Everything happening in the Markets: Winners and Losers of 2016

Here’s a look at some of the best and worst performing assets in global financial markets as 2016 ends.


British pounds are almost unanimously rated to be the worst performing currency in the year of 2016, which suffered significant devaluation due to the Brexit referendum on 23rd June, 2016. Overnight GBP plummeted, a price UK paid to “leave” the EU. By the end of the London trading session the next day, GBP dropped nearly 9% against the dollar, representing one of the largest single-session selloffs in GBP history. The ride for GBP in 2016 wasn’t a great one, though the value of GBP is expected to stay resilient until further details of Brexit will be revealed.

EUR/USD started with 1.0898 on January 4th 2016, but decreased to 1.0541 on December 30th, despite having achieved the peak of 1.1569 on May 3rd. The average EUR/USD of the year was 1.1062, but it could reach the parity in 2017 as Trump’s expansionary fiscal policies could further strengthen dollar.

EUR/USD Trend 2016 – Financial Times Market Data

With slower economic growth in China, Chinese RMB had its biggest annual loss this year since 1994, therefore the government ended 2016 introducing a new round of capital control measures to help RMB stay strong. The slowdown also weakened the value of Australian Dollar and New Zealand Dollar.


2016 has been a resurgence year for commodities, with the first annual advance since 2010. Thus, the Bloomberg Commodity Index, tracking returns for 22 components, climbed 11% in the past year.

Natural gas is on the biggest fourth-quarter rally in 16 years, prices grew 60% over this year, pushed by expectation of a severe winter. Wheat, on the other end of the spectrum, has been the worst performer tumbling 14% due to rising global stockpiles.

OPEC and 11 other producing countries plan to start oil supply cuts in the beginning of 2017 to reduce swelling global inventories after a long period of unlimited output. Details of agreement implementation are still awaited but oil has made the biggest annual gain since 2009. While economic growth of top user China and Donald Trump presidency, particularly his infrastructure investment plan, are expected to further bolster demand for metals in the coming year. For the first time in four years Goldman Sachs has recommended an overweight position for commodities, raising both iron ore and oil price forecasts. However, signals on the iron ore prices are mixed – plenty of other banks expect them to be back below $50 by the third quarter as Chinese property market may cool.

Brent Crude Oil Trend 2016 – Financial Times Market Data

Trump’s victory had a detrimental effect on gold – it suffered a 13 percent decline in the fourth quarter of 2016, confirming the negative correlation between gold and U.S. stocks. After the dire end of the year, however, traders are once more bullish on gold as it climbs up 2.6% to 1173 an ounce the first week of 2017. Investors also hold bullish positions in cotton, cattle and crude oil, but aren’t optimistic for corn, cocoa and wheat. Overall, a modest recovery is projected for most commodities in 2017 as demand strengthens, supplies tighten and global economic growth picks up.


The year 2016 was a pretty good one for stocks despite political uncertainty coming from Brexit, Trump, and new elections happening across Europe. In UK, The FTSE 100 broke an all-time high on the final trading day of 2016. In the US, the S&P 500 was up over 10% across the year, the return was 12.5% including dividends. That followed the weak performance of 2015, when the index gained just 1.4%. The beginning of the year was challenging for American stocks, when they have experienced a selloff, driving the Dow Jones industrials at 15,500(now 19.970). However, potential Trump’s expansive fiscal policy and a bounce in commodity prices have been key drivers for markets, offsetting the initial tumble. US banks are expected to boost earnings as a result of higher Treasury yields and a more accommodative regulatory regime promised by the Trump administration. The best performing sectors of the S&P 500 were Energy with a +24% return and Financials with a gain of +20%.

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S&P 500 Energy and S&P Banks Trend 2016 – Bloomberg via Financial Times

While other developed equity markets mostly struggled in 2016. Europe was hit by Britain’s vote in June to leave the European Union and the European Stoxx 600 was down 1.2%. Despite 2016 was the fifth successive annual gain for the Japan’s Nikkei 225, the index was only up 0.5%, partially due to weak inflationary and macroeconomic data signaling a weakening effectiveness of BoJ monetary policies.

Stoxx 600 Trend 2016 – Bloomberg

The best stock index of the year (in terms of U.S. dollar) was the Brazil’s Ibovespa, driven by the new President Michel Temer replacing Dilma Rousseff after the impeachment, and rising commodity prices. The Shanghai Composite index was the worst (-16%), however it was down -23% at the beginning of 2016, due to an initial loss of confidence in China’s economic growth prospects. The falling yuan has driven investors abroad in search of better performance elsewhere.


2016 was a volatile year for government bonds starting with the immigration crisis, followed by Brexit, Trump’s winning and ending with the veto vote in Italy’s constitutional referendum. U.S. Aggregate Bond Index finished with 1.9% in the closing days of 2016 with the expectation of an increase of US treasury yield accelerated after election results on November 8th, the spread between US 10-year Treasuries and German 10-year Bund widened to 2.224%, marking the widest gap since the fall of the Berlin Wall. The gap signals that investors see strong divergence of economic growth in these two developed markets. Across the Pacific Ocean, China’s 10-year government bond yield has fallen from 4.6% in January 2014 to 2.65% in October 2016, one of the lowest points this year, despite the government’s efforts to contain the bond bubble.

Total Return of Global Financial Assets 2016 – Bloomberg via Deutsche Bank



Luca CartechiniHead of Financial Markets
Yiping Zhang – Financial Markets Associate
Kseniya Shitova – Financial Markets Associate

Credibility of Central Banks – A comprehensive analysis of ECB and FED effectiveness

On the 1st of January 1999, the ECB assumed responsibility for monetary policy in the euro area, with the primary objective of maintaining price stability, keeping the euro area’s target inflation rate (calculated using the Harmonized Index of Consumer Price, HICP) below, but close to 2% over the medium term. This objective has even been reinforced with the ratification of the Lisbon Treaty in 2007. Seventeen years later in 2008 the global financial crisis erupted causing the greatest economic recession since 1928. Since then the ECB has been put under additional pressure to advise on regulation and enforce banking supervision while fostering economic growth. Extremely unconventional monetary measures have been taken to achieve this objective and a recover of the economy and productivity.

On the 12th of November 2008, the first measure was implemented by cutting the interest rates for deposits, overnight loans and the Main Refinancing Operations. The two main objectives of this move were to provide greater liquidity to commercial banks and depreciating the currency against the US dollar, allowing a greater competitiveness.

Despite the large amount of capital lent through MROs and LTROs, banks preferred to buy bonds instead of lending to families and enterprises, not fulfilling their function as middleman between the ECB and the real economy.

On the 26th of July 2012, Mario Draghi famously announced that the ECB was willing to do “whatever it takes”. Consequently, launching new measures to support the countries, which were facing economic and financial difficulties. In September of that year the Outright Monetary Transactions (OMT) were introduced.

The OMTs key points were: Unlimited ex-ante bonds purchase quantity; one-year and three-year maturity bonds purchase; transactions performed in the secondary market sterilizing the exceeding liquidity. While this programme was initially controversial, as it questionably occurred outside of the ECB’s legal framework, it did achieve its expected outcomes, as bond yields in the weaker countries declined. On the 5th of June 2014, the ECB announced the first series of TLTROs (Targeted Long Term Refinancing Operations) which linked the amount borrowed and lent (expected mortgages) to private sector, aiming to incentivize banks to increase their lending.

Although the ECB had implemented all these unconventional measures, no significant positive effect had been seen.  The PMI index evolution show a soft recovery ignited by Draghi’s first moves.


That is why on 22nd January 2015 Mario Draghi introduced an extended Quantitative Easing program, the Asset Purchase Program (APP), which allows the purchase of Eurozone government bonds. This programme allowed for € 1,140 billion in bonds to be purchased and lasted 19 months (supposedly, from March 2015 to September 2016), injecting even greater liquidity into the market. The bond purchases provided greater monetary stimulus to the economy while the key ECB interest rates were kept at their lower bound. Furthermore, an easing of monetary and financial conditions occurred, making access to finance cheaper for firms and households. This tends to support investment and consumption, and ultimately aims at helping the economy reach its targeted inflation rate. This move was unexpected from market who rejoiced vigorously, pushing European stock indexes up to multiyear highs. DAX index, the one who benefited the most from the ECB’s new plan topped 12000 points.

After one year of the extended QE program some doubts arose about the effectiveness of the ECB’s monetary policy, raising the credibility of monetary policy issue and igniting criticism from some member states, such as Germany, mainly for the negative impact on people’s savings.

In response, the ECB surprised the markets in March 2016, by cutting key interest rates, expanding the asset purchase program to 80 billion monthly and deferring the end to March 2017. In addition, the percentage of bonds that can be purchased has changed from 33% to 50% and the purchase program includes also some high-rated companies’ shares other than covered bonds and asset-backed securities. Four new TLTROs (TLTRO II) are being issued every three months, starting from June 2016 with an interest rate, which is linked to the participating banks’ lending patterns. The more loans that participating banks issue to non-financial corporations and households (except loans to households for house purchases), the more attractive the interest rates on TLTRO II borrowings becomes.


In a recent statement at the ECON committee of the European Parliament on the 28th of November, Mario Draghi remarked that: “To increase the effectiveness of monetary policy, fiscal and structural policies are needed that reinforce growth and make it more inclusive”, while in his speech ten days before, stated that “Since the onset of the global financial crisis, 2016 has been the first full year where GDP in the euro area has been above its pre-crisis level. The economy is now recovering at a moderate, but steady, pace, while the employment is growing. We remain committed to preserving the very substantial degree of monetary accommodation, which is necessary to secure a sustained rise in inflation.” Despite Draghi’s reassurances, as well as the unconventional and largely expansive measures carried out by the ECB, one can observe that inflation levels are rising, but still at a too slow pace, currently at 0,5%. The same can be said for GDP growth.


The main question to ask is where is large amount of capital that is being injected into the economy flowing, and why is it not boosting growth?

Low interest rates – the rate on the deposit facility is -0.4% while the interest rate on the main refinancing operations is at zero level – should decrease the cost of financing of the banks and lower the attractiveness of government bonds inducing them to lend to enterprises and consumers. Unfortunately, many factors have contributed obstructing the transmission of money to the real economy and restrained the banks from granting loans. First, the banks are not inclined to lend money for three main reasons: the poorer margins on loans, squeezed by the rates at their lowest level; the necessity to keep risks under control which conflicts with the credit standards’ tightening, particularly on corporations, that can even be worsened by the forthcoming introduction of Basil IV, still under discussion, which is considering to impose the use of standardized credit scoring approaches, instead of the more flexible Internal Standards-Based Approach introduced by Basil II, change which will require higher provisions for risks; at last the harsher capital requirements set by Basil III in 2013, which induce banks to immobilize funds that could be alternatively lent.

It seems that the situation is getting better and banks are finally increasing the amount of loans granted. It is noticeable that the increase is faster since 2015, year of introduction of the Quantitative Easing program. The manufacturing PMI Index for euro area, which measures the performance of the manufacturing sector, is climbing up to the 2011 peaks. Therefore, the introduction of stricter credit rating approaches is highly questionable and more flexibility should be given to lenders.


It is also true that the low interest rate policy and the Asset Purchase Program have contributed to the increase in prices of assets and so the reduction of yields, inducing banks to take greater risks in return for higher returns. Indeed, fixed income prices are at their highest while the German 10Y bond yield is only 0,2%, having been even negative last June for a couple of months. 

Another reason behind the lack of effectiveness of the quantitative easing is that it could not have the impact desired, as interest rates at the inception of the program were already very low. The 3-months Euribor rate was hardly higher than zero.

The conclusion is that monetary policy does little to support growth, when not combined with adequate fiscal and regulatory policies. The IS-LM diagram, or Hicks–Hansen model, can help one better understand the current situation. Last but not least, the world today is in what can be deemed as a “liquidity trap”. A situation in which the central banks cannot reduce the interest rates even further, as doing so has no effect on inflation. Policymakers are pushing negative interest rate policies to stimulate growth. Lower rates are designed to spur savers to spend, redirect capital into higher-return (i.e. riskier) investments, and drive down borrowing costs. This is associated with a weaker currency, making exports more competitive. When a “liquidity trap” occurs and rates go negative, a squeeze on the speed at which money circulates through the economy, commonly referred to as the velocity of money, incurs. Therefore, each Euro generates less and less economic activity, increasing deflationary pressure. As consumers see prices decline, they defer purchases, and growth slows. Deflation also lifts real interest rates, which drives currency values higher. If the ECB persists in this policy, pumping more and more liquidity into the economy, then more negative rates could be on the way.


The austerity measures pursued by the European Union since the beginning of the European sovereign debt crisis at the end of 2009, have constrained the member states to lower their debts and the public spending, exacerbating the fiscal policy and worsening the economic downturn. By the way, it seems that, under the more insistent demand by many member states for more flexibility, EU is overshadowing the pursuit of lower deficits, to focus on the boost of economic growth.

On the 8th of December 2016, Draghi announced that the ECB would scale back the monthly bond purchases from € 80 billion to € 60 billion in March 2017, postponing the end until December 2017, reassessing the support of ECB to markets. Moreover, the ECB would consider (but not necessarily pursue) purchases of bonds with yields below the standing facilities deposit rate (i.e. -0,40%), thereby incurring losses for the central bank, if such purchases were to be made. This announcement provided a largely positive reaction on the European equity markets, while European bond market yields fell even lower and the Euro/Dollar had its largest drop since Brexit, depreciating by 1.5%. Following the announcement of the ECB’s future QE plans, reporters repeatedly questioned whether and when tapering would occur and Draghi insisted that members of the governing council unanimously did not consider such measures.

Europe, to help the ECB to fulfill its task, is considering several non-monetary measures. The Capital Markets Union (CMU), strongly supported by ECB, is expected to come into effect in 2018. Commercial banks are currently hesitating to issue new credit, particularly to SME’s – which account for 99% of all enterprises in EU – due to the size of their large balance sheets. The CMU would enable commercial banks to shift risks away from balance sheets by allowing investors (such as pension funds) to invest in securitized loans. However, it must be stringently regulated, to ensure that the quality of the debt being securitized and sold, meets certain standards. A lesson tragically learned by the recent financial crisis.

The harmonization of fiscal policies among EU member states seems still far away and hard to achieve. At last Europe is changing attitude in direction of a greater allowance for deficit spending and public debt, under the requests received by many member states, which questioned the austerity policy.

Unconventional and expansionary monetary policies have been implemented by the ECB in the past years in response to one of the greatest recession in history. The traditional policies are no longer effective and the Central Bank is now experimenting new solutions, which are contributing to the recovery, even if the results are not as good as expected and Europe has not recovered the pre-crisis economic level yet.

European bodies and the ECB are struggling to boost the economy and to increase the cohesion within the European boundaries through a process of continuous change.

However, many are the threats to the future of Europe. The forthcoming elections in France, Germany and perhaps Italy, on the wave of anti-European and nationalist movements, are likely to increase the uncertainties about the solidity and cohesion of the Union, even more after the stunning result of Brexit referendum. Cohesion that is already under pressure and exasperated because of the different interests and views of the member states about serious issues currently under discussion such as the actions to adopt in response of the massive migration wave that is hitting EU borders (and that can even worsen given the current tragic situation in Syria) or the necessity of austerity policies.

Second, the possibility that the extremely expansionary measures can lead to excesses and to a financial bubble likely to explode once there would be a tightening of the policy (house prices in healthier countries are rising sharply).

Furthermore, the effects of the enhanced divergence between the monetary policies pursued by the ECB and the Fed are still unknown and unforeseeable. The Fed has not surprised investors with the last adjustment on December, even if the signal sent by Janet Yellen was little more hawkish than market is used to. The immediate effect has been a strengthening of the dollar against other currencies and a sell-off European bonds, which showed a rise in yields. The Fed funds futures show that traders are now betting on a faster tightening by US Central Bank. Indeed, the Chairman has announced that there will be at least three more adjustments in 2017. It seems that the era of ultra-low yields is nearing its end in USA, where the economy is recovering strongly and even better are performing the financial markets (Wall Street has reached its historical peaks).

The effects for Europe are difficult to predict, but for sure, the quicker the dollar strengthens, the more destabilizing that is. For instance, a huge amount of emerging countries’ bonds is issued in dollars, thus it would be harder to repay it Moreover many commodities are priced in dollars so they would become much more expensive contributing to a slowdown of global economic activity that depends on the consumption of such resources, on the oil price, which is now recovering after having hit its lowest level at the beginning of 2016.


The ECB is dealing with a testing challenge: achieve a recovery of the European economy and productivity within a global environment characterized by slow economic activity and great uncertainties, while experimenting policies never pursued and whose results are difficult to predict. The difficulties and the threats that can obstacle the fulfilment of the mission are many, so are the opportunities that can be taken. There are too many uncertain factors that make useless and speculative every effort to make predictions. Draghi, which will be in charge until 2019, seems to have clear ideas about how to deal with the task and has already achieved very good results, despite the critics.

Would the ECB and EU bodies be able to face the forthcoming hard times, keeping the EU unity and cohesiveness and achieving finally the economic recovery? Stay tuned.


Conor Marriman, Niccolò Ricci and Alessandro Sicilia

Breakfast with: Maxime Sbaihi, Eurozone Economist at Bloomberg

Breakfast with: Maxime Sbaihi, Eurozone Economist at Bloomberg

Maxime is an economist with a strong educational background (ESCP, MiM 2010). He has many years of working experience in the finance industry, both in Paris and London and across different institutions such as S&P, BNP, CA and Oddo & Cie. He also worked as an adviser for the French Minister for Higher Education and Research.




Q: Before anything else, I would like to thank you for joining the ESCP Europe Finance Society ‘Coffee Break’. Would you like to start by sharing an overview of your professional and academic background?


Maxime: I have been working for nearly 3 years as an economist at Bloomberg in London, covering the euro area. Just before, I was a junior economist at Oddo Securities in Paris. That was my first job after finishing a Masters in international economics from the Paris Dauphine University, which followed a Masters in Management from ESCP Europe completed across the Berlin, Paris and London campuses.

Q: You worked in many different companies: S&P, BNP, Credit Agricole, Oddo & Cie and finally Bloomberg. How did your roles evolve and change? How have these different steps contributed to your professional development?


Maxime: The first three company names you mention were long-term internships. They helped me to refine my career expectations and find the right job, the one allowing me to combine my passion for economics, politics and finance. It took me some time. Internships are precisely made to try until you find your place in the labour market. The companies listed have different cultures, size and origin. Working for them has taught me a lot about my strengths and weakness in a work environment.

Q: Looking at your background you had the opportunity to work with the personal staff of the Minister for Higher Education and Research and in the French embassy of Berlin.
How different was this compared to other corporate jobs?


Maxime: Following the same spirit, I wondered how the public sector looked like from the inside. I enjoyed watching the decision-making process up close and discovered all the political constraints that come with it. Working for the French Embassy’s Economic Affairs in Berlin during the first Greek crisis was an unforgettable experience too. It allowed me to discover the German economic thinking and compare it in real-time to the French one. It’s crucial to understand these cultural differences as they shape the many national reaction functions in the euro area, especially during crisis situations.

Q: Now we would like to leverage from your expertise as Eurozone Economist. Election days in four of Europe’s five largest economies are approaching in the next 12 months. You have recently mentioned “Suddenly, stars could align for the worst”, speaking about the Italian constitutional referendum. Which are the main risks for the Eurozone and for the banking system? Is the fate of Italy’s Economy at risk if Renzi’s Referendum Fails?


Maxime: The main risk for Europe now is a political one. The economy is doing better but euroskpeticism is on the rise and every vote has a Brexit potential. In 2017, there are important general elections the Netherlands, France and Germany. But, before that, the next big vote to watch is the constitutional referendum in Italy in December. Prime Minister Matteo Renzi has brought his mandate into play. Like him or not, he has given Italy some political stability and his departure would leave a dangerous void. In the worst scenario, you might end up having a political crisis on top of an economic slowdown and a banking mess that needs leadership. That’s what I meant when making this warning for the euro-area’s third largest economy.

Q: The ultra-loose monetary policies such as negative interest rates and bond-buying program have started to boost inflation. Do you think these policies were effective so far? Do you expect ECB to announce more stimulus? When do you think QE could eventually be tapered?

Maxime: The monetary policy textbooks have been rewritten since I left university. The environment has completely changed and non-conventional policies are a reaction to that change. Cutting rates isn’t enough anymore and central bankers need to reinvent their toolkit. Of course, using these new tools come with risks but doing nothing is an even bigger risk at the moment. These policies have probably been effective to tame deflationary pressures in Europe.
Our call at Bloomberg Intelligence is that the ECB will add more stimulus in December, in the form of a time extension of the QE program to allow it run beyond the current March 2017 horizon. Only after that can a tapering start being considered. It’s a matter of sequence.


Q: Draghi is constantly asking for a three-pronged approach, combining fiscal and structural reforms to accommodative monetary policies. What is your opinion on the matter?


Maxime: He has long been asking for help. The call for a three-pronged approach you are referring to was made at the IMF meetings a couple of weeks ago. It is clearly a wink to Japan’s three-arrow strategy. His point is that monetary policy alone can’t do the heavy lifting job. Factors such as demography or productivity, for example, are out of their reach of influence. Fiscal policies and structural reforms have also an important role to play here. Central bankers have been saying it for years, so far with little response from other policy-makers…

Q: Thank you very much for sharing your precious insights with us.  Now we would like to ask you some personal questions if you don’t mind: Who is the person that has inspired you the most, as far as your career is concerned?


Maxime: Dany Rodrik. I like the kind of economist he is, with a constant effort made to explain the complexity of the world in simple terms. That’s precisely the challenge today in an ever more interdependent world. Its works on political economy and globalization deserve to be read.

Q: Last question, what is the most important piece of advice you can give to the ESCP students that would like to pursue a career in today’s financial services industry? What are the most important qualities to succeed?

Maxime: Curiosity and passion. A lot of people think and look the same in finance. It’s an industry that has a bad reputation but with many opportunities to change things. Find where your originality lies and make the best use of it. If you struggle to wake up in the morning to go to work, then you probably have the wrong job.

It has been a pleasure to host you at our “Coffee Break”. Thanks again for your time and patience, Mr. Sbaihi!

Luca Cartechini,
Global Head of Markets & AM



Breakfast with: Salvatore Cicu, European Parliament

“Breakfast With” is the brand new section of our blog.

Within this part of our newsletter, we would like to interview influential European leaders from fields including Politics, Economics, Science and Technology.

  • Dear Mr. Cicu, first of all many thanks for giving us the opportunity to interview you. Undersecretary at Minister of Treasury and later Defense, Vice President of PDL Deputies at Italian Congress and now Vice Chair for the Delegation for the Arab Peninsula, Member of International trade commission (see TTIP) and Regional Development. What is the next step? 

The committment is focused on working to support and protect our territories and all that economies which embody their productive vocation, valuing under an European perspective the excellence of the regional identity, but also the SMEs which drive the economies. Under that point of view I continue to maintain strong my activity in favor of the islands, Sardinia and Sicily, and of the whole Mediterranean area, which became the strategic epicenter for all the Eurozone. During these days I have been nominated European responsible for the report on the Solidariety Funds allocated to Region Sardinia for the flood of November 2014. Since my duties as a European Member I have been truly committed on giving the maximum priority to that chapter, and today is realizing an additional step in that with necessary concreteness and effort I give to the needs of a territory which is asking revenge, on the economic aspect, infrastructural, and labour

  • As Member of the International Trade Committee, he is deeply involved in the negotiation about TTIP. What does it mean this commercial agreement for EU?

The TTIP is an extraordinary opportunity in terms of economic growth for our enterprises. Under the role of Italian Responsible for the dossier TTIP I have been fighting particularly for the SMEs. The two third of the vacating jobs in the private sector comes from here, which signifies the 85% of the new job assumptions of the last few years. Today we are actually living a positive communication phase which the European productive and industrial forces

  • Don’t you think that European Companies will be weakened by this agreement, especially the ones who operate in the IT market?

There will be no weakening. On both sides of the Atlantic, SMEs are a foundamental source of innovation, creating new products and new services. This is a reality to encourage and to be encouraged. The future of world economies is based on the exchange and it is regulated by specific intercontinental cooperation agreements;

  • How do you think the EU Companies can compete with the U.S. ones that benefit of lower taxes and oil & gas price, lower cost to access to capital markets, higher technology development and human capital?

Let me give you an example. European investments on start-up amount to 7.6 billion dollars against the 38 billion dollars fielded by American venture capitalists and entrepreneurs. A disproportion that forces the startup of the Old Continent to focus their core business on the local and niche markets. This example shows us how still weak we are in a sector so crucial as innovation, so we need a strong investment policy to support SMEs, to give them incentives, based on a qualified human capital. Only in this way we could face the challenges of the world market.

  • What is doing the EPP to make better the agreement?




There are several steps made. Definitely a strong focus of SMEs, through the creation of a special representative committee of the instances, with the aim to strengthen a network of online information to facilitate the participation of local companies in international trade.

In fact, a recent survey suggests that the transatlantic trade is already a source of great benefits for the productive system. In 2012 were 150 000 the SMEs who exported to the US; their share amounts to 28% of total EU exports to the United States.

  • The EU is surrounded by the Chaos: in the East boarders there is the Ukraine issue and in the South the ISIS one. As Vice Chair for the Delegation for the Arab Peninsula, you are experiencing directly the deep changes in the region. What do you think is the better way to manage the economic and politic relationship with the Region?

Although the numbers are high, it is good to contextualize the numbers of migrants who arrive in Europe: in 2015 they were one million, including refugees and migrants, that is, slightly more than 0.1 percent of the European population. There are already 1.3 million Syrian refugees in Lebanon, 20 percent of the population of the country. Proportionately, it is like saying that Europe harbored 150 million refugees. Turkey, the land on which the EU would like to address migrants and refugees, already harbor two million refugees. Regarding the immigration policies there are no quick solutions to keep together the instances of ethics, of the practicability and of the democracy. The crisis of migrants has gone on for so long and, apart from measures to be taken, it won’t be resolved in one or two years. The basic issue is not so much political, but concerns the attitude and perceptions.

My role as Vice President of the Delegation for Relations with the Arabian Peninsula, represents a new frontier of opportunity for Europe, in terms of dialogue and trade with prestigious international markets. This assignment, as an institutional objective, concerns the task of strengthening relations between the European Parliament and the countries of the Arabian Peninsula, both in terms of rights and on the promotion of new bilateral relations between the two continental realities. The EU and the Gulf Cooperation Council, are linked by a cooperation agreement born in 1988, a bond aimed to improve the political stability in a strategically important region on the international level, allowing to expand the scope of economic and technological cooperation with particular reference to the sectors of energy, industry, trade, services, but also agriculture, fisheries, and further investments in the environment.

  • Does it make sense to make business even with Dictators and countries which finance terrorists, according to some speeches of politics and experts?

For what it concerns the core of the EU migration flows’ issue, and in order to face it, the EU must cooperate with the migrants’ birth countries, although sometimes it’s dictatorships. The fact that we cooperate, in the framework of the events concerning Rabat and Khartoum, with some dictatorial regimes does not mean giving them a democratic legitimacy or political. We must work and cooperate together: since we decided to face the human beings’ racket , we can’t ignore that in some of those countries there are the roots of the issue. We need to engage them and make them accountable, but without legitimizing the “regimes”.

  • What should be the role of Italy and EU in the region?

The EU and the Gulf Cooperation Council (GCC), are linked by a cooperation agreement born in 1988, a bond aimed to improve the political stability in a strategically important region on an international level, allowing to expand the scope of economic cooperation with particular reference to the sectors of energy, industry, trade, services, but also agriculture, fisheries, and further investments in the environment. Today, therefore, it is confirmed an important agreement for Europe, in the sign of the internationalization of businesses, cultures and productive use of



resources. Europe will be able to strengthen its role as an economic leader on an intercontinental scale expanding a logic of bilateral agreements capable of building new cooperation flows.

  • What about Libya?

We need to build a partnership, a cooperation system. President Fayez al-Sarraj in this way is showing himself collaborative, especially in terms of quick support to security. The EU should contribute to the training of the Navy and the Libyan Coast Guard, because this is the necessary step to change the mandate of the Operation Sophia, that – operationally launched in July of the last year – since October is in ‘Phase 2A’ and operates in the international sea just beyond of the 12-miles’ line from Libya. We have to patch up security relations that restore livability to the Mediterranean and its businesses.

  • Let’s talk about austerity. Do you think that it is working?

In recent years the United States have been focusing their attention on growth, investment and innovation. On the other hand Europe on austerity, currency, rigor. In economic terms the US are better than eight years ago, while Europe is worse than eight years ago. Austerity is not enough. Actually, the countries that have grown up in Europe did so only because they have breached the deficit rules macroscopically: let’s think about the Cameron’s United Kingdom who financed tax cuts bringing the deficit to 5% or about the Rajoy’s Spain who has accompanied the growth with an average deficit of nearly 6%. The issue concerns not the rules, but rather the economic policy of our Europe.

  • All the Governments and Political Parties which implemented austerity policies have lost electoral support and elections such as in Spain, Portugal and Ireland. Is it time to change the economic strategy of EPP?

The truth is we must return to our citizens, to their real needs, to the economies which live with difficulty. The role of governments should include facilitating the processes of growth and development, not to crush the future. Today it should be rebuilt a corporate mechanism in many parts of Europe. This is the starting point’s reality. Austerity is responsible for delays of which our citizens pay the costs.

  • Anyway the EPP does not have any more the absolute majority in the EU Parliament. Do you think that a “Gross Koalition” similar to the German model, can work with the S&D party?

There are values that can be the core of our dialogues, but it must be made a distinction. The EPP represents the great moderate tradition, family, free enterprise, the firm, reformism, Christian culture. In recent years we have started an important process of renovation with respect to the evolution of modern society; this is the road that lies ahead: innovate to continue to exist, as the voice of European moderates as expression of society that cares about the issue of values.

  • Have you ever thought to come back to work as lawyer?

I always tried to keep alive the bond with my professional activities. Politics, however, is my present, which is a present of creation, contact with people, study and knowledge of societal problems. Politics is a mission, to live humbly and in continuous work. This is the added value that I bring to my work.


Roberto Vacca – Head of Events at ESCP Europe Finance Society

Francesco Maretto – ESCP Europe Student

Breakfast with: Caterina Chinnici, Eurodeputy

“Breakfast With” is the brand new section of our blog.

Within this part of our newsletter, we would like to interview influential European leaders from fields including Politics, Economics, Science and Technology.

1 – Dear Mrs. Chinnici, first of all many thanks for giving us the opportunity to interview you. As daughter of the Magistrate Rocco Chinnici (brutally assassinated by Mafia in 1983), you and your family know what is the price in being a Civil Servant loyal to the Republic. Do you think that nowadays the Mafia is still powerful such as in 1983? What is changed?


1 – “In my opinion, since then mafia has suffered many serious blows thanks to the work of my father and other great servants of the State. My father’s murder shocked my family, but we took some comfort from the awareness that his commitment was not vain, because he contributed to make Sicily and the whole Italy better places. He was a forerunner of modern anti-mafia. He realized how important sharing information was; he adopted it as his working method, calling Falcone and Borsellino to join, and then built a team that after his death became the well-known anti-mafia pool. He was among the first ones to conduct asset investigations, affirming the principle that gangs were to be hit on the financial aspect. He also used to speak to youth in schools to stimulate a cultural change. Generally speaking, if we look at what was being done in those years and to subsequent developments, unfortunately induced also by many murders, it is clear that thanks to that work, the fight against the mafia has made many steps forward regarding both tools and results. We had a maxi-trial, concluded with convictions for about 2,700 years in prison. The Rognoni-La Torre Law was adopted, introducing the crime of mafia association and asset preventive measures, i.e. freezing and confiscation of criminal organizations’ assets. Coordination mechanisms were established such as the national direction and the national anti-Mafia prosecutor, the contribution of witnesses of justice were regulated, hard prison regime for mafia associates was adopted too. There is a long list of bosses convicted. Now there are many anti-mafia civil society organizations, often led by young people like Addiopizzo. I believe that mafia today is weaker than during the season of the slaughters, but it is hard to say how much weaker. It has certainly changed, putting aside military strategy, trying to infiltrate more and more within the institutions and legal economy, setting his roots even outside Sicily. But for sure we must never let our guard down and, indeed, law enforcement tools at the supranational level must be strengthened, given the cross-border dimension of organized criminal activities”.



2 – What do you think about the law Rognoni – La Torre (Law no. 646 of 1982) – 2011 Legislative Decree no. 159? Does it need to be reviewed?


2 – “The Rognoni-La Torre law has led to a relevant improvement in the fight against organized crime. Both because it allowed to punish the associative link which is the basis of the illegal conduct, and because it gave judges the power to withdraw goods produced or used in illegal activities from criminal organizations. It was a turning point, given that the ultimate purpose of mafia crime is precisely to accumulate as much wealth as possible. Rules are always perfectible and updating them is an ongoing issue, but the provisions of the Rognoni-La Torre Law, then merged into the so called anti-mafia code, still remain a legal pillar for the fight against criminal organizations. There are, however, many suggestions for revising the whole anti-mafia code”.






3 – The Bicameral Committee investigation on the Mafia has called for a review of the anti-mafia code at the meetings on the 21st and 22nd October 2014; how could the standards be improved to be more streamline and clear?


3 – “The need for a revision of legislative Decree 159/2011, the so-called anti-mafia code, has been made manifest shortly after its approval by lawyers, enterprises and civil society. I believe that the aspects to be reviewed are duly considered by the text approved last November by the Chamber of Deputies and then forwarded to the Senate for continuing parliamentary procedure. The text, among other things, provides for: the extension of those who can be reached by measures of prevention as accused of certain crimes and the acceleration of the procedure; it strengthens enlarged seizure; it introduces new cases for confiscation without final conviction; it provides judicial control on companies in case of a real danger of mafia infiltration; it includes provisions aiming to overcome the fragmentation of rules on the administration of assets and to ensure the recovery and the continuity in ruling seized companies. It also provides for a reorganization of the National Agency for confiscated properties, because their reuse for social purposes has always been difficult for many reasons”.




4 – Following 32 years since the law Rognoni – La Torre, the European Parliament has adopted the Directive (EU) 25.2.2014 for the confiscation of property obtained through criminal activity. Will Money laundering abroad and criminal investments suffer a blow with this new law? How should be managed the confiscated properties (equal to around €40 billion only in Italy)?


4 – “In the European Directive 2014/42 we can find several elements coming from Italian experience and legislation. Its approval was certainly a very important step. The introduction of common minimum standards on confiscation, in fact, called on each Member State to harmonize regulation of capital penalties and, consequently, to a broader implementation for the mutual recognition of judicial decisions which is a key element to prevent criminals from taking advantage from the discrepancies between national legal systems. However, it is a starting point, and not a final one. On this issue the EU chose to adopt a progressive approach, because some Member States were concerned about losing their sovereignty, but we need more steps forward. The 2014 Directive adopts a reduced model, not clearly identifying the conditions in which a Member State has to enforce the confiscation order issued by another Member State. Furthermore, it does not allow the confiscation without conviction, except for few residual cases such as the breakout of the accused person. As I have said many times since the beginning of the legislature, this further step, also raised by Italy, would be crucial, and even the LIBE committee of the European Parliament has suggested setting up this mechanism, providing adequate safeguards. I will keep working for that. With regard to the management of confiscated properties, beyond systems’ specificity, there is only one way: goods that are recovered to the community heritage have to be used for the benefit of the community”.





5 – The Organized Criminality is an international issue, but it seems that the International Community does not take it seriously. Some lecturers state that the Italian legislation is the most effective against Mafia. What about Europe? Is it necessary a European public prosecutor?


5 – “The supranational dimension of organized crime is an aspect on that I have always stressed during parliamentary debates. It is true that in some countries, also for historical reasons, this perception is not very strong, but I think that there is growing consciousness in this sense. On the other hand, there is evidence of the involvement of criminal organizations in several cross-border crimes, such as terrorism, migrants smuggling, cybercrime, euro counterfeiting and money laundering. It is a matter of fact that the Italian legislation is at the forefront in this area; it is the logical consequence of having dealt for years with both organized crime and domestic terrorism. The EU is making relevant steps, but still many others have to be made. Starting with a common legal definition of the concept of organized crime, which is still missing. In my opinion, the EU has to enhance the existing tools and strengthen the role of Europol and Eurojust, which should be the main reference points for the cooperation between national authorities. In the future, the European Public Prosecutor, whose necessity I strongly support, will be an additional tool, though its initial competences are planned to be essentially limited to EU frauds. Of course, this is something that is often achieved through organized crime, but a more direct impact on the latter would require extending the European Public Prosecutor’s competence, as envisaged by some proposals on the draft Regulation. I hope that the adoption process will speed up, as I requested to the Slovak Council Presidency during the last hearing in LIBE committee”.





6 – According to “International Consortium of Investigative Journalists” there are more than $32 trillion in tax heaven countries and that the cost of corruption is equal to the 3% of Wordl GDP (according to the World Bank). Is it right stating that fight Organized Criminality is a way to boost the economy? Is it really a financial issue?


6 – “Combating illegality in all its forms is certainly a way to boost the economy. Cross-border tax evasion and avoidance are often achieved through so-called tax havens in the context of organized crime or through aggressive tax planning set up by large multinationals. Tax evasion and avoidance cost Member states of the European Union hundred billion of Euros each year as tax losses, which ultimately means fewer resources to provide services to the community. Moreover, this phenomenon also causes serious market competition distortions. Preventing and combating these acts requires full cooperation between states, mainly when it comes to information exchange. For instance, last February the EU signed a bilateral agreement with the Principality of Monaco agreeing that starting from January 2017 EU competent authorities will have access on data on accounts of non-residents and other relevant information. Moreover, in June, the European Parliament gave the green light to a legislative resolution introducing anti-avoidance measures targeted to a fair and effective taxation system. The resolution established parameters to define a blacklist of tax havens and countries, including EU Members, which distort competition by granting favourable fiscal conditions. Corruption is another major serious threat. As Franco Roberti – Italian anti-mafia prosecutor – has recently pointed out, corruption is a crime against the economy as well as against the public administration, and is nowadays an increasingly integrated element in mafia methods. Even on this issue repressive measures must be accompanied by preventive ones, through upstream dynamic controls and through simpler procedures, including less bureaucratic steps and, thereby, shrinking the areas spaces in which corruption can operate. This point is a pillar of the law reforming public administration which I signed in 2011, when I served as a regional councillor in Sicily”.




7 – The Transparency International report on corruption in the public administration (2015), by analysing and reviewing over 168 countries globally, has revealed that Italy has risen from 69th to 61st place. Despite this, Italy scores (44 out of 100) remains very low, following countries such as Lesotho and Senegal. Do you think that is necessary or the reforms of the new Italian Prime Minister Mr. Renzi have not yet shown their effects?


7 – “I am convinced that measures adopted by Renzi’s government will produce tangible, measurable results in the long term. Especially some of them. Among those included in the anti-corruption law approved just over a year ago, I think the increase from 4 to 6 years of the minimum prescribed imprisonment for bribery committed through acts contrary to official duties is particularly relevant. I would also mention the restoration of punishment with prison for false accounting and its ex officio prosecution, or moreover the obligation to fully pay in advance the price or profit obtained through the offense in case which the offender wishes to bargain. I strongly believe in the idea that informed the 2014 reform of the new National Anti-Corruption Authority chaired by my colleague magistrate Raffaele Cantone who was appointed for the mission of preventing corruption, both within public administration and state owned companies. The objective is to supervise contracts, commissions and any kind of act potentially subject to corruption, but at the same time, it is key to build firm partnership with the administrations to prevent bribery episodes from happening. It is clear that there is still much to do, but the Italian government is very committed to keep working in this direction.”




8 – What do you think to ban for all life from the Public Administration and from the Executive and non – Executive Boards of public and private companies the person (both private and public officials) condemned for corruption or Mafia? What about to link to an increase of the penalties, both penal and administrative, the lost to the right to vote or to be candidate as politic?


8 – “Without going into details about the several solutions proposed in your question, I would like to say that a State should always ensure the credibility of public institutions, and this means also ensuring the integrity of those representing them. It is clear, though, that every attempt should be done within the framework of the principles and rights set out in the Constitution. Depending on the case, it is not always easy to find the right balance in terms of legislation and prepare effective rules which are also able to withstand a potential case of constitutionality, as happened with the Severino law in Italy. Nevertheless, I would like to reiterate the principle: within the constitutional framework, a State must be able to ensure the credibility of its institutions, which otherwise might not have the trust of citizens. Excepting specific requirements related to the exercise of public functions, same parameter can also be applied private sector”.




9 – The countries defined such as “tax heavens” will have to exchange information with the other countries thanks to the G20 resolution. However, the corruption seems to be still an unsolved problem and the creation of digital money such as BitCoin can be used for money laundering or tax evasion purposes. What will be the future challenges?


9 – “The virtual currency systems have not reached widespread dissemination yet but there are already more than 600 kind, accounting for a value of over EUR 5 billion. The European Banking Authority, the ECB and the FBI acknowledged that the Bitcoin is suitable for money laundering purposes. However, some analysts consider this risk more theoretical than practical, given the low number of transactions and the publicity of the ledger. The challenge in this case is the development of a well-calibrated regulation. This is also due to some ambiguity inherent to virtual currency, which not coincidentally analysts consider an hybrid product. In the anti-money laundering guidelines, the US describe Bitcoin as property. Japan qualifies Bitcoin as a commodity, Germany as private money. Until now, the EU did not put forward any specific regulation, but many experts believe the current money laundering legislation is sufficient, pointing as a key-factor a harmonized approach between Member States. I believe that it is necessary to define a streamlined legal framework to ensure that transactions comply with high levels of security without compromising innovation and the benefits that citizens could obtain, like for example the reduction of transaction costs and operating costs for payments. This is the reason why I supported with my vote the resolution that the EP plenary approved in May to request the creation of a task force of experts within the European Commission, tasked with the mission to draft a suitable specific discipline to counter risks associated with these new technologies”.




10 – The Fourth Industrial and Information Revolution is changing deeply the society and the economy. It seems that the customers are more socially conscious preferring the companies that make business ethically and ecologically (see the rise of CSR etc.). Thanks to internet, the citizens can have access to a huge quantity of documents controlling more effectively the PA and politics. How much is important the society in fighting the Organized Criminality?


10 – “Very important. It is a legacy left by my father. Back then he was a pioneer in the dialogue with civil society and with young people to spread the culture of legality. The massive rebellion of consciences which began in response to the 1992 Mafia massacres was also the result of what he had been able to teach in the previous years. I strongly believe myself in the role of civil society, that is why I always try to take my time to meet with school children, to talk to them about justice and legality. I am convinced that young people are healthy carriers of legality, as stated in the slogan of ‘Notte bianca’ cerymone that takes place in Rome every year”.




11 – Last but not least, your Directive on juvenile custody was recently approved. Can you tell us how you achieved this result?


11 – “In this law I have been able to use my knowledge as a magistrate in charge of minors and the good practices existing in the Italian model of juvenile justice process. The law, as part of the road map for the functioning of the European area of justice, paved the path to the European fair trials for children, introducing a set of procedural safeguards that all Member states will have to grant to children involved or suspected in criminal proceedings. The Italian experience has shown that a fair trial tailored to the needs of children decreases recidivism rates because it combines the need to ensure accountability with vulnerabilities and specific needs of minors. The principle of the best interest of the child is at the core of the system and the Directive set out important pillars including the mandatory legal assistance – not always provided by national legislations in the Member States – but also child’s right to an individual assessment, specialized training for both judges and others professionals involved in the proceedings, and even the principle of separate detention from adults. I believe that the application of the new rules will contribute to the social reintegration of children who have experienced problems with the law. The text is the result of a broad debate in which both institutional players and social partners contributed with sensitivity and ideas. These actors were definitely useful during preliminary meetings organized by the Parliament in some Member states. During the following trilateral negotiations with the Commission and Council we had the chance to raise several issues, including the mandatory legal assistance, and in the end we approved a law at European level that I believe we should all be proud of and that represents a great act of maturity in legal and human rights”.

Roberto Vacca – Head of Events at ESCP Europe Finance Society

Valeria Sirigu – Freelance Journalist and Law Expert


Is Helicopter Money the Hidden Ammunition of Central Banks?

In a general condition of weak economic growth and low oil prices pushing down inflation, the central banks are trying to convince investors that they are not short of options. In this context, “helicopter money” has become an extensively discussed topic by several experts. This term is connected to central banks giving money to the public or private sector in order to stimulate spending and hence price growth. However, it has moved from fantasy to taking up a possible role in the monetary toolbox. Helicopter money has been proposed as an alternative to Quantitative Easing(QE) when interest rates are close to zero and the economy remains weak.

The ECB president keeps repeating his central bank will not “surrender” to low inflation. In this regard, Mario Draghi also said “Legal research should be conducted to check whether ‘helicopter money’ would be legally feasible in the Eurozone”. European Central Bank officials are already debating about what President Mario Draghi calls a “very interesting concept”. In 2002, the former Federal Reserve Governor Ben Bernanke also commented “money drop would almost certainly be an effective stimulant to consumption and hence to prices.” The main argument for helicopter money, at least in Europe, is the accusation that the ECB is almost out of ammunition.

The idea – first introduced by one of the fathers of modern central banking, Milton Friedman – is to motivate spending and investment directly rather than influence bond yields or sentiment. Nevertheless, there are many arguments against it; the Director of Bruegel, Guntram Wolff said “There’s plenty of evidence to suggest that, but no other central bank has tried out helicopter money. There is a reason for that: it’s a fiscal policy tool that needs democratic approval. Giving away money is a transfer of wealth because it’s inflationary, it works like a tax on all other holders of money. That makes it highly controversial, especially in the eurozone.” 

Therefore, the final outcome of that policy would be positive for borrowers but strongly harmful for lenders. However, it is fair to remind that the entities which rely mostly on debt are small and medium-sized enterprises, often recognized as the engine of the global economy and to be responsible for driving innovation and competition.

Economists have used the term ‘helicopter money’ to refer to two different policies. The first emphasizes the ‘permanent’ monetization of budget deficits. In this way, the public would realize that the higher deficit is financed via the printing press, without involving lower spending or higher taxes in the future to repay the debt.The second set of policies concerns central banks making direct transfers to the private sector, bypassing the involvement of fiscal authorities. A central bank makes a profit – seigniorage – by paying less on its liabilities (cash and reserves) than on its assets (mainly loans). According to many economists, the European Central Bank could lower its lending rate below the rate paid on banks’ deposit reserves. That would be another type ofmoney drop. Or the central bank could offer loans to banks at zero rates with no maturity date (perpetual maturities). This is to say that limits between pure money helicopter and a hybrid expansionary monetary policy are often imposed by our imagination.

ECB and BoJ may become the first central banks to take advantage of the “helicopter money”. Nonetheless, some argue the banks are already deploying something close to the money drop by purchasing many government bonds (on the secondary market), yet they do not buy them directly. However, zero or negative interest rates are failing to increase consumer prices, while the Fed’s attempt to normalize monetary policy looks likely to backfire.

So, as suggested by Milton Friedman, If everything else is failing, why not try helicopter money? The full transition to an explicit monetization of government spending would have a powerful effect on the public’s expectations. But we should not underestimate the risk that this could be detrimental for financial markets. Once the fiscal authority has free access to the printing press,the temptation to continue using it could be too difficult to resist.

London, May 5th 2016

Luca Cartechini, Head of Asset Management



Breakfast with: Marco Gay – President of the General Confederation of Italian Industry, Young Entrepreneurs

“Breakfast With” is the brand new section of our blog.

Within this part of our newsletter, we would like to interview influential European leaders from fields including Politics, Economics, Science and Technology.


Person of the month:

marco g

Marco Gay, President of the General Confederation of Italian Industry -Young Entrepreneurs (Giovani Imprenditori Confindustria) 

The General Confederation of Italian Industry commonly known as Confindustria, is the Italian employers’ federation and national chamber of commerce, founded in 1910. It groups together more than 113,000 voluntary member companies, accounting for nearly 4,200,000 individuals. It aims to help Italy’s economic growth  assisting, in doing so, its members.

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Dear President Gay, first of all many thanks for giving us the opportunity to interview you. As President of Confindustria Giovani, you are directly experiencing  the deep changes in the economy. What is the role of Confindustria? Is it still able to play a compromise between the Industries, the Unions and the Government? What has changed?

At this point it is clear that in these years there has been a regression in the role of the intermediate parties – politics, unions, associations, etc – in the social, economic, cultural life of new generations. Such a deep regression is mainly explained and caused by social medias, that nowdays hold more importance than social relationships.

On the other hand Confindustria is the biggest manufacturing association in Europe: it connects 150.000 manufacturing enterprises (18%), but also in the field of services (14%), public and private, which employs more than 5 million people.

We have a big responsability: to transform the crisis of representation into an occasion. At a practical level, through an approach of subsidiarity by which every service which needs the proximity of the enterprise and of the territory – from the trade union negotiation based on the productivity to the promotion abroad of the specificities of a district – it must be done by the local Associations, because to guarantee adequate simplicity and velocity to the industrial system where authorization and bureaucratic processes have phases infinitely inferior. But, at the same time, this strategic localization permits to the “Centre” to concentrate over big national deals: from the industrial politics, by which we suffer the absence, to regulating principles of the labour market to transform the politics of consensus in strategic politics based on impartial analysis and capable to resist to changing governments.


Recently Confindustria has implemented a deep reform about its organizational structure. Is it enough or further changes will be necessary?

Restructuring doesn’t only mean to change assets but also substance: the unification of associations on the territory it is not done in perspective of mere spending review but of enhancement of the internal expertise to give to the associated enterprises better services. From the fiscal assistance to the one for the internationalization, from the trade union to the innovation, the one who joins Confindustria wants some competitive services that permit the enterprises to be more competitive in the market. Furthermore, they can strengthen the network and business opportunities. There are still implementations to complete, but I think that the direction is the right one.


Everything is changing, even the President of Confindustria. What should be the profile of the next President?

The maximux effort of the one who embodies the enterprises has to create the conditions in order to make wealth – acting on the factors of production that we know well, from the bureaucracy to the energy to the transports – and so to be faithful to this principle on the negotiation premises. That is defining pay politics which, over the minimun granted, are strongly linked not to predefined inflationary dynamics, but to the productvity of the individual employee and to the enterprise’s objectives. This is what Confindustria of the future, apart from its new president, must be able to bring back home. Under the specific profile, I believe that an essential factor is not the original sector but to have a President who understands the needs of the manufacturing and who is interpreter of a long entrepreneurial history, but that at the same time – because of the variety of our associative basis is the precondition of our strenght because when Confindustria talks, it means that all the employed Italy is speaking – he must be also able to represent the needs of people who provide services and of the start-ups and, above all, to integrate theese two worlds.



Let’s speak about the economy. What do you think about the reforms implemented by the Italian Prime Minister Mr. Renzi? Are they sufficient to boost the economy?

This government has certainly changed the pace to Italy: in two years there have been the “80 Euros” to more than ten million people, Irap to lower labor costs and tax incentives of JobsAct, the “superammortamento tax” to 140%, agricultural tax and the tax credit for the Southern Italy. But also the alternating training that although it has no immediate impact, it will have in the future over the level of our human capital. The results are evident: exports grew 4.3%, orders in industry looking to 2015 mark an increase of 5.2% (the strongest since 2010), and mortgages are at 97%. Furthermore, a few days ago, ISTAT has determined that the growth of GDP was 0.8%. If we think that the Government Monti had closed with -2.3% and -1.9% with Letta Cabinet it is definitely a good result. But the GDP volume is still below the level recorded in 2000 and other countries – such as Germany and the US – have taken advantage of more of the economic conditions (fuel, cost of money, increased orders) to transform what it looks like a fresh start in a real recovery. And, at the same time, without acting on domestic demand, which marks yet again deflation with prices coming down by 0.3%, we can not succeed. They need more consumption and more justice or stagnation – zero point more or less – could be secular.


What should be done additionally?

We need to invest! We have a debt exceeds 132 percent, or 2.17 trillion euro, and yet the Italian families have an immobilized richness of 4 trillion. This means that we are a country which spends but doesn’t invest, that doesn’t finance new works and new businesses but only current expenditure. We need, in short, a finance development: for intance, have been counted 845 well subsidized instruments that are obviously too many and not very effective. They must be re-organized according to a logical system capable of supporting the company throughout its life cycle (from the seed where hardly a start-up is able to access credit because they are too risky for venture capital, to growth, and up to the economic crisis). There are insufficient incentives for the private (deductions for those who invest in startups arrive at 20% while in the Uk touch pitch of 85%). There is a lack of the strategic public demand with direct investment, perhaps through the pre-commercial procurement. Because when the tools are there, Italy is ready to innovation: if we think, the Sabatini bis and superammortamento, are two measures which meant that in 2015 gross fixed investment returned to growth, with an increase of 0.8%, the first positive variation from the crisis. We have to go in this direction and release investment from a logic of rain incentives: we need a strategic industrial plan identifying growth drivers, the productions of excellence, the sectors with highest growth towards which converge these investments.


Recently, the Italian Banking system has suffered due to the financial turmoil caused by the soft landing of Chinese economy, the implementation of Bail in and the rumors about the creation of an Italian Bad Bank. The Prime Minister Mr. Renzi has recently approved the legislative reform about the “popular banks” and now is approving the “cooperative credit” one. These reforms will lead to a better economy of scale and major financial stability. What do you think about these reforms?

It is desirable, as pointed out by the Bank of Italy, a clarification of the exceptional nature of the way-out. This because, as analyzed by our Design Center, the new rules for bank rescues (bail-in), which impose losses on shareholders, bondholders and depositors over 100 thousand euro of crisis institutions, which are aimed at protecting the taxpayer, in reality, compared to systemic difficulties, they quadruple the cost to taxpayers than traditional bank bailouts. While some rules for banks recently adopted in Europe and others that are being discussed, all in theory aimed at strengthening the banking system and reduce the risks to the economy – are actually counterproductive. The proposal to place a limit on the purchase of domestic government securities by banks does not break the link between bank debt and sovereign debt. Banking systems remain “national” because in each country the yield on government bonds drives the medium to long-term rates, in particular, the cost of bank funding. Moreover, the limit will not flow more credit to the economy, in fact decrease.


Notwithstanding these reforms, it seems that a new wave of M&A between European banks and financial institutions is necessary in order to be able to face the challenges of the globalization and still be competitive. However, this scenario is obstructed by politics, because a new wave of M&A between European banks is mainly a political matter. Nowadays financial institutions represent the “National Champions” that finance the Public Debt and help the national companies to be more internationalized. What do you think about it? Is it desirable and feasible? 

The banking union, as well as the fiscal one, are still incomplete and these are key priorities  as these would generate the necessary tools to struggle systemic crises and to act not only on the monetary plane but also on the creation of wealth. The creation of the European Fund deposit guarantee, as proposed by the Italian Government, is a possibility that enhance trust through the sharing of risks and increasing financial stability, as well as the creation of a real European finance minister able to manage a budget with adequate resources and the transformation of the ESM into a European Monetary Fund. We need more Europe if we want to be competitive.


Banks, finance and capital markets. Give us a rating of the ECB’s QE.

Surely the QE of Mario Draghi was, along with the cost of energy, the main factor of development of the last months. However, in Italy, there are still pockets of vulnerability: the absorption of non-performing loans still proceeding slowly and the banking system appears to be weaker than the one of other countries. It is a limiting factor for companies that even if, thanks to QE, can count on a lower cost of credit, struggle to have access to credit. This will limit investments, innovation and growth. A set of interventions to immediately free up bank balance sheets, including the creation of more special purpose vehicles in which to transfer the suffering, the dilution of any losses over several years and the acceleration of the timing of realizing security, is essential to revive the credit and the economy. And this Italian and EU should collaborating.


Despite having low oil price, QE and a rising aggregate demand, the Italian manufacturing production is still low and did not recover to levels comparable to the 2007 peak. The problem is still the atomic dimension of Italian Companies. The result is that outstanding companies such as Grom or Piaggio Aerospace have been bought by foreign companies. What should be done by the Government and Confindustria in order to incentivize the mergers and acquisitions between SMEs?

Not only Grom or Piaggio! Companies that changed hands in these years of crisis are many more, with IDE in Italy of hundreds of billions. It is true that the size is a key factor to compete at a global level and often these acquisitions are an advantage for the companies themselves because they fit into the big international groups, increase the customer base and make scale and scope economies and synergies. The real question then is rather how many of our large companies are concluding similar operations abroad. But do not count only the absolute size: Italy should not aspire to become the country of the multinationals but home to companies with a size suitable for your market segment and with such a dose of innovation that allows them to continue to grow. Take the booming young entrepreneurs: 66,000 net customers in over a year, a performance that gives us for the first time a positive record in Europe, that of youth entrepreneurship. They are often highly innovative companies – as demonstrated by the more than 5 thousand start-ups recorded in the Register of enterprises which employ 22 thousand people. Here this is the real factor of development, and as the government and Confindustria we must support both the growth in size and in the integration with the traditional manufacturing companies. And ‘from here that was born the fourth industrial revolution, which can give a real boost to a production that in the past month increased by almost a point.


If you were Prime Minister, what kind of taxes would you like to reduce? With which priority?

Firstly, it will seem trivial, but I would start to collect in a systematic and effective way. We have a burden that is called tax evasion which accounts for 122 billion. Now if 2015 was a record year in the fight against tax evasion – with 14.9 billion euro recovered from the state – we should not be happy. It is a matter of tax fairness but also a key macroeconomic factor. Because the tax burden is still at 43.3% of GDP and only in 2011 was two points below. So what taxes to attack? We have said and repeated a thousand times: they aren’t those on rent – movable and immovable – but those at work and on the company, because if cutting taxes on houses is an electoral move that pays ruler, cut down on those who create wealth is a strategic move for Italy. And we need statesmen not politicians.


Does the Jobs Act work well?

I rely on Istat data: in January the employees on permanent contracts increased by almost 100 thousand on the previous month and nearly 500 thousand on a year ago. And despite the 100% relief on assumptions both fell, after one year, to 40%. Means that on one hand the labor market re-designed from the Jobs Act works better – is more reliable and simple and flexible on production requirements – and on the other that businesses once again have confidence in the future. This is an essential fact which tells us of an Italy not only in recovering, but also in which its citizens have more opportunities to build a decent future. Of course, the fact that youth employment remains at nearly 40% per cent remains the first national emergency to be solved, because the brain drain can cause a permanent net loss of highly qualified human capital, to the detriment of Italy’s competitiveness. In the medium and long term, as well as damage to an entire generation, it may undermine the prospects of Italy’s economic growth and also its public finances.


Are necessary other measures in the pension system?

The prediction made by the INPS’ president, Mr. Boeri, has recently made the headlines: the generation born in the 80’s will receive a pension lower than 25% compared to their parents. In addition, as certified by the Court of Auditors, the INPS 2014 deficit was closed at 7 billion Euros because, despite the spending performance has been constant over the two years is greater than the contribution revenue. It is so obvious that the pension system needs to be reviewed to make it more equitable, flexible and sustainable to implement. But do not just act on public benefits, they should be integrated with a complementary and private pensions up to it, as is done in Europe, and we must act on the revenue. In short, once again on the creation of jobs without which there can’t be any balance. 

Spending review or not spending review?

In times of limited resources and limits on the financing of the deficit spending, a real spending review, aimed at reducing current spending and in order to reintegrate investment spending is more urgent than ever. It serves a reversal of the downward trend of capital spending, now at 1.4% of GDP, the lowest point ever touched. It serves to rationalize the purchasing centers and spending and reduce municipal. For example by digitalizing the PA could recover 3.6 billion that today costs us the technology gap in terms of services and times. This is called smart spending review and if companies in these years of crisis have made an impressive cost saving to improve its profitability, should succeed on this also the state.

Interviewer: Roberto Vacca, Head of Events at ESCP Europe Finance Society                                     Translation: Francesco Maretto, MiM student at ESCP Europe

The NPL Market in Southern Europe: Alternative Heaven

While the European political cohesion remains still under scrutiny, with the Brexit referendum approaching and the Pound heavily depreciating over Euro (3M -6,59%), the majority of European financial institutions are still underperforming due to their extensive portfolios of Non-Performing Loans (NPLs). In fact, following a recent analysis of EBA, it resulted that roughly €1 Trillion of NPLs are currently held by European institutions, almost equivalent to the entire Spanish GDP.

credit risk

Countries including Italy, Spain and Portugal are the ones mainly affected by the crisis of the deteriorated credit and the future perspectives do not look brilliant. In fact, the lag between real economy recovery and the decline in credit risk still remains consistent as GDPs growth is below pre-crisis levels. Such a complex scenario, it is ideal for the Alternative Investment industry that has the resources and the expertise to exploit such an opportunity. Several US Hedge funds, including but not limited to Och Ziff, Centerbridge Partners and Monarch Alternative Capital are expanding their London-based staff to increase their exposure to European distressed assets.

GDP ITaly Growth

The NPLs markets within Southern Europe, however, have their own differences. For instance, the Spanish market is preferred by international players, including Blackstone, for its relative high ratio of foreclosure within 2 years, especially when compared to the Italian market where the majority of homeowners decide to go to court, thus delaying the asset acquisition. For the above reason, the Italian landscape presents several independent hedge funds such as Algebris Investments, with its brand new Italian NPLs fund, that have a more meticulous knowledge of the Italian market.


The extremely attractive returns generated through distressed-debt funds, however, are not accessible to retail as alternative funds are only available to institutional investors, with a minimum investment of €500.000. Although, several experts do believe that the future will bring drastic changes as the AIFMD has begun a regulation process of the European alternative industry and it is not to be excluded that alternative funds might be offered to retail clients soon.

Ludovico Buffo
President, ESCP Europe Finance Society


The Kraft Heinz Co – Deal Report



The Kraft Heinz Company is an American worldwide food company formed by the merger of Kraft Foods and Heinz in July 2015, backed by 3G Capital and Berkshire Hathaway. The merger has been agreed by the boards of both companies, with approvals by shareholders and regulatory authorities. Alex Behring, 3G Capital’s managing partner, becomes the chairman of the new company; Bernardo Hees, Heinz’s chief executive officer (CEO), is now the CEO of the new company; and John Cahill, Kraft’s CEO, is now the vice chairman of the new company. The company will have dual headquarters in Pittsburgh and Chicago, the respective headquarters of Heinz and Kraft. The company and its stock are both fresh from the oven, but in their current forms, they have been in the works for some time.

Arguably, this entire process started with the high-profile buyout of H.J. Heinz by Warren Buffett and Berkshire Hathaway in conjunction with 3G Capital. That deal happened in 2013, with Berkshire and 3G Capital agreeing to purchase the condiments maker for a base price of roughly USD 23 billion, representing an approximately 20% premium to Heinz shares prior to the announcement.



On August 10, 2015, the Kraft Heinz Company (following “K.H. Co” or “the company”) reported its second quarter results for Kraft Foods Group and H.J. Heinz Holding Corporation for the periods ending June 27, 2015, and June 28, 2015, respectively. Both companies reported their second quarter results separately. The Kraft Heinz Company completed the merger of Kraft and Heinz successfully at the end of the second quarter.

2Q 2015 before-merger Performance Recap – Kraft

Kraft’s 2Q15 net revenues fell by 4.9%, and Kraft’s organic net revenues fell by 3.3%. It reported operating income of USD 923 million and diluted EPS (or earnings per share) of USD 0.92. Diluted EPS included USD56 million or USD 0.06 per diluted share in spending on cost savings initiatives, as well as USD 37 million or USD 0.04 per diluted share in merger-related expenses. It also included a USD 21 million or USD 0.02 per diluted share gain on the sale of assets, and USD 20 million or USD 0.02 per diluted share in unrealized gains from hedging activities.

2Q 2015 before-merger Performance Recap – Heinz

Heinz’s net sales fell by 4.1%, and Heinz’s organic net sales grew by 5.9%, driven by higher pricing across all segments. Organic adjusted EBITDA1 rose 16.3%, driven by more sales and lower SG&A (selling, general, and administrative expenses).

2Q 2015 Performance Recap – Kraft Heinz Company

Since the merger, Kraft Heinz reported combined results for the first time this quarter. It reported net sales of USD 6.4 billion. This was a fall of 9% compared to the same quarter a year ago. The organic net sales fell by 2% compared to 3Q14. A negative 8.2 percentage point currency effect caused the adjusted EBITDA to fall by 3.4% to USD 1.5 billion this quarter. The adjusted EPS (earnings per share) fell by 4.4% because of the change in the adjusted EBITDA and the impact of a higher tax rate compared to last year.


3Q 2015 Performance Recap – Kraft Heinz Company

On November 5, 2015, Kraft Heinz reported its third quarter results for fiscal 2015. The combined results after the merger were not good. As a result, the stock price took a toll on the disappointing quarter. The stock fell by 5% after the earnings release. It closed at $72.01 on November 6. The fall in net sales was primarily due to a negative 6.7 percentage point impact from currency and a negative 0.3 percentage point effect from divestitures. The volume or mix fell 2.7 percentage points because of lower shipments in ready-to-drink beverages, food service, cheese, and boxed dinners in the US and Canada. However, the rest of the world showed strong growth. The merger seems to have benefited the company despite the disappointing results this quarter. The company has shown various synergies among its brands including Kraft, Heinz, Capri Sun, JELL-O, Kool-Aid, Lunchables, and Maxwell House.


Dividend declared and EPS

As per the company’s press release, on July 31, 2015, it paid a cash dividend of $0.55 per share to all stockholders of record at the close of business on July 27 2015. This dividend was in lieu of the dividend declared on June 22 2015, by Kraft to its shareholders of record as of July 27 2015. The payment was conditional on the merger not having closed by that date. Kraft Heinz (KHC) in 2Q15 reported diluted EPS of USD 0.92 compared to USD 0.80 for the same quarter last year due to higher spending on cost savings initiatives and costs related to the merger with Heinz. These costs were partly offset by gains on an asset sale. The adjusted EPS was reported as USD 0.98 in the 2Q15. The EPS consensus estimate for the third quarter was USD 0.58. Yet Kraft Heinz reported an EPS (earnings per share) of USD 0.44 in 3Q15. It fell short of analysts’ estimates by 24%. It missed the EPS of USD 0.62 on revenue of USD 6.7 billion, according to the analysts’ forecast. The EPS fell by 41% compared to 3Q14. It fell 52% compared to 2Q15. The analysts that follow this company are expecting it to grow earnings at an average annual rate of 10% over the next five years. Analysts expect earnings growth of 12.6% next year over 2015’s forecast earnings.




K.H. Co’s competitors in the industry include Mondelez International (MDLZ), Hershey (HSY), and Mead Johnson (MJN). They reported gross margins of 39%, 45.5%, and 64.5%, respectively, for their last reported quarters. Kraft Heinz’s competitors such as Mead Johnson (MJN), McCormick & Company (MKC), and Keurig Green Mountain reported operating margins of 23.1%, 13.1%, and 16.6% in their last reported quarters.



Demand is driven by food consumption, which depends on population growth. The profitability of individual companies depends on efficient operations, because products are commodities subject to intense price competition. As consumer demand for local, organic and fresh foods continues to grow, the enormous multinational firms that are collectively being called “Big Food” are in the position of having to rework, reshape and reimagine themselves. Although this changing consumer landscape has contributed to lacklustre growth among some of the industry’s major players, the consensus among producers, analysts and healthy food advocates is that the major food companies – and their influence – are still going strong. The issue isn’t profits, it is growth. Consumers’ growing appetite for foods that feel healthier, fresher and less processed is one of the significant obstacles to growth. At the same time, while fresher, healthier foods may be grabbing more room in the line-up, there is reason to believe that the appetite for convenient packaged foods remains strong. Kraft’s Q4 2014 earnings release points to increased sales of Lunchables pre-packaged lunches and “ongoing growth in bacon” as key factors driving higher revenues in its refrigerated meals category. The future is uncertain. Lash points to Kellogg and Campbell’s as two companies that have struggled. Kraft, on the other hand, has been doing a good job refocusing its marketing efforts. Companies compete largely based on cost and their ability to distribute the finished product. Large companies have economies of scale in purchasing and distribution. Industry is concentrated: the 50 largest companies account for more than half of industry revenue. The food processing and packaging industry is poised for growth in the coming years.

Industry Earning Forecast

Looking into earnings estimates within the Food Processing Industry in the current quarter, 33.33 % of companies, who provide earning guidance within Food Processing Industry have increased their earnings outlook for the current fiscal year. 55.56 % of companies, who issued earning outlook within Food Processing Industry, have reiterated their earnings per share outlook for the current fiscal year while 11.11 % cut their earnings outlook.

Industry Sales Forecast

Within Food Processing Industry there were no increases of sales guidance, more corporations reiterate their sales projections, 87.5 % of businesses within Food Processing Industry. On the negative side, 12.5 % of businesses within Food Processing Industry expect now to sell less, compare to the previous guidance

US Kraft Heinz operates in four segments—the US, Canada, Europe, and the Rest of World. The US segment’s net sales were USD 4.5 billion—a fall of 3.7% compared to the same quarter last year. The adjusted EBITDA for this segment rose by 1.4% to USD 1.1 billion. The Canada segment’s net sales were USD 539 million. The net sales fell by 18.9% compared to the same quarter last year. The Canada segment’s adjusted EBITDA fell 20.3% to $110 million. The Europe segment’s net sales were USD 599 million. The net sales fell 13.9% compared to 3Q14. The segment’s adjusted EBITDA rose 8.3% to USD 222 million. The rest of the world’s segment’s net sales were USD 684 million down 25.3% compared to the same quarter a year ago. The Rest of World segment’s adjusted EBITDA fell 29.4% to USD 125 million.



The Pittsburgh-based, privately owned H.J. Heinz Holding Corporation acquired Kraft Foods in October. After the merger, the company changed its name to Kraft Heinz (KHC), becoming the third-largest food and beverage company in North America and the fifth-largest in the world. The Company’s iconic brands include Kraft, Heinz, ABC, Capri Sun, Classico, Jell-O, Kool-Aid, Lunchables, Maxwell House, Ore-Ida, Oscar Mayer, Philadelphia, Planters, Plasmon, Quero, Weight Watchers Smart Ones and Velveeta, for a brand portfolio worthing around USD 500 m.

3G Capital, a Brazilian private equity firm, and Warren Buffett’s Berkshire Hathaway contributed to the merger by investing USD 10 billion in the deal together, making the Kraft Heinz Company worth around USD 46bn.


In addition, changes to the operations strategy can also contribute to cost savings. These could be targeted at reducing headcount, shutting down less efficient manufacturing facilities and implementing zero-based budgeting. Zero-based budgeting means that the managers have to explain every forecast expense for the year from scratch, without appealing to previous years’ trends. This helps the top management enforce a more stringent form of cost control and realize cost savings. Since the chairman-CEO team at the new company will be the same as that which implemented drastic cost cutting measures at Heinz, including a reduction in force of 4%, closing several factories and grounding corporate jets, there is reason to believe that the projected changes to the combined company’s operations strategy would be successfully implemented.

3.2.    TIMELINE

timeline kraft


3.3.    DEAL TERMS

The Kraft Heinz Co. (KHC) shares are traded since 2 July 2015 on the NASDAQ.

Berkshire and 3G Capital Company together invested around US$10 billion in the deal, making Kraft Heinz worth about US$46 billion. Buffet and his partner 3G are paying a significant amount of money in order to obtain the majority stake of 51%, in particular they are paying:

– USD 16,5 one-time dividend to shareholders of Kraft equal to USD 10bn

– USD 18 bn, equal to half the Market Cap of Kraft before the transaction

– USD 14 bn, equal to half the purchase price Berkshire and 3G Capital paid for Heinz in 2013.

The implied deal worth around USD 45 bn

On the 08/11/2015 K.H. Co shares were traded at USD 72,24 for a Market Cap of USD 86,4 bn of which the USD 44,06 bn are attributable to Berkshire and 3G Capital.



The combination of the two food companies companies pursues intensive synergies objectives among which the majority will be pursued through cost cutting.

3G Capital Company has proven effectiveness in operational improvement and cost optimisation, as it happened at Heinz 3G will probably replace a part of the management team and employ zero-base budget in order to justify every budgeted expense. Those moves, as happened for Heinz, are intended to drive rising adjusted profits and therefore increasing shareholders return. The expected cost synergies should be around 1.5bn $ by the end of 2017 and will include intensive job cuttings and plant closures due to the overlying operations in North America. The company started in this direction by cutting 2,500 jobs also due to the changing taste of customer, more health conscious. Other cost savings could possibly come from the enlarged business and therefore the increased bargaining power towards suppliers as well as clients, such as retailers and therefore a wider presence on the shelfs.

The company will probably try to leverage some revenue s synergies, among which the common distribution channel and the geographic presence.

The Kraft Heinz Company will have to decide how to handle the geographic business distribution, on one hand Heinz’s sales are mostly generated outside the US with a remarkable portion coming from the Emerging Markets that contribute for the 25% of sales; on the other Kraft produce nearly almost all of its sales within the North American market. A spontaneous idea would be to boost Kraft’s sales in Europe, but this is in part limited by the agreement with Mondelez Int., a spin-off separated from Kraft in 2012.

Both Berkshire and 3G stated that they have long-term projects and objectives therefor they intent to stay shareholders of the Kraft Heinz Co. in the long period. This is understandable because they have paid a consistent amount of money in order to obtain the 51% of the new company and they will need time to justify their investment.


Bernardo Hees, CEO of the newly formed Kraft Heinz, said, “The job cuts are not surprising, given the reputation of the company’s management on Wall Street.” Hees also stated that he has overseen cost cutting at Heinz, representing 20% of the workforce, since it was taken over in 2013 in a prior partnership between 3G and Berkshire. The 3G Capital Company is well known for its tight cost controls, meaning the cuts announced on August 12 mostly affected people on the Kraft side of the business.

According to company spokesman Michael Mullen, the job cuts were part of the company’s process of integrating the two businesses and designing the new organization. The company expects that this new structure to eliminate duplication to enable faster decision-making, increased accountability, and accelerated growth.

Wednesday the 4th November the Company confirmed that they could cut 2,600 jobs and seven factories over the following 12/24 months.



To contact the authors:

Amedeo Ferrari                amedeo.ferrari@edu.escpeurope.eu

Luca Cartechini                luca.cartechini@edu.escpeurope.eu

Bitcoin, Blockchain and Smart Contracts : The Future of Finance

We all heard about Bitcoin, the digital currency that allows you to transfer and store money without having to trust any third party, but not everyone knows that the Bitcoin protocol is just the monetary application of a very powerful technology called blockchain, something that all the big players in the finance industry are looking at.grafico tenga(Daily transaction on the Bitcoin blockchain)

The blockchain is nothing more than a distributed permissionless database that allows people to store in a secure way very valuable data, such as monetary transactions, and the possible applications over this technology are endless. The most interesting one, at the moment, regards the so called smart contracts, self-executing contractual states that make possible to have any kind of contract, between two or more people, executing automatically when a certain event occurs. What does it mean for the financial industry?  For instance, it is now possible to have futures, options and swaps without a clearing house or any third party involved, 2p2 insurances without counterparty risk, smart bonds without middle or back office (already experimented by UBS), decentralized crowdfunding, prediction markets and 2p2 shares distribution.

The concept of smart contract is not new at all. It was introduced for the first time in 1994 by the famous computer scientist Nick Szabo, however, before Bitcoin it was impossible for a computer program to trigger a payment and, since every transaction had to be manually authorised by a bank, a smart contract could not exist. After Bitcoin became popular, the first smart contract platforms were launched, but there were still many limitations due to structure of the Bitcoin protocol. It is only in 2015 that the first blockchain specifically designed for smart contracts became real when in August, Ethereum, known also as Bitcoin 2.0, has been finally released. Ethereum could be seen like a big distributed computer that cannot be switched off and once you write a contract on it, and you pay the fee to the network, nobody can stop it from being executed. A platform like this opens the financial industry to a huge number of opportunities allowing more secure and better performing financial services with less intermediaries involved. Indeed, through the R3 CEV consortium, 11 banks including RBS, Barclays, UBS, HSBS and Credit Suisse are already experimenting new ways to connect eachothers using the Ethereum network. Once these technologies will be implemented, many back office costs will be cut, making financial products cheaper and more accessible. This means that big corporations will lose part of their competitive advantage, and much more players will have a significant market share in a world where financial services are more diversified and more efficient.

However, it is important to underline that blockchain technologies are so powerful that the possible applications go far behind the finance world, for example in a recent research conducted by IBM Blockchain Technology, Blockchain is identified as the best option to support the development of the “Internet of things”, because it provides better security and less scalability issues compared to centralized alternatives. Therefore blockchain should not concern only the financial industry but it should appeal anyone that wants to be where innovation takes place.

Federico Tenga, MiM Student at ESCP Europe & Founder at College Cryptocurrency Network Italy


Nick Szabo, The Idea of Smart Contracts (1997)
UBS Smart Bonds
Ethereum, The Platform for Smart Contracts
R3 CEV, banks consortium for blockchain development
IBM, Internet of Things report