ECB: Benoît Cœuré on credit and investment in the European recovery

26 September 2014

'We need to focus on the quality of credit, not only the quantity. To create an environment where credit flows to productive investment requires a coherent and comprehensive approach. It requires managing the bank deleveraging process and finding workable solutions to reduce the debt overhang.'

To revive the euro area economy, recapitalisation not only in the banking sector but also a repairing of private sector balance sheets is needed. The banking sector is undergoing a necessary process of structural reforms. With concluding the Comprehensive assessment there is potential to ensure that credit supply constraints diminish and the cycle turns.

For a stronger rebound in investment the private non-financial sector needs to raise equity. One instrument especially for smaller and medium size enterprises is to allow EU investment funds to be distributed in the form of equity and not only in the form of debt, as the European Bank for Reconstruction and development (EBRD) and the International Finance Corporation (IFC) already do in many countries. Also the fragmentation in venture capital markets should be reduced.

For smaller firms with the need of deleveraging debt-for-equity-swaps, possibly fostered by tax incentives, could facilitate private debt workouts.

What is also needed is to raise productivity. An “upward shock” to total factor productivity is needed but only possible in highly competitive markets.'

Benoît Cœuré's speech

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