The Banco de Portugal and EIB hosted a very timely conference on ‘Investment Finance and the Recovery’ on Friday 5 September, one day after the ECB announced both a surprise interest rate cut and purchasing programmes for asset backed securities and covered bonds to bolster bank lending to the real economy.
The conference coincided with the conclusion of the contemporary art collection of the EIB at the Banco de Portugal entitled ‘Within/Beyond Borders’. The exhibition presented a Europe in a permanent state of flux, giving cause to reflections on the possibility of breaking through boundaries or exploring new territories. This context and salient message set the stage for the economic discussion.
President Werner Hoyer underlined in his opening address, that Europe needs to move beyond crisis management and address a trend accentuated by the crisis, namely the decline in EU competitiveness vis-à-vis other parts of the world. Europe needs two recoveries: a cyclical return to growth in all member states, but also a robust recovery of competitiveness, necessary to sustain growth over the longer term. Restoring a fully functional European financial sector will be crucial for both recoveries.
Participation at the conference included experts from the EC, IMF, ESM, ECB and EBA, as well as other public and private sector bodies, besides the organizers EIB and Banco de Portugal.
Discussion revolved around emerging and innovative approaches to three themes:
- Resolving post-crisis EU banking sector fragmentation
How can we complement recent monetary initiatives by the ECB with additional investments in competitiveness on the fiscal side? Is the banking union sufficient to re-integrate the EU financial system? While banks funded each other in the wholesale market, is there a truly European bank operating with its own retail branches in several counties? And what are the challenges ahead for the Banking sector?
- Moving from a banking union to a financial union
How can the role of long-term investors be optimised? What is the role of securitisation? How should regulation (including macro-prudential policy) promote other sources of financing? Can these shifts promote the unregulated shadow banking system?
- Alternative models for financing the real economy in Europe
- Do we really know the relative merits of capital-market based financial systems?
- Are we at a cross-road? Are banks losing importance and are we witnessing a shift in financing models? Or given the peculiarities of the real economy in Europe, e.g. heavy dependence on SMEs, is there little alternative to a bank based system?
- What can we learn from other models particularly for the financing and recapitalisation of innovation and young SMEs?
- What are the institutional/legal and fiscal barriers shaping differences between Europe, the US and others?
Closing remarks made by Mr Carlos Costa, Governor of the Banco de Portugal, emphasised the size of the challenge ahead, as well as the vital role of the EIB group and other public banks and institutions in supporting investment finance and the EU recovery. He underscored the importance of continued knowledge sharing and further high-level exchanges. To allow such dialogue, a dedicated internet site will be opened, aiming at enhanced inter-institutional sharing of ideas and programs.
The discussions continued on Saturday during a workshop entitled ‘Deleveraging toward Economic Growth’. The more technical dialogue addressed the 'how' to operationalise instruments to promote the orderly deleveraging of financial institutions, including securitisation, guarantees, debt to equity swaps and the purchasing of distressed but viable companies.
