In this editorial, CEPS Director Daniel Gros analyses the effects of non-performing loans (NPLs) on the broader Italian credit and banking sector, with a specific reference to France and Germany, He argues that NPLs do not hamper the possibilities of economic growth.

Europe’s banks still have very large amounts of non-performing loans on their books. According to some estimates, they amount to close to 1,000 billion euro. The problem is particularly acute in Italy, which accounts for about a third of the euro area’s total. These problem loans are perceived as a big problem. Some have argued that plans to complete the Banking Union must be postponed until the NPLs have been dealt with. Others have argued that dealing with the NPLs is needed for a sustained recovery, because, as so often argued, banks will not lend if they have these loans on their balance sheets. However, this view might be mistaken.

This contribution was originally published on 12 April 2018 as “A view from Brussels” on LUISS Open’s website. The full text can be read here.