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