There is an impending financial crisis in Italy due to rising energy costs in Europe. Energy costs are causing rising prices and inflation rates, and the Italian bank UniCredit announced in early September that it was initiating up to €8 billion ($9.3 billion) in measures aimed at halting the economic downturn. Along with the promised measures, UniCredit’s financial assistance will offer 400,000 homeowners the opportunity to refinance mortgages.

Rising Energy Prices and Inflation in Italy

UniCredit has taken these steps because Italy is fighting soaring prices and climbing inflation rates. The rising prices are due to the energy crisis tearing through Europe as a result of Russia’s invasion of Ukraine. Italy is one of the more Russian gas-reliant nations in Europe, second only to Germany. By the end of 2022, it is estimated that Italy will be spending €100 billion ($99.5 billion) on its natural gas imports. Because Italy imports at least three-quarters of its power, the country is likely to suffer economically as the European energy crisis worsens.

The limits Russia has implemented on its oil and natural gas exports have forced nations to pay incredibly high prices for the resources. The limited exports are due to the conflict in Ukraine. Sanctions on Russian oil have caused an overwhelming increase in oil prices. The latest issue to add to the rising oil costs is the closure of Nord Stream 1, one of Russia’s primary pipelines throughout Europe. The reasoning has been that there was a potential leak in the pipeline, but there has been no progress in repairing the leak nor have any estimates been given on its reopening. The closure has left Russia downsizing its exports, resulting in gas prices in Europe increasing by 28%. These increased costs are causing many European currencies to lose value and inflation rates to rise.

Italy’s inflation rate in August had increased by 8.4% over the year before, which marked a 37-year high. Higher inflation tends to lead to less output and production, which Italians have witnessed already. A decrease in output results in a decrease in minimum wages, effectively sliding many workers into poverty. UniCredit is fighting to avoid any increase in Italian poverty, which is why UniCredit’s measures could not have come at a better time.

Mortgage Payments and Poverty in Italy

UniCredit’s financial assistance comes when Italian mortgage rates are rising, with recently established mortgages more expensive than in previous years. Mortgages with variable rates are suffering from the pressures on the housing market and are increasing so companies and banks are able to keep pace with inflation and the market. If homeowners cannot keep pace with the rising rates or high mortgages, they will likely default on their loans, and the banks could repossess their homes.

In 2020, economic activity dropped. As activity decreased, and before the government disbursed subsidies or the economy shifted to work-from-home economic activity, there were fears of being unable to pay one’s mortgage. According to a survey taken in the spring of 2020, 65% said they would probably be alright. However, a third of the respondents said they would definitely or most likely have difficulty paying their mortgages. This fear has not entirely gone away.

Extreme poverty followed many Italians like a shadow due to the COVID-19 pandemic. By mid-2022, 5.6 million Italian people were in absolute poverty. UniCredit’s measures may help to keep that number from increasing.

UniCredit’s Financial Assistance

UniCredit’s issuing of €8 billion in new loans to cover energy costs and pausing payments will allow millions to re-navigate their finances before surging energy bills and new force them into poverty. A three-month break means enough time to properly refinance a mortgage and get it back in order before payments re-commence. UniCredit’s goal is to help its Italian customers navigate the rising inflation and energy costs, keep customers unburdened from their mortgages and keep the economy working smoothly.

Pauses, more formally called “forbearances,” in mortgage payments have several upsides. The critical thing to remember is that even though the payments are temporarily suspended, there is still an obligation to pay the loans. The homeowner does not need to make mortgage payments during the window of the forbearance but must make them later – usually after the closure of the initial mortgage payment window.

UniCredit’s financial assistance is coming at a crucial time, as the limited gas exports and mounting energy bills are beginning to cause panic in Europe. The Italian government has responded by releasing its stimulus packages earlier in 2022 to generate financial stability for its citizens. In conjunction with UniCredit’s work, the two can help keep Italians out of poverty by creating an economic flow that Italy has struggled to achieve since the beginning of the COVID-19 pandemic.

– Clara Mulvihill
Photo: Flickr