ROME: The European Commission is helping Italy find solutions to its bad bank loans, a top European official said, raising hopes that Rome’s efforts to solve one of its biggest economic problems is not being ignored in Brussels.
In an interview with Reuters, Commission Vice President Valdis Dombrovskis said the EU’s executive body was also working with other capitals over how to help the region’s banks offload piles of non-performing loans.
Bad loans are one reason access to credit across the euro zone is still lacklustre despite signs of broader economic activity.
“We are aware of the problem and are working closely with Italian authorities to find a solution,” Dombrovskis said. “This is not only unique to Italy.”
Last year’s health check of euro zone banks by the European Central Bank showed many lenders are clogged with loans unlikely to be repaid. Many were extended to small and medium-size companies that suffered amid the financial crisis. Now, the non-performing loans are stifling banks’ ability to lend.
Italy fared particularly badly in last year’s banking review, with nine banks failing the tests. Italy has also sunk into one of the biggest recessions in the euro zone — its economy shrank for the past three years.
Italy has some 186 billion euros ($196.3 billion) of bad loans. Government officials have been working on a plan to create a company that would issue bonds guaranteed by the state so it could buy the bad loans.
However, Italy does not want the scheme to be considered state aid. Under European rules, states can help banks only in special cases and by imposing a financial loss on shareholders and junior bondholders of the banks being helped — a situation Rome wants to avoid.
“We are discussing the best way to deal with this problem, while at the same time respecting the framework as regards state aid rules,” Dombrovskis said.
On Italy’s economic forecasts of 0.7 percent of growth this year and 1.4 in 2016, Dombrovskis called the figures “realistic.”
The EU official indicated Brussels is likely to accept Rome’s recent request to cut its deficit more slowly than European rules require, acknowledging the government’s efforts to push structural reforms.
