Federico Ghizzoni, the CEO of Italy's largest bank
Milan - XINHUA
The European economy is suffering from a lack of investment in both infrastructure and machinery, according to Federico Ghizzoni, the CEO of Italy's largest bank, Unicredit.
"Europe is getting older, including in terms of investment. This is happening in Italy, but also in Europe overall. Investments have decreased everywhere," Ghizzoni said in a recent interview with Xinhua.
Ghizzoni believes that measures must be taken both by European institutions and national governments to improve the situation, also in view of the fact that European infrastructure investment is "poor and dated."
He considers the plan presented by the new President of the European Commission Jean Claude Juncker to be "very important."
The Juncker Plan calls for 300 billion euros (379 billion U.S. dollars) in investments to be mobilized by the European Investment Bank and the private sector, in an effort to reindustrialize Europe.
Specific proposals regarding transport, energy and IT networks will be presented in February 2015. Juncker has stated that any funds used by governments should come from existing resources, in order to avoid violations of the European Union's (EU) budget rules, which prohibit governments from running deficits exceeding 3 percent of GDP.
That figure is to be brought down to zero in the coming years, based on the commitment to maintain fully balanced budgets enshrined in the EU agreement entitled the Fiscal Compact.
Ghizzoni agrees that it is essential to comply with those parameters, and expressed satisfaction that Italy will remain under the 3 percent figure for deficit/GDP this year. His view -- held by many others in the business community -- is that the government should be able to change the composition of public spending in order to free up resources.
Governments in northern Europe, on the other hand, have more flexibility to make investments due to better budget and debt situations, while countries in southern Europe need to continue with reforms. For Italy in particular, Ghizzoni pointed out the well-known difficulties in areas such as the labor market, taxes, public administration and the justice system.
With regard to private investment, the European Central Bank (ECB) has sharply increased its lending to banks since the outbreak of the global financial crisis in 2008 and the subsequent European sovereign debt crisis.
ECB measures such as long-term refinancing operations (LTRO), in which the central bank provides low-cost liquidity to private banks throughout Europe have so far failed to spur a recovery, as economic activity remains stagnant and firms suffer from the significant contraction in recent years.
Predictions for a return to growth in Italy this year have been reversed, as the country is now expected to see a negative GDP figure for a third consecutive year.
The trend is not limited to Italy though, as Germany's GDP has also taken a downward turn in recent months, contracting by 0.2 percent in the second quarter of 2014.
Asked about the limited effect of ECB liquidity operations, Ghizzoni replied: "The latest ECB measures are important, but they cannot be the only ones. The ECB measures by themselves cannot be expected provoke effective and continuous growth. Europe needs investment and reforms."
The other side of the response to the economic crisis by the European Institutions has been to demand "structural reforms" in order to increase efficiency and attract investment.
These reforms have generally involved heavy budget cuts and led to reductions in social expenditures and public investment, as well as tax increases.
Among the effects of these austerity policies have been a sharp increase in unemployment and a decrease in industrial production.
There have been growing calls for relaxing the EU budget parameters and allowing for anti-cyclical public investment, But as stated by Juncker, for now there are no plans to exceed the spending parameters and governments will have to count on internal resources and the attraction of private investment.