Italy’s finance minister Pier Carlo Padoan has made a commitment to help create the conditions for “spontaneous” investment by pension funds in the Italian economy.
Speaking at a conference hosted by government-backed pension think tank MEFOP in Rome, Padoan said the government wanted to act as “facilitator” to make sure institutional investors met the demand for finance from Italy’s corporate sector.
Padoan, who is heading the EU finance ministers’ council Ecofin as Italy takes the EU presidency for the next six months, spoke of “market failure” in Italy as, he says, “there is no investment in assets with specific duration or in specific sectors or geographies – this is not a problem that only concerns Italy, as Australia, as head of the G20 in 2014, has also put it at the top of its agenda.”
He added: “I will make sure the ministry I represent makes all the effort and provides all help needed to foster spontaneous investment by pension funds in the economy. Government action can facilitate the creation of new markets, in full respect of the autonomy of investors.”
Mauro Maré, MEFOP chairman and professor of finance at Università della Tuscia, cited data from pension regulator Covip showing investment in Italian listed companies from pension funds amounted to 0.9% of overall assets in 2013.
Total assets for the sector (including first-pillar casse di previdenza) topped €170bn at the end of last year.
Maré proposed a solution where pension funds would set up by themselves a fund for investment in the real economy, with an ad-hoc governance structure.
Other solutions being discussed is having state bank Cassa Depositi e Prestiti borrow money from pension funds and redistribute it to firms.
Italy has also created ‘minibonds’ to facilitate the issuing of credit by SMEs, although the market has failed to grow.
However, experts at the conference expressed conflicting opinions on whether Italian pension funds should be compelled to finance the domestic economy.
Some are worried that, if the government dictates what assets pension funds invest in, it would be equivalent to nationalising them.
The recent nationalisation of pension assets in Hungary and Poland were mentioned as examples of what could happen if pension funds were influenced too greatly by the government.
Nicola Rossi, professor of economics at University of Rome Tor Vergata, said: “Forcing pension funds to invest in the real economy would be the same as taxing them, so the government may as well tax them. That is a lot easier.”
Padoan added: “Expropriation, taxation, financial repression, obligation are words that I would never use to describe the relationship that politics wants to have with institutional investors.
“The problem is how to favour a global environment for investors that incentivises investment in the long term, for instance, in infrastructure. As EU president, Italy is particularly concerned with this shortfall.
“Therefore, it has asked that investors who are already investing for the long term are used better, and that a system of incentives and rules is created so that, ultimately, there is more spontaneous investment in these assets.”
Padoan reiterated that the country’s debt was “sustainable” and praised the reforms of the first pillar undertaken by his predecessors.
He said: “The Italian pension system has taken many steps forward in recent years with a series of reforms, which have been recognised internationally from institutions such as OCSE.
“In terms of public debt, there are many indicators today showing that Italy, especially the sustainability of welfare expenditure in the long term, is among the best-performing countries.
“The only way of keeping debt sustainable in the long term is growing because, without growth, we will fall back into a debt crisis. This is why Italy has pushed for growth to be a priority. All EU partners agree wholeheartedly, and this priority has been confirmed officially.”
As his tenure at Ecofin began, Padoan’s goal has been to convince his peers to put economic growth at the top of the list of priorities for the Commission in the months to come.
He said: “Growth has not been a priority for the past years, as the EU has focused on other issues.”
Panellists at the MEFOP conference, which focused on the sustainability of the pension system and its role within the economy, warned that demographic and economic forces in Italy were making the old grow older and richer, while young people struggled to find economic stability and faced the prospect of not having a public pension.
They said Italy should think about comprehensive welfare reform to avoid “intergenerational conflict”, which would include further changes in the first pillar system and stimulate growth in the second pillar.