For Europe, there can be no security without a sound financial system

(Il Sole 24 Ore Radiocor) – “Europe must take responsibility for its own security.” These were the words of Eurogroup President Kyriakos Pierrakakis at the conclusion of the meeting of finance ministers, which was attended by NATO Secretary-General Mark Rutte, making it clear that investment is a necessary condition for ensuring security. “Emerging threats require greater and sustained investment,” said Pierrakakis. “Defence spending is rising and will need to remain at high levels in the years to come.” Such expenditure cannot, therefore, be separated from private capital and a sound financial system, underpinned by bold legislative decisions, emphasises Stefano Caselli, Dean of the SDA Bocconi School of Management, where the SHIELD hub was established precisely to examine the interconnections between defence, security and the economy.

“The alerts and incidents of recent days have brought home to us in the most dramatically tangible way that cyber security is a very real issue. “That is why, now more than ever, we need to invest in our security; we need research and companies capable of working on protection and defence systems even more than before,” says Caselli. “And we need a more integrated industrial system and larger players to defend ourselves, from the food sector to airlines, right through to the banking sector.”

‘Talking about defence and security means, first and foremost, protecting the Italian and European systems, so that we can continue to generate GDP and employment, whilst avoiding the squandering of public money because we have failed to protect ourselves properly,’ he continues. ‘And to play this game, we need to involve the entire financial system, starting with the banks.’ Financial institutions, in particular, play at least two roles, he emphasises: “Upstream, because banks have owners; therefore, we must always ask ourselves who owns our banks – not to impose restrictions or constraints, but because we cannot remain neutral on this matter. And even more so downstream, because this is where they perform the essential function of channelling financial resources, granting loans and supporting research and businesses. This is a crucial issue at a time when those working in defence must have the funding to do so.” By focusing on what is a ‘common denominator across defence, energy and cyber security, namely innovation’, and ‘having a financial system capable of supporting investment in innovation becomes a multiplier’.

If the banking system, therefore, is the first building block for security in Europe, the crux of the matter lies with capital. Financial institutions “in Italia and across Europe have done their homework”, says Caselli, “and today Italian banks are among the best-capitalised in Europe; they are absolutely sound institutions, difficult to undermine. This is certainly a very important asset because it provides stability and security in financial terms”. But this is not enough in the scenario envisaged even by the Eurogroup: ‘Having robust banks also means having banks that know how to allocate resources as effectively as possible,’ continues the Dean of SDA Bocconi. And in the current climate, they must be better able than ever to devote a significant portion of their resources to financing those strategic sectors that are essential not only for generating GDP and employment, but also for ensuring security and defence.”

Another key factor in ensuring that the team capable of playing a decisive role is at full strength is the financial market, whose role is to channel and direct private savings – Italy’s vast wealth. This concept is illustrated by an analogy: ‘To get investment soaring – safely, too – having strong banks without a strong single market is like having an aeroplane with only one wing. If the banks are one wing, the other must be the market.’ ‘Increasingly, the markets must act as a link between the extraordinary amount of savings we have – starting with our own country – and the real economy,’ Caselli adds. “This happens through the financial market and, therefore, the stock exchange. A Europe that wishes to channel its capital safely into the future cannot fail to consider a single European stock exchange.”