The Future of Mediterranean finance

The sixth meeting of the Mediterranean Strategy Group was held in Naples in the prestigious headquarters of the Banco di Napoli on March 1-2. The meeting, intended as a forum for dialogue and discussion on Mediterranean issues, was organized by the German Marshall Fund of the United States (IAI), Istituto Affari Internazionali, Studi e Ricerche per il Mezzogiorno (SRM) and the Intesa San Paolo Group. The meeting debated the state of play and the future of Mediterranean finance in light of the recent transformations and the needs of the countries undergoing political and economic transition processes. The conference was attended by some fifty participants ranging from experts and officials from the United States (US), Europe, the Mediterranean region and the Gulf.

The first session assessed the impact of the economic and financial crisis and the so-called Arab spring on the cooperation prospects between the two shores of the Mediterranean. Despite the substantial presence of liquidity, the financial systems of the region fail to contribute to economic development and growth. The reasons lie in the fact that, in addition to problems of poor regulation, there are also structural problems, such as endemic corruption, the overwhelming State structures and bureaucracy and the lack of performing productive sectors. The discussion dwelled on the nexus between strengthening financial mechanisms, on the one hand, and economic and political reforms, on the other.

The second session highlighted the marked differences existing between the southern Mediterranean countries as far as the structure and potential of their financial systems are concerned. A common problem regards the limited support provided by the financial systems to the private sector, a large proportion of which are made up of small and medium enterprises. The poor quality and effectiveness of credit mechanisms was also underscored by one participant. In addition, it emerged that much credit is channeled through informal channels. The first day of the meeting was closed by a session specifically devoted to the role of sovereign wealth funds from the Gulf and more broadly to the GCC countries’ stance toward the Arab spring.

The second day of the conference opened with presentations from representatives of the main international financial institutions and other international organizations, e.g., the World Bank (WB), the International Monetary Fund (IMF), the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD) and the Organization for Economic Cooperation and Development (OECD). They outlined their programs and policies for tackling the problems of the Mediterranean region and debated various political and technical issues, such as the instruments and procedures needed to apply the principle of conditionality, as well as some of the obstacles that block inter-institutional cooperation. What emerged is the substantial alignment of the programs of the international financial institutions toward the southern Mediterranean region. At the same time there is a lack of programs at the micro level, devised and implemented, that is with the objectives and the means to achieve them defined in cooperation with local authorities.

Finally, the implications for the transatlantic partners were explored in the final session of the conference. Europe and the US have an interest in the stabilization and development of the Mediterranean. However, all they can do in this phase is coordinate their initiatives for economic support and political cooperation and take into account other actors whose presence and influence is growing in the region, i.e., Turkey, the Gulf countries and China.