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J. R. Pin Arboledas, Head of Chair of Governance and Leadership at public administration and Professor of IESE, University of Navarra

Entrepreneurs VS. bankers

Thu, 21 Jul 2011 12:05:41 +0000 Published in The Economist

They need each other. One can't live without the other and vice versa. But these days they are not very friendly. The big real estate companies complain that they spend the day going from banker to banker to refinance debts.

They praise those who suspended payments and fixed their problems with a waiver and wait. SMEs complain about the lack of credit. The self-employed are trying to flee from the banks.

Bankers say they can do nothing: delinquency has shot up (6.5 percent in June), despite passing the stress tests there is no money to lend. They would have to increase capital or issue bonds, and the markets are not receptive. IU calls for a public bank: a mistake.

The ICO, the closest thing to an official bank, if it were to grow, would become an inefficient bureaucratic apparatus and would not solve the credit needs of the thousands and thousands of SMEs of our Economics.

Can a business fabric be built without credit ? Can financial leverage be dispensed with, that is, can companies work only with their own resources? It would be so slow that there would be no creation of work or consumption for many years. Without credit banking, modern Economics does not work. The solutions are not easy.

Essential injection

Lowering liquidity and cash ratios has always been the prelude to the financial crisis; past experience tells us so. Strict banking supervision is an essential element of economic stability.

So, what to do? This is the most serious problem of our Economics. No one has the solution. Neither a government without money and whose patches through the ICO have proved to be insufficient, nor bankers closely monitored by their supervisors.

That is why GDP will not recover in the coming months. Consumption will remain flat, including that of the Public Administrations. Public and private investments, too.

We can only be saved by tourism or exports, micro-enterprises that do not depend on the financial system or large companies that can put pressure on banks or finance themselves abroad. Will this be the change of economic model that the Government is looking for?