Why Italian banks are failing

Banks and the debt economy in third Italy’s local communities in a book by Paolo Perulli

From saving to debt

The debt crisis in Italy is huge. The public debt grew from 52.7% of gdp in 1980 to 134% in 2015. The private debt is growing as well: debts are today 90% of household disposable income, they were 40% in 2007. This is new and dangerous: the financial crisis has dramatically reduced the traditional propensity to save of Italian families which made the past economic miracle possible. This raises questions about the nature of debt, its social and psychological roots and its future sustainability. The interpretative approach proposed here is based on historical sociology, assessing the moral foundation of the relationship between capitalism and individuals in local economies.

The new book by Paolo Perulli, professor of Sociology at the University of Piemonte Orientale, collects ideas and research findings on the belief systems guiding individuals and social groups in contemporary societies based on the “debt economy”. More precisely the book is on the shifting role of the “exchange” from its ethical origins of mutuality and trust (linked to the place) to the debt mechanisms building contemporary globalized economies. The focus is on two Italian local communities (Siena, Vicenza) whose entire local economy has been recently affected by the impact of financial crisis on debt of individuals, families and small businesses.

The aim of the book

The aim of the book is twofold:
– analytical: how we can explain the financial crisis of the two cities, their social formation of a middle class of patrimonial capitalism and the current debt economy;
– normative: how the local economies and societies can recover and restart after the deep crisis of confidence due to banks’ heavy losses and the generalized crisis of enterprises and families.
The book is expected to find the micro-macro link within contemporary debt economy: how individuals and social actors embedded in local economies are induced to change their attitudes and values in a context of financial capitalism and its recurrent crises, and banks and institutions’ uncertainty and even “irresponsibility”. The contribution (in term of explanatory tool) will entail the analysis of stress factors both exogenous ( the circulation of “debt capitalism” through the banks’ new management) and endogenous (the excess of trust in local elites co-responsible for the banks’ failures; the lack of modernization of local economic culture; the opportunism or even “deviance” of local interest groups). The book will also (in term of policy tool) redefine the role of finance and its boundaries within local economies, bringing the value production of Italian industrial districts back into the core of local systems.

Background

§1. In the course of history the main juridical and social institution governing the economy has been the contract of human agglomerations of free subjects entering into stable relations of interest. The contract was later extended to inter-city and inter-national relations. Finally, modern capitalism has incorporated freedom of contract as its defining feature, transforming its implicit association of money with myth into a new form of “debt religion” (a concept elaborated by Walter Benjamin in 1921).
§ 2. The project will apply a genealogical approach to de-construct the changing representations of the contract from the ancient origins of mutuality to contemporary urban societies. The Latin munus means at the same time office, duty, tax, gift. Munera were the public offerings of events by wealthy citizens to ordinary people. This social gift has been reversed in contemporary societies, where the private appropriation of public goods is the rule.
§ 3. In the Middle Ages and Renaissance the places of economic power (like market squares and merchant courts, and Bourse) and the cultural and religious tools and spaces were interconnected. In the social changes that followed, metropolitan “spatial worlds” were created, dominated by the circulation of money. In modern capitalism the “fetish of liquidity” (a term used by John Maynard Keynes in the 1930’s) has become the most anti-social maxim of ortodox finance. Professional investors privilege short-term forecasts which can lead to disasters. Managing risk and uncertainty is the matter of “worthy professionals”, whose skill and professional knowledge, accuracy and trustworthy are under attack today. The debt economy reopens the double meaning of Schuld, guilt and debt at the same time.

The fall of the Monte dei Paschi di Siena, the oldest bank in the world

Research strategy and methodology

The aim of the book is to evaluate whether, and if so how, Italian capitalism has been eroded by the debt crisis in focused urban contexts. The power of spaces (banks and financial institutions are located in symbolic places of Italian cities) is now under attack. Two banks, Monte dei Paschi di Siena, born in 1472 and Banca Popolare di Vicenza, born in 1866, have been recently the most relevant cases of huge financial losses at the expenses of thousands of small savers, “obliged” to invest in risky bank’s bonds in order to obtain loans. What is striking is that both banks are located in the “Third Italy”(as defined by Italian sociologists Arnaldo Bagnasco and Carlo Trigilia in the 1980’s): a traditional society of small and medium entrepreneurs based on strong social links and communitarian socio-economic circuits and ethics. Exogenous financial shocks can have produced the crisis of the social texture and its nested networks of good faith relations. However it is more plausible that the “communitarian” ordering of Third Italy’s local societies has fallen into involution, as its local society was genetically exposed -if not monitored and modernized- to such outcome.
The moral legitimation of merchant bankers and of credit institutions is widely discussed, and the social perception and self-perception of financial capitalists is a matter of criticism. Their “speculative skill” has turned from good to bad social reputation. The state of confidence and the state of credit are both in crisis. Groups of small savers’ protest, citizens’ movements and political/judiciary pressure on banks have changed the centrality of economic institutions. Such shifting involvements from the private sphere of individual and family savings to the public space are worth noting in Italy. In the past the Italian banks’ business model, strongly concentrated on traditional intermediation, was a blessing when the financial crisis burst, and made Italian banks very different from others that were heavily exposed to assets whose value deteriorated rapidly. Today this paradise is over. The bankrupts of banks and bail-ins in Italy, and their effects on the moral belief system of individuals and local communities of the “Third Italy”, are the focus of the project.
Differences among the two cities, and the two banks will be taken into account: their historical roots, the peculiar ethic of capitalism (and its religious component) of local elites since the xv century, and more recently the role of local political systems and sub-cultures, are all variables to be carefully assessed and compared.

Laureatosi in storia a Firenze nel 1977, è entrato nell’editoria dopo essersi imbattuto in un computer Mac nel 1984. Pensò: Apple cambierà tutto. Così è stato.

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