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«Rome, 25th June 2013 This paper was drafted by a working group, chaired by Prof. Rainer Masera (Università degli Studi Guglielmo Marconi), with the ...»

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Response to the European Commission Green

Paper on the Long-Term Financing of the European


Italian Banking, Insurance and Finance Federation (FeBAF)

on behalf of

Italian Banking Association (ABI),

National Association of Insurance Companies (ANIA),

Italian Association of Private Equity and Venture Capital (AIFI),

Italian Association of the Investments Management Industry (ASSOGESTIONI),

Italian Association for Complementary Pensions (ASSOPREVIDENZA),

Public Company for the Development of the Italian Pension Funds Market (MEFOP) Rome, 25th June 2013 This paper was drafted by a working group, chaired by Prof. Rainer Masera (Università degli Studi Guglielmo Marconi), with the participation of Angela Maria Bracci (ABI), Laura Crescentini (Assoprevidenza), Davide Ferrazzi (ABI), Valentina Lanfranchi (AIFI), Mauro Marè (Mefop), Edoardo Marullo Reedtz (ANIA), Maria Concetta Miranda (FeBAF), Francesca Palermo (FeBAF), Antonella Pisano (Università degli Studi Guglielmo Marconi), Alessandro Rota (Assogestioni), Gianfranco Verzaro (Assoprevidenza).

The Italian Banking, Insurance and Finance Federation (FeBAF) was established in 2008 by the Italian Banking Association (ABI) and the National Association of Insurance Companies (ANIA).

Since 2010, other business associations of the Italian financial market have been joining the Federation. Assogestioni – the Italian Association of the Investments Management Industry – was admitted in May 2011, and Aifi - the Italian Association of Private Equity and Venture Capital – in January 2013.

The mission of the Federation is to promote the economic and social role of banking, insurance and finance in Italy and abroad, while upholding the general interests of the country. A modern and effective financial sector is an important condition for sustainable growth of society and the economy. Furthermore, FeBAF aims at presenting its member associations‟ views and opinions on economic and social matters in all the relevant policy, institutional and economic fora, at the national and international level. FeBAF promotes business values, acting to spread the culture of competition and the market economy, and focusing on the enhancement of banking, insurance and finance in terms of transparency, trust-worthiness and performance to the benefit of customers, savers and the population at large.

Since its establishment, FeBAF has focused on a selected number of topics relevant for both the financial industry, and national, social and economic development. Due to the international orientation of FeBAF activities, its four member associations have decided to concentrate their liaison offices with the European institutions in Brussels in a single Office managed by Febaf.

Thanks to such common lobbying and institutional presence, the Italian financial industry aims at strengthening dialogue with other organizations and stakeholders in Europe, and beyond.

–  –  –

The Italian Banking, Insurance and Finance Federation (FeBAF) welcomes the opportunity to contribute to the public debate on the fundamental issues raised by the European Commission Green Paper on the long-term financing of the European economy.

The Federation’s contribution draws on the point of view of its affiliated Associations: the Italian Banking Association (ABI), the National Association of Insurance Companies (ANIA), the Italian Association of Private Equity and Venture Capital (AIFI) and the Italian Association of the Investments Management Industry (ASSOGESTIONI). It also conveys the point of view of the Italian Association for Complementary Pensions (ASSOPREVIDENZA) and the Public Company for the Development of the Italian Pension Funds Market (MEFOP).

In line with the Federation’s mission and mandate, the paper intends to promote a cross-cutting and system-wide approach to the issues of the Green Paper for the Italian financial market as a whole, highlighting the common concerns thrust and vision of the main players in the Italian financial industry.

More specific and detailed answers to the questions posed in the Green Paper can be possibly found in the submissions presented (either individually or collectively, and/or jointly with European Federations) by different Associations of the Italian financial market, including the ones on behalf of which FeBAF submits its response. In the paper, we make reference, to the extent possible, to such more specific contributions.

Following up on the submission of the paper, FeBAF intends to engage the Italian financial community, the authorities, stakeholders, students, policy makers and the public opinion in discussing the fundamental issues raised in the Green Paper, with the aim of promoting a common understanding and perspective for the future, strengthening motivation and drive for reform, feeding constructively the national and European debate on the long-term financing of the European economy.

We look forward to continuing dialogue and cooperation with the European Commission, other European institutions and all relevant stakeholders on the important debate stimulated by the Green paper.

FeBAF is available for any further information or question at info@febaf.it.

Rome, 25th June 2013

–  –  –

Long-term finance is vital for sustainable growth and for the lasting recovery of the European economy.

The recovery of growth is necessary to reduce unemployment, restore competitiveness and overcome the difficulties of public finances in Member States. A new exit strategy from what has shown to be the worst post-war financial and economic crisis should be designed: financial stability and fiscal consolidation require sustained and sustainable growth, which is in turn the pre-requisite for long-term financial consolidation.

The urgency of a smart, sustainable and inclusive growth was affirmed in the Europe 2020 strategy and reiterated in the Green Paper. Economic policies founded exclusively on fiscal austerity and consolidation have not been able to reach their objectives, especially if coupled with increasing constraints on capital of banks and insurance companies, and with a highly procyclical accounting framework. There is wide agreement on the need to ensure the sustainability of public finances and to reduce the public debt/GDP ratio. A mix of structural policies is needed, in order to restore the economic conditions for growth (notably in “peripheral” countries) and to bring down the unemployment rate, especially among young workers. This issue transcends economic consideration. It raises political and social problems.

In this regard, the Commission should consider that the importance of an effective growth strategy must involve Europe as a whole and, in particular, contribute to untying the knots of the “imperfect monetary union” we in the Eurozone live in. It is mainly up to the private sector and the markets to ensure convergence in growth, but appropriate supporting policies are needed.

Europe has recognized, on many occasions, the essential role of investment for economic recovery, as the basis of a sustainable development process. Reviving investment, therefore, means not playing in defence. Investment implies risk taking. In its absence, there is not any credible prospect for economic recovery. Investment that contributes to increasing total factors productivity (TFP) is especially necessary. The issue is particularly important in Italy, also due to the impossibility of using the exchange rate tool.

Investments in traditional infrastructures, innovation and knowledge, research and development, energy, the environment, land protection and education, make up a key driver for growth.

Public and private investment in physical, human and intangible capital not only supports demand in the short-term, but it also increases productivity and, therefore, sustains the supply side in the medium-long term, by enhancing competitiveness.

4 In order to favor competition in an advanced manufacturing system and to accompany the necessary passage towards an innovative service economy (which includes health, education, efficient bureaucracy, justice and transport), there need to be significant flows in investment in infrastructure, with public-private co-financing.

Saving plays a fundamental role: without its contribution, there cannot be investment and sustainable development, and neither Europe nor Member States would be able to achieve their aims. The ability to save has proved to be key to the success of the “Made in Italy” and of the Italian economic development model. It also played a role in the Italian economy, protecting it from the disastrous consequences following the 2007-2009 crisis. But the latest crisis seriously affected households‟ and firms‟ ability and propensity to save.

In order to favor long term investment, it is therefore necessary to promote saving too, just like it is happening in the United States and Canada.

Question 1: Do you agree with the analysis above regarding the supply and characteristics of long-term financing?

The Green Paper correctly attributes a prominent role to the revitalization of long-term investment for the purpose of sustainable development.

During these last years, the financial crisis has been felt in all areas of the European economy, but it had a particularly negative impact on the ability of the private and public sectors to invest in the medium and long-term. The prolonged recession in Europe, which began in 2008, was in fact characterized by a significant fall in private investment: the difficulties of public finance and the constraints imposed by the Fiscal Compact (which does not distinguish between current expenditure and investment outlays) determined a similar downturn in public investment, notably in peripheral countries.

Investments capable of generating growth and increasing competitiveness are generally configurable as long term investments and ask for consistent financing lasting several years; the financial sector, and the insurance one in particular, take on a central role in this process, by gathering and channeling resources towards similar projects.

The Green Paper has the double objective of elaborating a set of qualitative standards for longterm investment and to explore new opportunities regarding possible financial tools or architectures.

5 Numerous high profile studies and contributions on this theme have been developed in parallel, by research institutions, international organizations and by the European insurance industry

itself. Specific mention can be made to:

 Association of Financial Markets in Europe (September 2012), Financing European Growth: a new model. The document contains the proceedings of the AFME symposium of 18th September 2012, with the aim of discussing the prospects for the economy and the investments in the next decade.

 Centre for European Policy Studies - European Capital Markets Institute (October 2012), Supporting Long-Term investing and retirement savings. The analysis of CEPS shows the results of the works of a task force, with the aim of strengthening the single market for long-term savings and investments in Europe.

 Swiss Re (February 2013), Strengthening the role of long-term investors. The report highlights the role of long term investors, especially the institutional ones, as suppliers of risk capital for the real economy and as stabilizers and shock absorbers in financial markets, and the necessity to strengthen their role.

 Financial Stability Board (FSB) (February 2013), Financial regulatory factors affecting the availability of long-term investment finance. The analysis highlights the main regulation reforms that, according to the FSB, could have effects on long-term finances (on banks‟ prudential requirements, OtC derivatives, accounting rules for different types of institutional investors). The report supports that these reforms could alter both the incentives for different types of financial institutions to participate in the long-term financial market, and the costs associated with different types of transactions.

 OECD (February 2013), The role of banks, equity markets and institutional investors in long-term financing for growth and development. The work is aimed at identifying the main trends in the transmission channels of long-term financing, by focusing the attention on the role of the banks, capital markets and institutional investors.

Furthermore, it analyses the investment in infrastructures.

 G30 Working Group on Long-term Finance (February 2013), Long-Term Finance and Economic Growth. The report aims at quantifying the need for future financing and the obstacles that impede supply and, potentially, undermine economic growth.

–  –  –

 OECD (May 2013), High-Level Principles of Long-Term Investment Financing by Institutional Investors. It deals with a draft recently placed in public consultation and realized by the Task Force on the theme of long-term finance by institutional investors.

The purpose of the principles is that of addressing the surveillance authorities towards the creation of a political and regulatory framework that encourages institutional investors to provide stable financing to the real economy and to long-term investments.

 LTIC (May 2013), Contribution of the Members of the LTI Club on the draft High Level Principles of Long Term Investment financing of the OECD. The response to the OECD consultation in May stresses the idea that, before addressing the issue of financing longterm investments, policy makers should focus on the quality of these investments. In this respect, the role of the multilateral development banks, public entities, as well as public long term institutions like CDC, KfW and CDP should make up the evaluation of the quality of the investment and its monitoring throughout the cycle.

In confirming the importance of the Green Paper, attention is, in a preliminary way, drawn towards three main points, that need to be better explained.

1. First, the concept and the different characteristics of long-term investment, and therefore, infrastructure, would need to be clarified further. This definition, in fact, is key to the identification of investments to which public resources and private savings are directed.

2. Second, the definition of infrastructure itself needs to be better explained, with reference to public and private capital.

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