“Coordinated action is crucial”

During the outbreak of COVID-19, promotional banks were playing a key role in supporting the European economy. How did CDP navigate the crisis?

DARIA CIRIACI: It is no news that Italy was struck particularly hard by the coronavirus pandemic, which led to nationwide lockdown measures, including the shutdown of production lines. The initial external shock on the supply side, which disrupted supply chains and placed a strain on manufacturing, was followed by a shake in demand. To give a good indication, in March 2020 Italian industrial production decreased by 28.4 per cent compared with the previous month. A two-sided shock is forecast by the European Commission, resulting in a fall of real GDP by 9.5 per cent in 2020 before increasing by 6.5 per cent in 2021 due to a substantial carryover effect. In line with what has been implemented by the majority of NPBIs (national promotional banks and institutions) in Europe, CDP has focused its immediate response to the crisis on guaranteeing liquidity and facilitating access to credit both for companies and territorial entities. More specifically:

– We have made 3 billion euro available to provide competitive funding to SMEs and mid-caps through banks, using our Piattaforma Imprese;

– We have launched a new credit line of 3 billion euro to directly fund Italian mid-caps and large corporates;

– We have provided a 1-billion-euro loan in favour of a leading Italian bank (UniCredit) in order to support Italian SMEs and mid-caps, operating in sectors particularly affected by the emergency.

For territorial entities, we approved the renegotiation of 34 billion euro of loans, with potential cash savings for municipalities of approximately 1.4 billion euro (so far more than 350 local entities have subscribed to this measure). CDP has also launched additional cross measures, such as an extraordinary plan of grants for 25 million euro and the launch of the COVID-19 Social Response Bond (1 billion euro), with a view to supporting Italian enterprises and local authorities heavily affected by the COVID-19 emergency.

What is the main thing you have learned from the COVID-19 crisis? And what role can promotional banks play for the recovery phase and future resilience?

COVID-19 is an unprecedented crisis, which has had a dramatic impact on the world’s major economies. Because of this, the main lesson to be learned is that it is crucial to provide coordinated actions, at national and supra-national level, to implement the right fiscal and monetary policies. In Europe, national governments have adopted massive schemes to provide fiscal stimulus and guarantees to support the economy. The European Union has put a powerful liquidity backstop in place for the short term, via the EIB (European Investment Bank), SURE (the European instrument for temporary Support to mitigate Unemployment Risks in an Emergency) and the ESM (European Stability Mechanism). A European Recovery Fund for the long term is currently under discussion and we believe that its volume should be in line with the impact of the crisis we are facing. NPBIs might play an even bigger role in mobilising public and private-public resources to be invested in long-term projects. This can take place not only on the debt side, i.e. debt and guarantees, but also on the equity side. For instance, NPBIs could play a key role if called upon to implement EU resources mobilised through a European equity (i.e.: “Solvency”) instrument, which would counter-balance the different availability of resources between Member States. Supporting long-term economic growth – the mission that is written in the DNA of NPBIs – will also contribute to reducing social inequalities, including by creating and protecting jobs.