Italy’s finance chief says the euro zone still faces problems – even in Germany


The finance minister of Italy presented an upbeat tone regarding the banking sector of his counting but stressed that major obstacles remain in the euro zone, including in Germany.

Even though Germany is known as the powerhouse of the euro zone economy, it still has its own banking problems to deal with, said Pier Carlo Padoan to the CNBC on the sidelines of Sunday’s Ambrosetti Forum.

“I think that there are some German banking problems and I’m confident the German authorities will deal with them,” answered Padoan when asked regarding the statements made last year by Matteo Renzi, the former Prime Minister.

“Germany has been the country that has by far poured much more public money into the banking sector in terms of the hundreds of billions of euros in the past when the rules were different of course. This is a sign that maybe we all have to recognise that we have problems and we all have to recognise that we need to cooperate much more effectively to provide European solutions to those problems,” said Padoan.

Analysts have also warned of Germany’s banking problems even though it is Italy usually makes headlines due to its financial sector. These include the dependence on the shipping industry, which used to be a stable investment before the debt crisis in the euro zone. Other issues include the sheer number of Germany banks with very limited consolidation. There are nearly 2,400 separate banks with more than 45,000 branches all over the country and over 7,000 employees.

Padoan informed the CNBC that it is imperative to conclude the banking union – a project which was established in 2012 as a response to the sovereign debt crisis that strives to have a single set of policies for all banks across the European Union. He also informed the CNBC that the banking union had not been fully implemented so far, because of varying national perspectives and not because of opposition from some countries.

“We are however making progress in one thing: That we are building trust among ourselves and we are also recognizing that we have to reconcile historically-driven different traditions in banking sectors and they have to merge into a new European banking culture,” said Padoan.

‘Timing for QE reduction is ‘the most delicate and sophisticated art.’

The European Central Bank’s monetary policy might have been a huge help to the euro zone, including Italy, its third largest economy. Such support, however, is set to come t an end, which could result in Italy’s debt becoming more difficult to manage and more expensive.

“The timing of monetary policy is one of the most delicate and sophisticated arts in economic policy making and I’m fully confident in the leadership of the ECB that it will cast the QE (quantitative easing) withdrawal when the time is right,” narrated Padoan to CNBC.

On Thursday, the European Central Bank is expected to meet. Analysts are anticipating some guidance on when the bank will announce an exit from its quantitative easing (QE) program. The euro zone has also observed growth picking up and inflation – even though consumer prices are still below the “close but below 2 percent” target of the bank.

Pardoan also informed the CNBC that governments cannot let this current environment of low interest rates be wasted and they must reform their economies,

“I think it’s the responsibility of the other segments of the policy making toolkit, including fiscal policies, to take the opportunity of this window of easy monetary policy to implement those reforms which are fundamental to provide (a) good basis for monetary policy to be more effective. This is the duty of the governments,” said Pardoan.