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Syndicated Loans

Renzi tables wonky reforms

loan ranger

Bankers are often cagey when it comes to talking about sensitive commercial data, but Italians are always game to talk politics - and have a knack for the clear if unconventional analogy. This was proven once again when Loan Ranger was getting the latest on the Italian market.

At his desk in Milan, a busy loans banker clammed up when Loan Ranger enquired into the margin on a leading Italian company's latest revolving credit facility.

But at the mention of prime minister Matteo Renzi’s attempts at labour reforms, he was eager to share his opinion: “I believe that the reforms are not strong enough,” he said. “You cannot adjust a table by adjusting just one leg. You have to reform all the legs.”

Besides long-winded court proceedings and indecisive elections, Italy is well known for its culinary heritage and contribution to world cuisine - not to mention furniture design. This pride perhaps influenced the banker’s choice of metaphor for his native land.

While core west European credits seem to have reached a loan pricing floor, for now, of around 20bp over Euribor, margins paid by Italian, Spanish and Portuguese borrowers on syndicated loans are continuing to tighten, eroding the so-called periphery premium.

“I don’t think Italian and Spanish pricings are perfectly aligned with Germany and France, but the realignment is well under way,” the banker said.

But the Italian economy is still looking wobbly. In August, its GDP surprised forecasters by contracting for the second quarter in a row, and Renzi is forecasting zero growth for 2014.

He is under pressure to reform practically every aspect of commercial and economic life in Italy, from its notoriously slow legal system to its unwieldy political set-up.

Labour law reform is a particular battleground, and Renzi is expected to face a parliamentary battle in the coming weeks to establish the groundwork for a new bill.

Susanna Camusso, head of Italian trade union CGIL, has threatened a general strike if emergency measures are implemented, and bargaining over the reforms will likely continue well into 2015.

Even if Renzi manages to get the employment law concessions he wants, there will be plenty of fights in other policy areas. As the banker put it: “Labour reform is one leg but you have to adjust more legs.”

Loan Ranger couldn’t help imagining a plate of spaghetti sliding perilously towards the corner of the table.

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