cases, especially after a crisis such as the one we are
currently experiencing, and when often there is also a lack of guarantees, the reason behind forcing the
internal rating model - because we often have to force it, actually in some cases it would not be possible to
give credit if the model wasn't forced - must be based on plans, on credible, marketable, attainable and
viable projects. Trade associations can do a lot on this point, as they have shown in many cases, however it
seems to me that with the attitude with which we have dealt with the crisis and with which we are dealing
with the introduction of Basel III, at least from a banking standpoint and on the theme of relations between
banks and small and medium enterprises, Italy can be said to be one of the most capable national economic
systems.