Italian banks continue to lend to stagnant companies as debt pile mounts

Italian banks continue to lend to stagnant companies as debt

As Italy and Europe more broadly struggle to come to grips with an escalating problem with bad loans, a new paper by economists connected to the Center for Economic Policy Research, a European policy shop, highlights the extent to which Italy’s main banks have stepped up their lending to the country’s most troubled companies. Tim Eisert, a German economist at Erasmus School of Economics in the Netherlands who participated in the study, commented on these issues. 

According to the research paper, the heart of the problem is a nexus of inert banks lending to inert companies that has kept a lid on the recovery of Italy’s economy, the third largest among countries that use the euro. The bank-driven slowdown recalls the zombie lending cycle that Japan entered in the 1990s, leading to its own lost economic decade. ‘Europe has not learned anything from Japan — it has just repeated the same mistakes,’ said Eisert. ‘Mario Draghi may have saved the euro, but we still have undercapitalized banks in Europe.’

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Click here to read the full article in The New York Times, d.d. 18th of August, 2016.