Monday, September 1, 2014

Published 12:36 PM by with 0 comment

Credit cards and mortgages in Italy


Bank of Bergamo, Italy
The biggest crisis of the 21st century overall is, without doubt, the increase of credit card spending and out of control outrageous mortgages, which have led to a financial crisis of epic proportions. Italy has a different situation when it comes to financial and economic woes and, although highly affected by the crisis, it followed a completely different financial pattern.

Italians are indeed much less in debt than other citizens of similar economies. Loans in general are very hard to obtain in the Italian
system, unless major assets are presented as collateral, therefore if anything is borrowed it is usually for smaller amounts or in the form of guaranteed loans. This conservatism was for decades considered obsolete and very old fashioned, a true burden to a fast and modern economy: ultimately, though, it helped to prevent a catastrophe. Italy is not necessarily in better shape than other countries, it is just that, due to the much slower, longer process involving financial matters, the banks and the citizens didn't have enough time to actually catch up with the rest of the industrialized world and such tardiness turned to be a positive thing. 

It wasn't until very recently that Italian people started to carry over their balance on credit cards, and never for more than a few hundred dollars. Even more recently, did they start applying for variable rate mortgages, a system very well structured in the U.S. or in the U.K., but really not popular at all in the Italian mentality and house book keeping. As a result, Italy presents a very unusual scenario wherein the government is in debt, but its citizens owe very little money, and have actual cash in the bank. Once again, the situation of the Italian economy is serious like any other country today, but in terms of actual credit cards and loans, it is not as bad. Another important aspect is the fact that Italians, in general, are still a very cash oriented society. Credit cards are used, but not all the time, and usually the balance is paid at the end of the cycle. Everything was about to change just before the crisis exploded in 2008, but now the whole borrowing process is even slower than before.

1 Euro, Italy

At a higher level, banks didn't get too deeply involved in the international collapse, except for a couple that needed government intervention. Italy is a country based on the culture of the 'mattone' ( brick, meant as real estate ) and on the fact that you earn first and then you spend, a concept that has gotten lost in many other countries. The concept of credit history was also introduced only in recent years, therefore the overall economy is still based on actual salary and personal assets. At a business level, things are slightly different, but definitely not as loose as in the American system. Mortgages, a widely used tool in Italy, were also very conservative, usually based on a large down payment and fixed rates on a long-term  loan. This is why things like a second mortgage or borrowing against the house are very rare cases and truly not so common. A minor reality to be listed more as personal cases that as effective on the national economy.

In very recent years, mortgages have taken on bizarre terms that could have caused harm, but - again - the time was very short before a large amount of damage could take place; people might have ended up losing a house that they never really paid for, but no more than that. Surely a bad spot to be in, but in terms of-out-pocket cash, it is the equivalent of a few months rent, since they were really paying for interest anyway. In effect, Italy was just on the verge of the cliff and the international crisis saved the system.
The biggest problem Italy is facing today is the fact that banks need to open their reserves to lend money to those who can afford to jump start the real economy again. Borrowing and lending is good, if done properly and with just cause. Italian citizens are still driven by cash, and even when they go plastic it is usually using an ATM with a Visa or MC logo. American Express is also linked to a bank account for an immediate draft to pay the balance, so the concept of heavily going into debt is still remote, but slowly reappearing and dangerously floating around seeking for victims.



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