In the words of Cynamon, 2008, “A family, in isolation, might choose a more conservative financial path, but the influence of neighbours, both those who have a physical presence and those whose lifestyles are piped in through the media, drives both consumption and debt higher.”6  4  Reinhart C., Rogoff K. (2010), Growth in a Time of Debt, American Economic Review, American Economic Association, vol. 100(2). 5  Rajan R. (2010), Fault Lines, Princeton University Press. 6  Cynamon B., Fazzari S. (2008), Household Debt in the Consumer Age: Source of Growth—Risk of Collapse, Capitalism and Society, Berkeley Electronic Press, vol. 3(2). BIS central bankers’ speeches  3  Finally, sub-optimal levels of savings and corresponding excessive indebtedness may originate from time-inconsistent preferences that lead human beings to deviate today from behaviour they defined as optimal yesterday. We might, for instance, have planned to save more (and consume less) in the future but – when the time comes – we postpone our plan to save because of so-called “present-biased” preferences.7 This behaviour may result in a reduction of lifetime utility because our “long-run selves” do not appreciate it.8 Already in the 18th century, David Hume wrote “There is no quality in human nature, which causes more fatal errors in our conduct, than that which leads us to prefer whatever is present to the distant and remote”.9 Mitigate the downsides of financial development What lessons can we draw from this multi-faceted diagnosis?
But it’s true that, economically speaking, Italy is a in a difficult juncture. It is the only euro area country that is experiencing a technical recession. And it has not seen an improvement in the labour market, which is another thing that sets it apart from other euro area economies. In the longer term, Italy’s problem is well known: it is productivity growth. I don’t believe that any of this has to do with the euro, otherwise it would be a general problem across the euro area. The response is to focus on the country’s strengths, such as its small and medium-sized enterprises. And to use the Single Market to leverage their strength and help them export to global markets. Isolation and protectionism don’t work. Europe is an asset for our economies. 1/2  BIS central bankers' speeches  It seems to be difficult at the moment to undertake the much discussed reforms to complete the banking union and the capital markets union. Do you share this impression? Yes, I do, and it’s a concern for the ECB. We firmly believe that Europe is part of the solution in dealing with the problems faced by European citizens. Many citizens in many countries are angry because economic results are not what they should be, because it has taken too long to recover from the financial crisis, because unemployment especially among the youth – is still high and because globalisation has not lived up to its promises, instead increasing inequality and marginalising parts of society.