"The idea is to make sure that the money lent to banks will actually be redistributed to the real economy," says Andrea Colli, an economist at Bocconi University in Milan. "It's quite an innovative plan."
One of Italy's largest banks, Banco Popolare, announced last week it would take up the government's offer and accept $1.8 billion in assistance in the form of the bonds. It was the first of the country's banks to tap into the plan.
The bonds are just one of the capital-boosting measures being initiated by European Union countries. In late 2008, the German government injected €8.2 billion ($10.6 billion) in cash aid to Commerzbank, the country's second-largest bank, followed by $19.3 billion in debt guarantees. The Belgian government also gave several billion to shore up the country's major banks.
Those measures, however, were mostly aimed at helping banks that had invested in so-called toxic assets. With the notable exception of Unicredit, whose stability is endangered by investments in Eastern Europe, Italian banks have been less exposed to the credit crunch because of their relatively conservative business approaches, analysts say.
Offering Italy's banks a stimulus lifeline is a wise idea, says Mr. Colli, especially with the condition that the banks must free up additional credit for small firms. "Giving banks money and letting them keep it would be simply useless."
Although Italy might be better known abroad for huge fashion houses, Europe's fourth-largest economy heavily relies on small, family-owned firms in highly specialized sectors, such as precision machinery, electrical goods, chemicals, pharmaceuticals, and motors. Once strong and successful, those small firms are now in bad shape, says Franco Amatori, a professor of economic history at Bocconi: "While the world economy went global and large multinationals became dominant, Italy has simply lost the train. Here, big business doesn't exist, outside the utilities sector."
