Italian Growth Agenda_Ditchley Conference

7/28/2019 Italian Growth Agenda_Ditchley Conference

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Intervention of

Corrado PasseraMinister of Economic Development,

Infrastructure and Transport

Institute of International Finance

2012 Ditchley Conference

Stresa, July 13th 2012


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Italy has became an interesting laboratory. The Monti government marked

an important change, a shift in gear, in many aspects of our countrys

economy and society. I think it is useful to elaborate briefly on what we did and

on what we are doing. This is what I would like to discuss this evening with you.

First step: Italy switched from insufficient austerity to credible austerity

Last summer, Italy was rapidly sliding into financial turmoil, which waspushing the country on the verge of default.

Despite the previous government efforts, an additional austerity packagewas necessary in order to regain credibility in the eyes of financial markets

and among European peers.

A shift in gear was severely needed in order to convince the rest of theworld that the country could produce rapidly effective policy actions on

rigorous fiscal consolidation.

Our future was in our hands. The shift in gear on austerity was completelyup to Italy, Europe couldn't help that much, Italy had to deliver to exit from

a situation of real emergency.

The President of the Republic took over the situation being aware that onlya new technical government, supported by the large majority of political

parties, could produce such a shift. Hence, Monti government was formed

and came into office.

The new Governments first priority was to approve structural reforms inorder to shore up public finances, mainly in the following key areas:

o Pension system. We brought to conclusion a reform process startedin the mid 90's, achieving a fully contribution based system which

guarantee financial sustainability in the short as well in the long run;

o Taxation system. Taxes on property has been aligned with Europeanstandards, taxes on firms and labour have been lowered. A great

emersion of the tax base has been achieved through a more severe

fight against tax evasion.


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The effort has been paramount, overall the combined fiscal correctionproduced in August 2011 by the Berlusconi government and in December

2011 by the Monti government approaches 80 billion euros, roughly twice

the size of what was needed to enter in the EU in 1992.

It has been accepted by Italian people (not only by political parties, labourunions and employers associations, but also by citizens) with extraordinary

composure and unity because its need has been understood.

These structural measures put Italy in the position to achieve publicfinances consolidation, by strengthening the positive primary surplus and

by providing certainty over the achievement of a structural balanced

budget in 2013. Italy will be one of the very few countries, among European

Union members, to attain such a goal. Italy is now best in class, its public

deficit is under control.

As a consequence, the danger to reproduce another Greece, and a muchbigger one, was averted. Italy regained credibility in the world, returning

to play a leading role among European Unions member States.

Second step: from austerity to sustainable growth (i.e., how to combine

austerity and development)

However, austerity alone is not sufficient to grant fiscal consolidation anddebt sustainability. We had to shift gear once again, a second step was

required.

Austerity without growth is a self defeating strategy, likely to pave theway to recession, undermining the capacity to service debt and widening

social malaise with worrisome political consequences.

Unemployment and labour unease are mounting in Italy (as well as in therest of Europe). About 2,8 millions of people in Italy are currently

unemployed, and the area of labour unease reaches another 5 millions of

people, considering almost 3 millions of discouraged workers, 2,2 millions

of involuntary part timer, and a vast area of labour hoarding.


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In particular we had to rethink on:o how to combine austerity to achieve fiscal consolidation and policies

to foster growth;

o how to put together the short term with the long term;o how to reconcile competitiveness and social cohesion;o how to create consensus with leadership for change.

Austerity is a must, but austerity and growth have to go hand in hand andif they do so we produce sustainable growth. We need more growth in

quantity and quality. We need both sustained and sustainable growth, and

this is our target for the future of Italy.

Italy hasmany points of strength

which keep our growth potential well

above 2%.

o Globalization is an opportunity, because of:Our firms competitiveness, particularly the strengths in our

manufacturing, export-oriented sector with global leadership

in industries like automation, agri-business, fashion, home

furniture. In these sectors our exports keep growing at double

digit;

A very diversified economy with a strong manufacturing base.We are the second European manufacturing country;

Our entrepreneurial energies, though often hidden and latent,particularly among the youth, are an extraordinary basin of

dynamism and competitiveness, as demonstrated by our 5

millions companies;

o Our limited private debt together with Italian households' significantwealth (higher than public debt);

o Our large portion ofpublicdebt owned by residents;o Our soundbanking system which passed through the financial crisis

unscathed and remained firmly oriented to real economy needs;


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o No major economic imbalances: no bubbles neither in the housingmarket nor in financial leverage and asset prices.

To produce sustained and sustainable growth there is no silver bullet.There are no easy shortcuts. On the contrary it is necessary a

comprehensive approach in order to push all engines of growth:

o Firms competitiveness: policies aimed at boosting innovation andR&D, intensifying international projection, consolidating firms from a

dimensional and financial point of view, in order to sustain all needed

investments in these key areas;

o National system efficiency: investment policies in well functioninginfrastructures, education systems, justice and public administration;

o Dynamism: enforcing competition and merit based culture,facilitating the creation of new firms and innovative start-ups;

o Social cohesion: policies aimed at consolidating and modernizing thewelfare state to meet new social needs, reducing inequalities and

enhancing the protection system against the fear of the future.

Many important measures have already been taken by the newgovernment. Aiming at fully developing our economys potential, we are

working on the Italian Agenda for Growth that includes measures in

fundamental areas where Italy was lagging behind by a decade of inaction:o Accelerating infrastructures investments and lowering the costs of

not doing. We are modernising infrastructure and bridging the gap

with major European competitors;

o Creating a more friendly environment for doing business: by liberalising and increasing market openness and

competition in a wide range of sectors;

by simplifying the regulatory framework and reducingbureaucracy costs and constraints for firms and citizens;

by modernising corporate finance instruments to makemore appealing to invest in Italian unlisted companies, to


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liberalise access to international capital markets and to

widen financing opportunities.

I will shortly describe such measures: some of them have been adoptedwith the recently approved Law Decree Sviluppo, particularly focused on

fostering economic growth. Of course we are fully committed to find

resources to finance the Agenda for Growth implementation without

increasing public deficit or debt.

In order to fund the Agenda for Growth, resources can be consequentlyfound by:

o Selective cuts and increased capital spending by the public.Governments priority is to reduce unproductive spending: recently

released spending review is an important measure to reach that

goal. We expect to save 4,5 billion this year and 26 billion by 2014,rationalizing costs and reducing inefficiencies;

o Fight against tax evasion: we have already achieved importantresults, but the phenomenon is so pervasive in Italy (according to

estimates, it represents nearly 20% of our GDP, i.e. more than 250

billion) that we can get much more;

o Forthcoming public assets dismissal. Total assets owned by all thepublic administrations are huge. Some specific assets have already

been selected to be put outside the public perimeter: Fintecna, SACE,SIMEST.

Infrastructures

Economic crisis stems not only from the financial one, but also fromdeclining investments. Given tough national budget restrictions and

bank capital requirements, many important measures have already been

taken by the government to attract more private capital and fosterpublic-private partnerships. In particular, we introduced in advance

with respect to European Union, innovative financial instruments like

Project bonds. They are subject to a reduced tax-rate, very appealing for

specialised investors.


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We approved a wide set of interventions to simplify administrativeprocedures as well as to reduce the time necessary for project approval,

and we envisage to go on.

We have accelerated the construction of all sort of infrastructures:railways, roads, highways, ports, energy plants, etc... The total amount

of investments which have been pushed forward is 30 billion in last

seven months. We plan to reach an overall investment target of100

billion by 2015, including private and public, regional, national and EU

funds.

Liberalisations

Progress is made to improve efficiency and openness to competition inlocal public services. Incentives are provided to organise services in

optimal territorial areas, in order to realise economies of scale, to

encourage local authorities to use tendering procedures and to

discourage in-house management of services;

A set of measures have been envisaged to increase competition andtransparency in the gas and electricity markets, in particular with the

unbundling of the gas incumbent operator. Other measures have been

adopted to rationalize incentives to renewable energies and

consequently to reduce energy costs, both for families and forcompanies. We are setting up the new National Energy Strategy, based

on the following 4 main items: improving energy efficiency programs,

sustainable development of renewable energies, positioning Italy as the

European Southern Gas Hub, increasing domestic production of gas and

crude oil;

Competition in professional services is fostered by abolition of minimumfees and easier access. Specific measures are taken to increase

competition above all among notaries and pharmacists (by increasingtheir number);

Full liberalisation in opening days and hours has been introduced inretail commerce, with specific measures for some specialised sectors

(i.e., fuel distribution).


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Simplifications

A Simplification package has been approved by the Government. Itenvisages:

o A set of general measures to reduce administrative burden forSMEs, by eliminating unnecessary limits, permits and licenses for

business start-ups;

o Ex-ante authorisation schemes will be progressively abandonedand replaced with ex-post controls;

o A new simplified limited liability company, in order to promoteentrepreneurship, in particular by the youth.

The Decree Sviluppo introduces important measures aimed atfacilitating the restructuring of distressed companies, mainly through

quicker access to judicial composition with creditors, interim financing

and a new special form ofconcordato to ensure the continuity of the

debtor's business. The new rules will allow quicker management of a

debtors distress, under more transparent and protective conditions for

all parties involved.

The Decree introduces also an ex-ante control for the appeals of civilcases, providing that the appellate court will evaluate the merits priorto the process, in order to reduce the average time of civil justice.

Corporate finance

We determined to lower PA commercial debt (Central and Local PA),which is a key measure to reduce liquidity constraints among firms.

During 2012 we hope to mobilise about 20-30 billion, almost half of

commercial debt stock.

We refinanced the Central Guarantor Fund in order to provide betteraccess to bank lending for SMEs.


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We introduced reforms to regulations governing financial instrumentsand securities. The goal is to expand capital raising alternatives for

unlisted Italian companies, by facilitating issuances by such companies

of bonds and similar securities, commercial paper, profit participation

bonds and hybrid capital securities. These new rules represent a

significant step forward in the ability of Italian private companies toaccess to capital markets, putting them on a level playing field with

Italian public companies and other European companies.

Further actions

As you can see, the action of the government to boost our economy hasbeen very relevant. We have some more priorities for the future:

o Implementation of the Italian Digital Agenda programme, inorder to eradicate digital divide by 2013, to develop ultra-

broadband infrastructures and to promote e-government and e-

commerce;

o Definition of measures to create a better environment for start-up, with specific regard to those oriented to technology

innovation.

From austerity to sustainable growth also in Europe

Italy is a success story, and we think we will see soon the full effect ongrowth of the reforms adopted by the government. Anyway, single country

efforts in producing growth are not likely to be self sufficient. Particularly in

a single currency area where member countries are tied up by strong

economic and trade relationships. On growth, single countries cannot be

left alone: member states should do their homework on fiscal

consolidation (and we have completely done it yet!) but sustainable growthand job creation are also European issues. The national level and the

European level needs to work together on a common growth agenda . We

need unity and cooperation. We need an idem velle, idem nolle!


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Europe failure is not on public debt profligacy. Taking Greece apart,Ireland, Portugal, Spain, Italy's financial problems have not been produced

by an excessive increase in public debt. In cases like Italy or Portugal the

problem is associated with fully fledged lack of growth, in other cases like

Spain or Ireland it is coming from unsustainable growth based on excessive

private (not public) indebtedness. Lack of sustainable growth: thats whyEurope is nowadays under severe stress.

Lack of growth is a long lasting problem in Europe. While the globaleconomy is registering a positive trend, Europe has essentially stopped

growing, and, everything being equal, there is little hope of growth

resuming in the near term. This is a long lasting problem which has been

exacerbated by austerity. Since 1999, while world economy has recorded a

55% increase in GDP, the increase for both European Union as a whole and

the Euro-zone have been barely about 20%. This year the Euro Areaeconomy will shrink by 0,3% while the United States and Japan will grow by

almost 2%, Brazil and Russia will expand by 3-4% while India and China will

grow around 7-8%.

The most important way of tackling Europes sluggish growth prospects isto complete, extend and deepen the single market. We need more

European cross-border investments in infrastructures (TENs), energy,

innovation, research and new generation communications networks. The

European Budget and European Structural Funds should be more and more

oriented to investment expenditures in these key areas. Furthermore, it is

crucial to increase private investments, and to channel savings, which is

piling up in current account surplus European countries, towards

investments opportunities in deficit countries.

The European construction was based on mutual sharing of costs andadvantages of a single currency union. Indeed, there are several reasons to

be disappointed on how the crisis had been managed: the Greek problem

has not been tackled swiftly and properly when he was pretty easy to

manage. Contagion was allowed to gain room around Europe.

Anyway, recent resolutions are much more encouraging: also thanks to thePrime Minister Monti, and to his credibility among European partners,

some crucial problems have finally been addressed. The Eurogroup

meetings on 29th

June and on 9th

July stated that:


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o EFSF/ESM will be allowed to intervene in the secondary markets,through the ECB, in a flexible and efficient manner to address

market tensions on sovereign debt: countries which are complying

with current rules, recommendations and timetables, could use

existing EFSF/ESM instruments to reassure and stabilize markets.

However, resources currently available are not enough, any increasehas been discussed;

o EFSF/ESM will provide financial assistance without gaining senioritystatus. This is an important decision in order to recapitalize Spanish

banking sector;

o Proposals for a single supervisory mechanism, in order to achieve abanking union by the end of 2012, will be defined;

oA Compact for growth and jobs will mobilize 120 billion forimmediate investments.

We are now on the right way. Euro is an irreversible choice, and this mustbe clear and undisputed for all, within and outside Europe.

But this is not enough yet: vision and pragmatism have to return to beguiding values in the process of European construction, in the shared

interest of all member States, focusing on sustainable growth and job

creation.

We do not have any alternative, because if European policies will remainunchanged, social malaise will enhance dramatically. Unemployment in

the Euro-zone is expected to increase by 4,5 million (i.e., 26%) in 4 years:

we have to improve our efforts in order to avoid this outcome.

Also Italy is on the right way to revamp sustainable growth andemployment: we hope that other countries, and the European Union as a

whole, will follow our example and will define and implement an Agenda

for Growth, to restore confidence for the future. Time is now.

Documents

Italian Growth Agenda_Ditchley Conference