ignazio visco : investment financing in the european union keynote address by mr ignazio visco, governor of the bank of italy, at oecd - euromoney conference on long - term investment financing, paris, 19 november 2015. * * * i first wish to thank the oecd and euromoney for inviting me here today. following the outbreak of the global financial crisis, europe experienced a large fall in investment, which continued throughout the sovereign debt crisis. the fall was unusual in terms of severity and duration. set equal to 100 its pre - crisis peak in 2007, in 2014 real gross fixed capital formation was still lower than 85 in the euro area while it had almost fully recovered in the united states and the whole oecd economies. moreover, investment trends in europe were very heterogeneous : compared to a level of 100 in 2007, last year real gross fixed capital formation was equal to 105 in germany, 97 in the united kingdom, 94 in france and lower than 70 in italy and spain. there is no need to add much on the short - to medium - term outlook, except to underline that the growth recovery in advanced countries, and especially in the euro area, is still fragile, as it faces non - negligible headwinds from the slowdown in emerging economies. the dramatic recent developments, which culminated in the so difficult to comprehend, and cope with, terrorist attacks here in paris, certainly add their negative weight on confidence and raise the level of uncertainty. this may make the recovery in capital accumulation more difficult to sustain. it is against the backdrop of such an exceptional decline in capital formation that we have to analyse investment financing in europe. i will offer some remarks on three issues : the need to diversify the european economy ’ s sources of financing and overcome financial markets fragmentation ; the challenges of the capital markets union ( cmu ) ; and some key issues that come up in financing infrastructures. 1. diversifying financing sources and improving financial market integration the european commission proposal unveiled last february to establish a capital markets union by 2019 has among its primary objectives the broadening of non - bank sources of financing and lowering barriers to cross - border investment. the need to achieve a more diversified financial system is especially due to the bank - centric character of european financial systems. the european economy is as big as the us one, but europe ’ s equity markets are less than half the size, its non - bank debt markets less

they were not necessarily articulated fully at the time, these solutions entailed several goals : preserving a functioning domestic payment system, ring - fencing the sovereign in the case of bank failures, limiting the socialisation of private sector losses, and creating the conditions for rebuilding a domestic banking system. in essence, the adopted solution saved the domestic operations of the banking system by splitting up the banks and allowing the international part to go into a resolution process. furthermore, in order to stop an incipient run on domestic deposits, all deposits in iceland were declared safe and all deposits in icelandic - headquartered banks were given priority over other unsecured claims. as a result of these measures, the domestic payment system functioned more or less seamlessly throughout, and common citizens had continuous access to their deposits. bis central bankers ’ speeches there are still a number of misconceptions about this process in international discussions. there have been claims that iceland allowed its banking system to collapse, with what now seem reasonable results, and that others should consider doing the same. the fact is that iceland kept the domestic part of its banking system running throughout ; otherwise, the consequences would have been dire. some have claimed that the banks were nationalised. they were not. the old banks are private companies. they are in winding - up proceedings governed by law ; they are not under the control of the government. the government has a majority stake in only one of the new banks. others have claimed that iceland defaulted and got away with it. the opposite is true. the credit of the sovereign was preserved, and all debt obligations have been paid on time. moreover, the investment - grade credit ratings from moody ’ s and s & p were preserved throughout the crisis. this is why the sovereign has been able to tap international capital markets twice so far since the crisis struck. so the bottom line is that a sovereign default was avoided in spite of an almost unprecedented financial collapse and the worst economic recession since the interwar years. a key to that result was the ring - fencing of the sovereign from the collapse of the private banks. all debt service payments on sovereign debt, in both domestic and foreign currencies, have been made in full and on time. but the avoidance of default during the crisis does not come without the willingness to use the means available to avoid that outcome, even in very adverse situations, and the ability to endure the temporary hardship that comes with it. in addition, iceland – like ireland, probably – was helped by