Finance for Sustainable Growth, 11 December 2020

Published: 23/12/2020

Below is the summary of introductory speeches given and panel discussions held at the conference Finance for Sustainable Growth, organised by the Croatian National Bank and the Embassy of Italy.


The general idea of this conference was to gather experts from Italy and Croatia to discuss topics that are of high relevance for both of our countries, and that strongly interlink our economies. Our joint objective, which also corresponds to the European long-term objective, is to create economic conditions for a more sustainable growth based on green economy, innovation and digitalisation.

Achieving this goal requires financial support for SMEs and for innovative and environmentally friendly projects, said Governor Boris Vujčić in his opening remarks at the online conference on the Italian-Croatian cooperation and economic recovery financing entitled "Finance for Sustainable Growth", which was held on December 11 and jointly organised by the Croatian National Bank and the Embassy of Italy. The Governor noted that the conference offered an opportunity to discuss policies to address these common challenges and stimulate productivity and sustainable growth, possibly also by further enhancing the Italian-Croatian cooperation in tourism, energy and finance.

Ambassador of the Italian Republic to the Republic of Croatia, Pierfrancesco Sacco, on this occasion said: “Our conference today, in this splendid hall and with so many eminent lecturers, speaks of the importance that Croatia and Italy attach to their historic friendship. The Italian – Croatian Committee of Ministers that took place in Zagreb ten days ago provides us with the right context. The key political message there is crystal clear: Italy and Croatia need each other”.

Ambassador Sacco also emphasized that Croatia and Italy shared the view that their economies had more chances to recover from the pandemic and be more resilient in the future, if they further strengthened their ties. At governmental and policy level but also – and very importantly - at the business level. The artery systems of our two economies – the banking and the financial sectors - are fit for the job of updating and relaunching the Italian and the Croatian historic partnership, because they are closely intertwined, concluded Ambassador Sacco.

Opening speeches at the conference were also given by Zdravko Marić, Deputy Prime Minister and Minister of Finance of the Republic of Croatia, Manlio di Stefano, Undersecretary of State for Foreign Affairs of the Italian Republic, Ivan Barbarić, Vice President for International Affairs and EU of the Croatian Chamber of Economy, Gianfranco Bisagni, Co-CEO Commercial Banking CEE of Unicredit Spa, Marco Elio Rottigni, Head of International Subsidiary Banks Division, Intesa Sanpaolo Spa, and Daniele Franco, Director-General of Banca d’Italia.

Below please find short summaries of the panel discussions as prepared by panel moderators.

PANEL I – Public and private investment for economic recovery and growth

The topic of the first panel was "Public and private investment for economic recovery and growth". This panel brought together a group of policy makers and experts in different fields: Sandra Švaljek (Deputy Governor of the Croatian National Bank), Šime Erlić (State Secretary of the Ministry of Regional Development and EU funds of the Republic of Croatia), Victoria Zinchuk (EBRD Director for Croatia), Fabrizio Balassone (Head of Structural Economic Analysis Directorate, Banca d'Italia) and Francesco Ruffoli, President of the Italian-Croatian Chamber of Commerce. The panel discussion was moderated by Milan Deskar-Škrbić, Advisor at the Croatian National Bank.

The panel started with some general questions on the importance of the new Multiannual Financial Framework (MFF) 2021-2027 and the Next Generation EU, the absorption capacity of Croatia and Italy in this context, the importance of new EU instruments for fiscal sustainability and room for cooperation between Croatia and Italy in this context.

Ms Švaljek stated that the contribution of EU funds to total investment activity in Croatia was already very high, especially in public investments, where around 80% of total investments was financed by EU sources. In this regard Croatia seems to be highly dependent on EU funds. This is most obvious in the case of local units, whose fiscal capacity is fairly limited. Amid such circumstances, EU funds in Croatia seem to have lost their original purpose – to only be a source of additional funding. She also emphasized that the size of EU net payments was expected to increase from around 2.8% of GDP in 2019 to around 4.5% of GDP in 2021, meaning that the funding would be abundant and the financing would not be a problem. The key challenge is to prepare a list of quality public investments whose goal should not be only to stimulate economic activity in the short run but also in the long run (policy makers should take into account not only short-term fiscal multipliers but also long-term fiscal multipliers). In previous years, public investments carried out by the local government units were fragmented, so that the synergies between them were insufficient. In years to come, the government should steer the EU funds into productive public investments that would contribute to restoring a capacity of the domestic economy to reach higher rates of economic growth. Ms Švaljek sees potential for public investments in different areas - public transportation and mobility, energy efficiency, sustainable agriculture and tourism.

Mr Erlić agreed that financing would not be a problem and underlined absorption capacity as the key issue. He explained that the current situation was very challenging for public administration in Croatia because of the tight schedule and the fact that financial programming was currently related not only to cohesion policy (as usual) but also to new EU instruments, the Next Generation EU and especially the Recovery and Resilience Facility. However, Mr Erlić is optimistic and is certain that Croatia will manage to prepare all the needed documents and projects on time and use EU funds to boost the economy. He also noted that, in addition to the economic consequences of the pandemic, policy makers in Croatia also had to take into account the damage caused by the strong earthquake in Zagreb. Having all this in mind, he sees that EU funds are more needed than ever. He also added that we should not neglect the role of European Territorial Cooperation (ETC), expected to become even more important under the new MFF. In this context, he stressed that Croatia and Italy had established good cooperation and that the two countries worked as public partners on various projects in culture environment, marketing of the Adriatic Sea, etc. He also added that ETC was also a building ground for private investments (Croatia and Italy have experience with over 500 cross-border projects). In conclusion, Mr Erlić said that the ETC would be an important generator for future private investments.

Ms Zinchuk talked about the role of the EBRD and explained the ways in which this institution could help both the private sector and policy makers in Croatia in the future period. She explained that EBRD provided capital, invested in equity and offered advisory services, and gave examples of its advisory capacity in the drafting of the City of Šibenik and City of Split development masterplans, and the masterplan for the urban regeneration in Zagreb (Gredelj) (EBRD recently stared to work on the development masterplan for the City of Pula). She also sees a role for the EBRD in improving the efficiency of state-owned enterprises, activation of state-owned assets and co-funding EU projects in local units instead of local authorities. She explicitly said that EBRD would always be ready to come if invited because it could bring expertise and experience. However, it is important to include EBRD at the beginning of the process of project planning. Ms Zinchuk raised the question of public-private partnership (PPP), forgotten in Croatia. In her opinion this is a mistake because bad experience with some PPPs in the past should not mean that we have to put them aside forever. In this context, the question arises - why not use PPPs in the context of new EU instruments (e.g. this crisis has shown that the public healthcare system is maybe not strong enough without the help from the private sector). The EBRD can help to set up PPPs, which would be a win-win situation for both the private and the government sectors. Finally, she reminded the participants of the famous saying "never miss a good crisis" and asked whether the EBRD would be invited by Croatian authorities to participate in the preparation of projects in the new EU financial framework (Mr Erlić answered that there was certainly room for the EBRD in this context).

Mr Balassone explained that Italy's experience showed that rising public debt-to-GDP ratio in the past was mostly a result of the "denominator effect". More precisely, rising public debt-to-GDP ratio before the corona crisis in Italy was not predominantly a result of poorly-guided fiscal policy but low growth potential. In this sense, EU funds have an important role in boosting economic activity and helping stabilize public debt-to-GDP ratio after a notable increase during the corona crisis. In order to propel the economy and increase the potential GDP growth rate, EU funds should be steered in quality and productive public investments with high short-run and long-run fiscal multipliers. In addition, he sees the important role of new EU financial instruments in reducing potential tensions on the financial markets due to the corona crisis-related "explosion" of public debts in all EU countries. However, as in case of Croatia, Mr Balassone is worried about Italy's capacity to prepare quality projects and absorb the huge potential of newly available EU financial instruments.

Mr Ruffoli opened his statement by highlighting the fact that Croatia and Italy are at the bottom of the ranking regarding the use of EU funds. As the main reasons for such poor execution so far he sees the lack of knowledge of the procedures and correct compilation of the requests by the competent offices. He stated that this problem was not new and that often excellent initiatives were blocked by red tape. A solution to this could be to train the employees from various competent bodies or ministries, perhaps directly by experts present in the Bruxelles offices, who could give clear and precise indications on how to compile and submit requests for funds. He said that Italian-Croatian Chamber of Commerce could be structured with a special office to provide this service to members and non-member companies. Regarding private investments, he believes that at this moment it is very important to create important infrastructural connections such as highways, railways and telecommunication ports. He concluded that many of Italian and Croatian companies have direct or indirect connections in these types of markets and that he thinks that finding a partnership between Italian and Croatian companies, where there is scope to create synergy and expand the business, is a true Chamber's goal and a challenge in the forthcoming period.

The second part of the panel focused on the role of monetary policy in the recovery in the post-corona future and the importance of the private sector in the absorption of new EU financial instruments.

Ms Švaljek stated that the role of monetary policy would be very important in Croatia in the coming years. In order to help both the public and the private sector to boost economic activity, the Croatian National Bank should preserve financial, exchange rate and price stability and thus ensure overall stability on various markets. By keeping abundant liquidity in the banking sector and low interest rates and yields on the money market and government bond market, the CNB can prevent a crowding out effect which could be otherwise triggered by the expected fiscal expansion.

Regarding the role of monetary policy, Mr Balassone added that it was very interesting how in the past the question was whether monetary policy could work without the support of fiscal policy and this time this question is reversed. He said that the corona crisis could be seen as a symmetric shock that hit all euro area and EU countries and that current monetary policy led by the ECB is adequate in this regard (expansionary monetary policy currently fits all). In addition, he also stated that monetary policy could help prevent the crowding out of private investments.

Ms Zinchuk said that it was time to make some bold decisions and not lose time. She reminded the participants and the audience that governments could do lot of things but that the private sector was the driver of the economy. However, if we want to see a sustainable boost in private investments, policy makers should provide institutional quality and ease regulatory burden (ease of doing business). Also, she said that policy makers should explore the examples of other countries (e.g. small Baltic countries) and find a substance for the private sector.

PANEL II – Role of the financial sector in economic recovery

The title of the second panel was “Role of the financial Sector in economic recovery”. This panel was moderated by Marko Jurčić, Advisor to the President of the Croatian Chamber of Economy. The speakers at the panel were Romeo Collina, Chairman of the Management Board of Zagrebačka banka, Dinko Lucić, President of the Management Board of Privredna banka Zagreb, Col. Pietro Bianchi, Head of Research and Analysis of Guardia di Finanza of the Ministry of Economy and Finance of the Italian Republic, Marijana Oreb, Member of the Board of Directors of HAMAG BICRO, Francesco Tilli, Director of External Relations of SIMEST and Vedran Šošić, Chief Economist at the Croatian National Bank.

Mr Šošić opened the panel with an overview of the Croatian financial system and its stability. He noted that despite the shocks brought forward by the COVID-19 pandemic, the system was highly stable and resistant. Some indicators have shown the signs of weakening, but that does not pose a serious issue at this moment as initial resilience was quite high. Mr Collina and Mr Lucić presented the two biggest Croatian banks' views on doing business during the pandemic, and the outlook for the banking industry after the pandemic. Their main messages were:

  • Bigger focus on SMEs is needed;
  • The structure of clients is somewhat shifting – corporate clients who did not use the whole plethora of banking products before are now looking at them with greater interest;
  • Banks are liquid and ready to finance quality projects and are increasingly looking forward to viable projects in the corporate sector;
  • By granting the moratoriums on loans, the banks tried to step in and help their clients, both corporate and private, during this unprecedented crisis.

Ms Oreb presented HAMAG BICRO's main tools and credit lines aimed at the companies struck by the COVID-19 caused crisis, but also the tools aimed at enabling SMEs to implement their development projects in following period. Ms Oreb added that the amounts secured for coping with the pandemic impact are high and sustainable.

Mr Tilli emphasized the fact that the opportunities for Italian investments in Croatia increased significantly during the pandemic, following a period where they appeared to be hindered a bit after Croatia's entrance into the EU. The potential for investments is substantial and SIMEST is looking forward to picking up their activities in Croatia by providing financial support to Italian companies in the Croatian market.

Col. Bianchi touched on the issues of money laundering, with an emphasis on the Italian-Croatian cooperation. Mr Bianchi noted that, while there were certain issues, they were being dealt with, and that they are not significant enough to be able to endanger the overall positive situation of financial cooperation between these two countries.

The overarching conclusion of the panel discussion was that the cooperation between the Italian and Croatian financial institutions is healthy and strong. The Croatian and Italian banks have a certain focus on each other's markets, but not overwhelmingly so when compared with other markets in the EU. Best practices are shared and cooperation is traditionally strong.

PANEL III – Business panel on energy

The third panel of the day was a “Business panel on energy” that was moderated by Maja Pokrovac, Director of Association for Renewable Energy Sources of Croatia. The participants at the panel included Tamara Perko (President of the Management Board of HBOR), Milan Horvat (President of the Supervisory Board of FIMA Invest), Alberto Pinori (President of ANIE Rinnovabili) and Gianbattista Semeraro (Projects Director of FATA EPC).

The moderator, Ms Maja Pokrovac, emphasised the big efforts made by the private sector in the past 15 years in initiating renewable energy sources (RES) projects in Croatia and underlined the need for developing new business models for the sector's future development. Ms Pokrovac outlined the activities undertaken by the Association for Renewable Energy Sources of Croatia that aimed at achieving this goal, stressing the importance of communication and training in key areas such as project financing in the framework of the new feed-in premium system. She discussed with the panelists new business opportunities, the necessary measures and reforms for prompting faster development of renewable energy and financial instruments supporting energy transition and the fulfilment of the Green Deal.

The panelists discussed new business opportunities, the necessary measures and reforms for accelerating the development of the RES, financial instruments and the fulfilment of the Green Deal.

Mr Horvat, President of the Supervisory Board of FIMA Invest, noted that the situation in the energy sector had changed drastically in the past ten years, with renewable energy sources having become cheaper and more interesting for investors. Praising the feed-in premium system, he noted that many private investors were now looking for opportunities for investment in the RES sector. He sees ample opportunities for RES projects financing, from banks to new private funding models and announced that FIMA was preparing an energy fund that should become operational in the first quarter of 2021. He estimates greater than ever involvement in this area in the next few years, noting that the energy sector will emerge as the most powerful in the next decade. For a system of financing to be good, he stresses the importance of training and understanding of the processes in the RES sector, adding that the segment that needs to be developed in Croatia is electromobility.

Mr Pinori, President of ANIE Rinnovabili, association gathering companies in the RES sector, shared his experiences with the RES sector financing in Italy. Following the period that started in 2007 during which the RES sector in Italy functioned based on a FIT system, this country introduced a system based on tax reductions. Sustainability that is so widely spoken about these days has not always been such a familiar notion, however, amid the COVID-19 pandemic, people became aware of its importance in all sectors, the energy sector included. The corona crisis thus created an opportunity, Mr Pinori claims, and the money that stands available should be put to good use by investing it in RES projects. As the biggest challenge he sees the red tape that slows down and derails project realisation and he thus stressed the importance of reform.

Ms Perko, President of the Management Board of HBOR, added that sustainability indeed was an unknown concept to many just a year ago, while today it is at the core of European and national documents the implementation of which is discussed on a daily basis between HBOR, the ministries and the European Commission. She noted that activities that do not meet the criteria of sustainability and climate plans would not be eligible for funding. In the context of questions regarding the preparations for a new investment cycle and transition to a new feed-in premium system, she noted the importance of training on this topic and commended the activities undertaken by the Association for Renewable Energy Sources of Croatia. She underlined the difference between project and corporate financing, adding that project financing poses a greater risk for banks, and the need for a further analysis and understanding of the new conditions, and promotion of internal procedures, capacities and knowledge.

Mr Semeraro, Projects Director of FATA EPC who has experience in participating in projects in Croatia, spoke about solar power plant projects underway in Italy, as innovation models with energy storage in batteries and water. They are open to similar projects in Croatia and see Dalmatia as a potentially interesting area in this regard. 

In conclusion, all participants agreed that a lot of work lies ahead and that information, communication and training were essential for inclusion in the new investment cycle of the RES sectors, and so is cooperation of all interested parties. Only if these conditions are met will it be clear to all of us what needed to be done and how it is to be done to meet the common national and European objectives.

Panel IV – Business panel on tourism

In the final panel of the conference discussing the topic of tourism, the panelists were Mr Tonči Glavina, State Secretary of the Ministry of Tourism and Sport of the Republic of Croatia, Mr Kristjan Staničić, Director of the Croatian National Tourist Board, Mr Željko Kukurin, President of the Catering and Tourism Association of the Croatian Employers’ Association, Ms Marina Lalli, President of Federturismo Confindustria and Ms Paola Pacchiana, Internationalisation Ambassador, Associazione Startup Turismo. The panel, which was moderated by Mr Damir Krešić, Managing Director of the Institute for Tourism, mainly focused on how the current situation related to the global corona virus pandemic will affect global and regional tourism market and dominant market trends, changes in consumer’s behaviour in tourism, domestic and international tourism demand, tourism investment etc.

Mr Glavina gave a brief overview of the measures taken by the Croatian government and the Ministry of Tourism and Sport to mitigate the effects of the COVID-19 pandemic on tourism, which are aimed at supporting and strengthening tourism resilience and recovery process in Croatia. According to Mr Glavina, some of the main measures include government subsidies for the tourism industry (mainly for the salaries), tax reliefs, COVID-19 loans, government guarantees available to tourism companies, etc.

Mr Staničić focused on the measures taken by the Croatian Tourist Board aimed at easing the effects of the COVID-19 on Croatian tourism, which include strengthening the domestic and regional tourism demand (CEE countries) and increasing advertising and promotional activities on different digital platforms. Mr Staničić emphasized that the travel and tourism industry would fully recover from the COVID-19 pandemic in a 2 to 3-year period.

Mr Kukurin talked about the big impact that the COVID-19 pandemic would have on tourism investments, noting that investments initiated prior to the crisis would probably be completed but that there would probably be no new investments in the next 2 to 3-year period. According to Mr Kukurin, the value of tourism investments in 2019 in Croatia is estimated at around 1bn EUR (of which 50% is accounted for by hotel investments), with an additional 3.5bn EUR being planned for the next 5-year period, which will probably be postponed as a result of the COVID-19 crisis.

Ms Lalli gave an interesting overview of the impact of COVID-19 on Italian tourism industry, noting that Italy, unlike Croatia, is less dependent on international tourism demand as 50% of Italian tourism demand is generated by domestic tourists. She also noted that the pandemic had a similar impact on tourism in Croatia and Italy due to the fact that both countries had a similar tourism product, dominated by 3S tourism, cultural tourism, and city tourism, and given the fact that both countries (Croatia especially) had a highly pronounced seasonality of tourism demand. According to Ms Lalli, one of the main weaknesses of Italian tourism is high dependence on luxury tourism market segment, which was extremely affected during the COVID-19 crisis. Finally, Ms Lalli commented that the COVID-19 crisis had been especially difficult for tourism market intermediaries as tourism agencies and similar companies, both in Italy and in Croatia, lost more than 85% of income from 2019.

Ms Pacchiana gave a brief overview of tourism startup scene, presenting several examples of tourism startup best practices and explaining how information and communication technology helped tourism business to overcome many problems caused by the corona virus pandemic.

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