World Economy

German Bank Aids Italy to Spur Business

German Bank Aids Italy to Spur BusinessGerman Bank Aids Italy to Spur Business

Germany’s state-owned development bank is making a loan to its Italian counterpart to aid lending to small and midsize companies in Italy, according to two people familiar with the plan.

KfW Group and Italy’s Cassa Depositi e Prestiti SpA will sign the agreement this week in Rome, according to sources familiar with the matter, who asked not to be named because the banks have not made an official announcement. KfW will lend CDP as much as $500 million ($621 million), one of the people said, Bloomberg reported.

Spokeswomen for CDP in Rome and for Frankfurt-based KfW declined to comment.

Germany’s loan fits with the search by European policy makers for ways around Chancellor Angela Merkel’s opposition to deficit spending. As the 28 European Union governments debate how to spur growth and ease the impact of the euro area’s debt crisis, Italy is in its longest recession since 2008.

“The only way we can master the crisis permanently is by consolidating government budgets, using existing budget leeway for growth and moving forward on structural reforms to increase competitiveness,” Merkel said in a speech in Berlin.

KfW, touted by Germany as a possible model for other EU countries, has provided loans to state lenders in Spain, Ireland and Greece. While those countries sought international bailouts during the crisis, Italy didn’t.

With more than 300 billion euro in assets mainly from postal savings bonds, Cassa Depositi provides credit to small and medium-sized businesses and invests in Italian companies through its FSI fund.

Frankfurt-based KfW is Germany’s third-biggest lender by assets. The bank, founded in 1948 to rebuild then-West Germany from the rubble of World War II, makes loans to everything from companies and local governments to home buyers and film makers.

European Commission head Jean-Claude Juncker is proposing a similar model on a larger scale with his 300 billion-euro investment plan to “re-industrialize” Europe, using the European Investment Bank as the favored conduit. EU finance ministers asked Juncker and the Luxembourg-based EIB in September to look at improving cooperation with national development banks such as KfW and CDP.