Cernobbio, Ambrosetti Forum, 4 September 2011 Competitiveness and growth Contribution by Corrado Passera Today's topic is perhaps the

most important of all. We must generate more growth. We must do so to create new jobs. We are underestimating the extent of the general unrest linked to the lack of jobs which is being felt both in Italy and across Europe. I am not speaking of the 2 millions of unemployed recorded by official statistics: I am speaking of the about 7-8 millions among unemployed, discouraged jobless people, underemployed, false VAT numbers, false students, redundant workers, etc.. That world of families in financial dire straits, that worry-stricken multitude of people, when the fear of failure turns into a mixture of anger and resentment. We must generate more growth to uphold our welfare. We are accustomed to taking everything for granted, to assume that everything will always be at everyone's disposal, that everyone will be granted retirement benefits or health care, or a free education. But be careful: with this level of growth, such conquests of civilisation are being seriously jeopardised. We must generate more growth, otherwise our government finances will dry up. A far from small number of people across the globe are starting to think that perhaps we will no longer be able to honour our commitments. It is unthinkable, but many feel it has now become an entirely realistic scenario. The ECB cannot continue to support our bonds for much longer. We can grow more, we know it, we know because this is what our export trends are telling us and this is demonstrated by the many unique traits possessed by Italy and that nobody can take away from us. We know we can and we have already shown it in more than one occasion. We must generate more growth in all GDP compartments: consumer spending, private investments, public investments, net exports. They are all objectives well within our reach. However, there is no philosopher's stone, no quick fix or "ready-made" solution. The only certainty is that we need an integrated plan combining all things together, a shared plan to follow through right until the end: a high level of commitment is required for all sustainable growth drivers to work together. We must do many things at once because, as we know, in today's real-world economy and society tout se tient (everything is connected to everything else). Number one driver: business competitiveness. Italy is already strong in this regard. Especially when it comes to small and medium-sized businesses, it has the ability, the drive and a wealth of business resources that can be found in few other countries. We must do very tangible, very concrete things that may benefit both entrepreneurs and those working in companies. Significant tax incentives must be granted to those who invest in internationalisation and innovation. We must favour those who invest in companies, make mergers easier, promote growth and strengthen the businesses themselves.

We must get our productivity back on track. This is perhaps the most important thing of all. Compared to our more direct competitors, over the years we have lost out a great deal both in terms of work productivity and in terms of salaries. We have low salaries and low productivity levels: it couldn't be any worse for a country. We must work in both these directions. It can be done. We must fill people's pockets, we must work on the tax wedge, on some compensation systems that are by now completely outdated, gaining steady ground in productivity. We are all aware of this, as we all work in a company: a joint effort is required, as we succeeded in doing in prior stages of our history. By doing this we could gain 5/10 percentage points in both these variables, which would be crucial to boost consumer spending and at the same time increase business competitiveness. We must cut back on energy costs because they represent a strategic weakness and because we are very vulnerable as a country. We must continue to do a good job in the credit sector, as we did during the first stage of the crisis. We must perform better on many fronts, even though our collective work pulled us through a staggering crisis two/three years ago: we came off the worse for wear, but still standing on our own two feet, in one team effort involving the government, companies, the banks. It was a tough yet rewarding challenge. Now we are yet again under pressure. Fortunately, we had set some ammunition aside and now we can keep going with our back relatively covered. However, we are now running a big risk: we risk seeing the cost of lending go through the roof. If we do not provide convincing answers to the concerns that have been raised over our public debt, the cost of bank and business lending may go well beyond safe levels. A way to stem this tide is to approve a concrete and credible measure for balancing government finances in a timely fashion: this is the very minimum we can do to stop this flooding river from bursting its banks and sweeping us away. Italy has shown that it is able to take adequate action in the management of government finances: we are one of the few European countries to already have a positive primary balance and therefore we are in a position to be able to break even overall. We must lift the cumbersome debt companies are burdened with as a result of payment delays both from the Public Administration and large enterprises. It isn't just a government issue, but the problem is also rooted in the supply and sub-supply chain, from very large companies downwards. We are speaking of something that can be quantified at approximately 100 billion of wrong debt encumbering a large number of small businesses. In short, we are called upon to redesign taxation in favour of enterprise work, utilising wise and balanced methods for rationalising indirect taxation and systematically reviewing taxation on financial yields, as we are currently doing. However, as we know, business competitiveness is not enough if the national economic system around it is not functioning, if the number two driver, i.e. the efficiency of the national economic system, has come to a complete standstill. And here the list of things to do is manifold, although some are immediately conducive

to growth. The infrastructural deficit has now hit figures to the tune of 200/300 billion: we need a structural plan of at least ten years as soon as possible to be able to bridge this gap in an efficient manner. The resources can be found: they may come from the public or private sector or from the European community. We experience on a daily basis, through our dedicated bank, to what degree the infrastructures, if carried out properly and by meeting the deadlines, are able to shape the productive face of a region, increasing competitive strength and the overall productivity of the factors employed in the area where they are built. We must invest more in training and education. Too many Italian youngsters drop out of compulsory education; too many high school graduates and university graduates struggle to find employment; too many company vacancies remain unfilled due to a lack of skills and adequately trained personnel. Again with reference to the national economic system, we must devote more resources towards combating crimes and, in general, towards fostering security and justice. One almost feels like commenting on the theme of justice would be to speak out of turn. We all know that, leaving all "ideological" issues aside, much headway could be made merely by adjusting the way justice works, especially civil justice. And this theme is not entirely foreign to economy or society: it is one of the most heart-felt issues, one of the reasons why we suffer more than others from a lack of foreign investments. Then there is the issue of the Public Administration, of the direct and indirect costs resulting from poor management. We must reduce the burden of bureaucracy on companies and send out crystal clear and unwavering signals of a cut-back on the costs of politics. However, we know from the experience of the best developing countries, that sustainable growth does not stem solely from competitiveness, but also from the rest of society, from its cohesion and dynamism. We know that, in many cases, despite things not working at their best, if there is the drive, the will and the ability to make quick decisions, it is possible to move mountains as though they were feathers and Italy can do a lot in this regard. Social cohesion means shared values, it means compliance with the rules, it means welfare. The welfare issue is very closely linked to growth because it is what gives us a sense of "it being worth it", the courage of facing the future in the belief that any inequalities may be, at least at the outset, curtailed and managed. This is an extremely strong driver of growth. On the welfare front, we do not start off on the wrong foot, quite the contrary. In the social security sector, we must speed up the completion of a reform that will put us ahead of others in terms of efficiency of the social security system. We have done it before and better than others, however the job is far from being finished. We must not let the health care system get out of hand: it may become an area of growth. We must do more for families, we must do more for integration, we must do more to include immigrants. The third sector and social enterprises can do a lot in this regard. The dynamism, i.e. the energy behind all this, is a crucial factor. Meritocracy is vital: we keep talking about it, but we never put it into practice. We no longer need careers based solely on seniority: talented people must be given a chance to climb all the way up the career ladder.

Then there is the issue of decision-making processes: on this front, federalism could present an excellent opportunity to clarify, once and for all, who does what, at what level and with what resources. The four drivers are like the four tyres of a car inside which we are all seated. It is enough for one blowout to put a spanner in the entire works. As a banking system, the commitment is all-encompassing, we have done our utmost, in actual fact we were almost accused of believing far too much in this country, with our 500 billion worth of loans to the national economic system, equal to nearly a third of the GDP. However, our trust in Italy's potential is absolutely well placed and we feel a duty to commit ourselves to the fullest extent. Everything must be sustainable, including from the standpoint of government finances: this is the final message and one which I believe we can all agree with. Our finances will only be sustainable if, aside from clearing the deficit - which we can do - we have the ability to show that we are capable of growing and reducing the public debt stock. Only once we have dropped below the 100% public debt to GDP ratio threshold, will we be able to feel safe. Hence, we must act swiftly both in terms of public wealth (with transfers, privatisations and contributions in kind) and by making a sacrifice, however small, also on the large private wealth. It is an acceptable sacrifice within the framework of coherent strategies. The rule is simple: if the profit and loss accounts are in order, the balance sheet will follow suit; if we can prove that the resources thus collected will not be sucked into a black hole of expenditure and waste, Italians will not find it hard to follow us. This, in conclusion, is the greatest responsibility we all have. Once this measure has been completed, and it must be done quickly, we must all set to working together on the growth plan and on reducing overall public debt. It is an objective that can and must be shared by all political parties, whether right or leftwinged, and the ways of doing so can be found. It is the duty of the leaders of this country. It is not a technical task, it is above all a large politically coordinated manoeuvre, because the opposition will be fierce, because the changes to introduce are radical, because the sacrifices and the benefits must be shared equally, because we must choose priorities wisely and with a forward-looking approach. Time is running out. Thank you.