9 Maggio 2012
Grazie Presidente, sono molto grato all’Istituto Universitario Europeo e al suo Presidente Borrell per quest’invito in una sala, momento e occasione così importanti.
Questa è la mia prima visita a Firenze nella posizione che attualmente occupo e sono veramente lieto di portare in questa veste il mio saluto al sindaco di Firenze, Matteo Renzi e al Presidente della Regione Toscana, Enrico Rossi, così come a tutta la città e a tutta la regione.
As we are invited to discuss the state of the Union, I think it is necessary for us Europeans to combine candid pride with genuine concern. I don’t think one should find a mediation between these two attitudes, but rather be almost brutal in identifying weaknesses only to address those with hope and pride, which is indeed justified because what the European Union has achieved over sixty years is considerable.
I will start by addressing the question of the day, which is economic growth, to move afterwards to more political remarks on the development of Europe. I believe that growth, in general, and growth in Europe and at this stage should be considered with an open mind and three components or chapters. The first one is the precondition for sustainable growth with particular emphasis on fiscal discipline. The second chapter is structural reforms, both at the EU level and at the domestic level for each member state. The third chapter and most debated chapter these days is should one seek to have a demand-led stimulus or not.
Of course this is a debate that is not confined to Europe, but has intensified following the election of the new French President and electoral results in other countries. I’m sure that we are going to have much of the same debate at the end of next week at the G8 in Camp David.
What are the different views? Oversimplifying in a way that fails to do justice to any of the positions I will describe, there is a view which can be characterised as Anglo-Saxon and relies rather heavily on demand, maybe also because in the Anglo-Saxon economies, on both sides of the Atlantic, structural issues are a bit over because those are economies with a high degree of flexibility. Then there is a more continental view, particularly in Germany, which is an important component of the European continent, which reflects a different conception of economics in my view - economics is, after all, a branch of moral philosophy – in which growth is the reward for merit and for good behaviour at the micro level as well as at the macro level. So any creative, imaginative, thought-provoking theory and policy that ‘subverts’ this ‘moral economy’ identity needs, in the very least, to be well explained in order to gain German minds and even more difficult German hearts; I’m not even speaking of German pockets.
What is Italy’s, what is my government’s position in this debate? My government is fully convinced about the virtues of budgetary discipline, fully convinced in operational terms, so much so that we have an objective, which has been agreed with the European Union, of achieving a balanced budget already next year, 2013, which is quite a bit before most of the other EU member states. But this is not just about the the European institutions or Germany - which holds good cards in the overall game - wanting so. This is also because, if our memory is not too short, the experience of Italy, France, Spain, Greece and other countries, including in the North, tells us that if there systematically buy popular and social consensus through expenditure that exceeds revenues, then those who ultimately pay the bill are the poor future generations.
Future generations are not an abstract concept. It is happening right now as present generations of Italian and in many other countries are indeed paying the price of the behaviour of governments many years and decades ago which thought they were doing something morally honourable by saying ‘yes’ to everybody, but in fact depriving the current young generations of the possibility to find a job.
So I have nothing against budgetary discipline. Budgetary discipline is good. My fellow Italians here have never and will never hear me say: “we have to comply with these requirements because the Commission or the Central Bank or Germany wants us to”. We are very committed to budgetary discipline and we are also intellectually convinced and very committed to structural reforms, which need to be carried out both at the EU and national level. Although quite a lot has been done we, like many, believe that Italy has to do more more, as also underlined by Luca Cordero di Montezemolo. There has hardly been any time wasted in this regard since my government took office, and we hope to bring more to the fore after Parliamentary approval of the labour market reform. The latter follows a pension reform, which was followed by a liberalization and competition drive and so on. So we are very much in line with the Anglo-Saxon countries in Europe, with the UK in particular, in believing that structural reforms are very important for growth domestically as well as EU level, which is the part that Michel Barnier is in charge and about which he spoke so eloquently, that is building of a genuinely single market.
Now, about whether we need a demand-led stimulus; the third component of my exposé. I will briefly focus on those aspects that are under the exclusive competence of the European Union or shared competence with the member states. In other words, the single market. Michel Barnier had a very precise and very telling way of putting things when he said “le marché unique peut être la première victime de la crise, mais peut aussi être la voie de sortie de la crise” - si j’ai bien noté - and this precisely why Italy, if I may say well beyond its historic tradition in this regard, is putting such a lot of emphasis in Brussels on the single market becoming a key for growth.
Two years ago, this very day, when we marked the 60th anniversary of the Schuman Declaration, I handed over to President Barroso a report on the single market which he had commissioned to me and was kindly evoked by Commissioner Barnier this morning.
Two years ago it was already easy to perceive an integration fatigue, that was there even before the financial crisis, in 2007, and intensified as the crisis continued, inducing many people to ask themselves whether the market economy itself is altogether a good idea. With a single market fatigue doubled as market economy fatigue it takes a very brave Commissioner, as Michel Barnier is, especially if he is French, to lead a fight for more, not less single market, and that’s why I admire and encourage his work. Especially as we experience in many of our countries, west and east of the former Iron Curtain, the development of parties and movements that essentially opposed to integration, whether extreme right or left, basically united by the rejection of integration be it at the European level or at the global level. La “mondialisation”, pronounced in French is even more worrisome than globalization.
So it clear to me that although we badly need to complete the single market because, as Mr. Montezemolo underlined, in the services area, in particular, there isn’t much of a real single market, it’s a hard job to promote it when there are tendencies to go back to national preferences, to local preferences, not to be speak of contrade - a cultural rather than trade notion.
The single market report I put forward, promoted the idea, still valid today, that Europe, - this is political not technical, if I may trespass a very delicate border - Europe needs a new compromise between, on the one hand, the more liberal countries, liberal in the sense of market orientation, like the UK, Ireland, the Scandinavians, but also the new member states like Poland and others, which have a great affection and enthusiasm for openness and competition and market, and, on the other hand, more socially-motivated, generally large continental member states like Germany, France and, to some extent, Italy.
In the past there was this compromise and European integration progressed. But today there appears to be a rejection and turbulence. Together we must show that the single market, and market integration more generally, can be developed further if we want to re-engage broad public opinion on the subject. We mustn’t create the impression that integration is against social values, is against the right of workers, against the environment. Otherwise when these values come up, particularly after the crisis, market integration will be stopped and there will be a reverse.
Why do I mention all this in the context of growth? Because having a fully-fledged single market in Europe that is a supply side measure is of course a huge source of growth.
This is why when I was given a government responsibility we brought in my government this orientation, took it to the table of the European Council and promoted the idea and its effect on growth in a letter to Presidents Van Rompuy and Barroso, co-signed by the UK government - an odd couple after all under conventional terms - and in the end by ten other heads of government. Not by Germany and France, although Italy had re-entered a full dialogue with Germany and France after a brief parenthesis.
Now, I understand that following also the impulsion of that letter, the European Commission and the Presidency of the Council are working to put on the table of the next big European Council, the one in June - not the more informal exercise with the participation of President Hollande convened for the 23rd May - proposals and concrete actions that, I hope and understand, go very much in that direction. I think it was Mr. Montezemolo and maybe others who rightly dismissed the Lisbon Strategy because it had no teeth, but why did it have no teeth? Because when the Commission proposed, in the 2004 mid-term review, that individual member states should be named and shamed if they were not making progress on structural reforms a couple of heads of governments said “No, the Commission cannot embarrass us”. So that weapon was dropped. I am promoting around the table of the European Council, a coalition of the willing - maybe of the slightly-unaware willing, because we will all be embarrassed when the Commission castigates our countries. But this is the only way to be pressed by our public opinions and for us to press our own ministers and our administrations to do the necessary homework. I also hope that following that letter the Commission will come up with concrete proposals to make the enforcement of the single market rules swifter and surer. It makes no sense to refine, and refine, and refine, every two years the apparatus for budgetary discipline and its enforcement, which is very important, but then to leave the enforcement of the economic union, of the single market very, very weak. A situation where, for example, a country that does not want to recognize the diploma of citizens of other countries in spite of the rules and drags on for four of five years before the Court of Justice ultimately orders it to do so, is inadmissible. This denotes a vision of European integration, which has been tilted only in favour of fiscal aspects.
Now, as to the last point: the demand stimulus. I think we should consider ideas carefully and in a cool way, whether or not they depart from orthodoxy, from the orthodoxy of budgetary rigor. I will briefly mention two points that the Italian government is developing these days with our key partners in Europe and with the European institutions, which in my view provide room for growth in a non-inflationary way, fully consistent with the rigor of the Maastricht Treaty, the Stability Pact and the Fiscal Compact.
The first one is a very old topic, which I had already proposed to the European Commission in 1996 when the original Stability Pact was discussed. If a country has a very high debt to GDP ratio, say 120 %, is this the only thing that matters? Or should we also consider what the money was used for. I, for one, would be a lot happier if the country that has a 120 percent debt-to-GDP ratio had used the money for building top-class infrastructure of all sorts - from classical infrastructures to broad band etc. - rather than to finance current expenditure. But the Maastricht Treaty, the Stability Pact and now the Fiscal Compact don’t really give any importance other than minimal to these distinctions between public spending and investment spending.
I believe that work can be done on this, of course it is delicate, of course we cannot jump to an adventurous position saying that anything that any government classifies as public investment should be exempted or looked at favourably under European rules. Frequently in the past governments have covered losses, for ex example, of state-participated companies and have accounted this as investments. So there must be very strict criteria at the European level that distinguish between admissible public investment from this purposes and non-admissible public investment. Arguing that it is difficult to make, implement and enforce the distinction is, in my view, a secondary consideration. The key aspect is: do we really believe that public consumption and public investment have the same economic value? No. If you are interested, as the Germans are, into the supply side and the accumulation of productive capital, then public investment is more important than public consumption or private consumption. We have seen the consequences, for example, in Spain and Ireland of private consumption, including through mortgages or indebtedness that were not subject to any limits.
The other point that the Commission needs, in the very least to put on the table, is the Eurobond issue, as it did with good merit last year with a green paper on the issue. Although this was unacceptable to several member states at the beginning, discussing it takes away emotional aspects, and I’m sure that Eurobonds will come sooner rather than later.
Another aspect consists of the treatment of late payments by public administrations. This is a well-known problem but which is not accounted for in fiscal rules. But if we are interested in the supply side, does it really make sense that governments distract existing supply capacity, normally at small firms, productive firms which are caught by a crisis of liquidity because governments don’t pay?
So before the Fiscal Compact goes into effect, as I hope it will, after its ratification, it would make eminent sense to have a transparency operation, that would provide oxygen to companies and make accounting and budgetary policy more rigorous afterwards under the Fiscal Compact.
To round off rapidly on the political aspects, let me say that the problem is not only about growth, but also about whether “integration is reconcilable with democracy? The apparent answer in many countries these days is “no”, but I am convinced that it is. An important role has to be played, and can be played, more than people recognize, by the European Parliament. The European Union is the only international body that has a fully-fledged democratic legitimacy based on direct elections- and I think the biggest mistake in dealing with the political crisis of the European Union would be to believe that the root of the problem is at the EU level.
I have spent ten years in the European institutions, at the Commission, and I have spent now almost six months in a national government. Apart from the fact that the latter feel much longer, it is interesting to compare experiences. The European crisis is, first and foremost, a crisis at national level, due to increasing short termism. The tendency, and I say this with due respect, is less and less leadership and more shying away from unpopular solutions that are nevertheless necessary and bring long-term benefits. So it is not a bad idea that we have the European Union reminding us of what to do.
Italy can contribute constructively to this debate and, more generally, to the debate on the future of the European Union, as it has always been an enthusiast defender of European integration, more recently by our President Giorgio Napolitano, and, in the past, by such figures as Alcide De Gasperi and Altiero Spinelli. It was also under Italian presidencies that the EU decided to go for the direct elections of the European Parliament, for the launch the single market and, in the Rome Council of 1990, to overcome the resistances of Margareth Thatcher and proceed towards the Maastricht Treaty. Italy is also the only country where the Lisbon Treaty, also thanks to the influence of President Napolitano, has already been unanimously ratified by both Houses of Parliament. I agree that faith in Europe should not be a religious matter, but I’m comforted by a strong and long-lasting continuity between the various Italian governments on Europe more recently between the Prodi and Berlusconi government and now, I hope, with a renewed credibility and willingness by the Italian people to stick to disciplined, economic behaviour. Domestically Italy might provide a helpful role in allowing the European Council and the whole of European Union to find quickly a sustainable and sound way to growth.
Thank you for your attention.
