Traduzione en 20110614 - a Emilia Romagna

8/3/2019 Traduzione en 20110614 - a Emilia Romagna

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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.

Traduzione en 20110614 - a Emilia Romagna

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