Interview with Jörg Asmussen, Member of the Executive Board of the ECB conducted by Alessandro Merli

There are clear similarities: the importance of manufacturing (although this has increased in Germany in recent years while in Italy it has decreased), the great importance of small and medium-sized enterprises. The key difference when it comes to SMEs, which may explain some of Italy's current problems, is that on average Italian manufacturing SMEs are much smaller than in Germany. It makes you more flexible, but it also makes it more difficult to finance innovation and exploit export markets. For sure, the fiscal situation is very different, and so are developments in competitiveness. One piece of data is really striking: between 1999 and 2012 nominal unit labour costs in Italy increased by a bit more than 36%, in Germany by less than 10%.

How do you explain that and how should it be addressed?
No single explanation. The relatively smaller size of firms, as I said, is one: smaller firms have difficulties in exploiting new markets, such as those in South-East Asia. But there are a number of reasons: adverse price and cost developments; demographics, which are worse than in Germany; lack of growth in total factor productivity. And there is an issue with the education system. Since 1999 Italy has lost 30% of its export market share, while Germany has gained 20%. On the fiscal side, a lot has been achieved, especially under the Monti government, which should not be unravelled. He also started a labour market reform. But the focus in Italy now should be on structural reforms: the need to foster innovation and improve competitiveness. That is the agenda that lies ahead of the country. But, having lived there for two years, even if it was 20 years ago, I am optimistic this can be done. I would not be as pessimistic as many analysts are.

The political system being dysfunctional is often cited as the main hindrance, leading to instability and uncertainty.
The European Central Bank is totally neutral politically. If one looks at the creativity here in Italy, there is high potential for finding solutions. You have real entrepreneurship. But if you look at the Doing Business report of the World Bank, which looks at how easy it is to conduct a business, Italy is 73rd. It's one of the best global indicators. Greece is climbing, even if from a very low ranking, and non-European countries are improving.

Italian entrepreneurs lament the lack and the cost of credit, especially for SMEs. President Draghi has said many times he that he is aware of the problem. What can the ECB do about it?
There are a number of reasons why banks don't lend to companies. When the business cycle is weak, companies demand less credit. But there are also constraints on credit supply. What will be very important is the coming major exercise led by the ECB, the comprehensive assessment of banks – the asset quality review and the stress test. Europe is lagging behind in balance sheet reform after the crisis, compared with the United States, and in my view lending to the real economy will only return to the levels at which we want to see it if we have clean bank balance sheets. If you have banks sitting on a substantial amount of non-performing loans or suffering from a lack of capital, they will not lend. This element of the banking union is key. The ECB will do this before assuming banking supervision and it is the precondition for lending to revive.

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