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Transcription of the intervention of Italian Prime Minister Mario Monti at the European Business Summit

26 Aprile 2012

Monseigneur, Mr. President of the European Council, Monsieur Le Premier Ministre de Belgique, Mr. President of Business Europe, Monsieur Le President de la Federation des Entreprises de Belgique, Ladies and Gentlemen

I’m very honored by the invitation of Business Europe and FEB to speak at this important conference. The topic of this opening session is how can skills get Europe out of the crisis. I will take the liberty to interpret the word “skills” in two different ways: one is more obvious and pertinent to this conference, namely “professional skills”, the second slightly more daring, but I believe ultimately even more important, is in the sense of how can policy skills get Europe out of the crisis, because I believe that it is the factor which is in shortest supply at the moment in spite of so many good individual and collective efforts.

Professional skills at all levels of professional and labor qualifications are of course crucial and I believe that the emphasis that business organizations in Europe have been placing in recent years on this are to be commended as is the orientation given on many occasions by the European Council and the European Commission on this crucial factor for European growth.

This means that there are at least two implications regarding the broader policies scenario: one is that in this age of budgetary consolidation we would be well advised to preserve as much as possible the space for resources for training and for universities and for research of all types, fundamental and applied, and that all this needs to be encouraged. The second, is that it is indeed crucial to enhance workers’ skills as is obvious for those of us who have been engaging in labour market reforms in their respective countries. In the case of Italy this took place in the last couple of months and the labour market reform is now in the Parliament to be approved rapidly.

The Italian labour market reform addresses, I believe, two fundamental specific objectives that need to be taken into account if, as is the case of Italy, you are a big manufacturing nation, and this is the promotion of apprenticeships as the main port of entry towards a decent and sustainable work life, not to be used and abused as a source of cheap or free labour as sometimes has been the case. People are more likely to be productive if they are well trained and have a lasting relationship with the company they work for. The other key aspect of the Italian labour market reforms that was badly needed consists in moving towards the model of flexsecurity, which combines flexibility to the benefit of companies with security for people, as opposed to specific jobs, and conditionality requirements for what concerns access to subsidies as well as a number of very active labour market policies to help people into the labour market and assist laid off workers to quickly find new employment, hopefully with an upward adjustment in their skills. I believe that labour market reforms are a power vehicle for the skills that can get Europe out of the crisis because inflexible labour markets - I would call that ‘inflexsecurity’, in other words the combination of inflexible labour markets with the protection of individual jobs, are a huge distraction of scarce public finance resources into ultimately unproductive destinations and do not enable an upward training of workers skills.

But let me come briefly to the policy skills that I would also like to touch upon. How can policy skills get Europe out of the crisis? This is a topic that needs continuous reflection and debate and we are fortunate to have as next speaker the man who is at the center of this responsibility, the President of the European Council, who has given already very significant and powerful contributions to a greater focus on a growth agenda in Europe.

To make things extremely simple, which they are not, but for the sake presentation I would say that right now Europe needs policies that increase potentia growth that is not to say policies that would provide only an ephemeral contribution to growth. Potential growth needs to rely primarily on structure reforms in each of our countries. The objective of structure reforms is precisely to increase the growth potential of our countries. Let me also say, that I speak here on behalf of a country, Italy, that in the last twelve or fifteen years only had half of the growth rate enjoyed on average by the rest of the Euro zone and that because of a low growth potential. The reforms like the labour market reforms, like measures to liberalize the economy and open up to competition especially in the service sector and other reforms and the speeding of infrastructures are precisely meant to increase the potential growth rate over the medium term. These are the policies to be mostly focused upon and I believe that this needs to be done both at the EU and at the national level. Structural reforms enable us to act on the supply side of the economy and are the ones that at the EU and business level have always been strongly supported. I also believe that the most important structural reform is to give a new impulsion to the single market, which still remains vastly untapped in terms of its potential. This is very much on the agenda of the European Council following the last two European Summits and I know that President van Rompuy and President Barroso are focusing very much in an operational way to enable the next European Councils to come to definitive conclusions in this area. The pendant or counterpart at domestic level of the single market is to really make our individual economies function more as market economies, opening up not only vis à vis the rest of the EU in terms of single market integration but also removing various obstacles, various restrictions of market entry and various forms of corporatism, which preserve rents and privileges and generally play against the excluded, the young, in favour of incumbents, who are normally the less dynamic elements of society and economy. Of course these structural reforms - be it at the level of the EU single market be it at the level of the individual member states- cost political capital, because they imply overcoming strong resistances and lobbies and categories that are not going to benefit from the reforms and are generally louder and more effective in terms of their lobbying efforts, than the voiceless categories of the young of the less privileged who benefit from the reforms. So these are, I believe, the policies broadly sketched on which Europe at the EU and the nation level has to work on.

In my opinion, the policies to be avoided, because they would be an illusionary short-cut to growth, are the purely old-style Keynesian, demanded policies through the expansion of budgetary deficits and old debts. This would run against the recently-embedded discipline of the Fiscal Compact and would produce no good on a medium term basis for the European economy or the national economy. All the efforts that each of our countries is putting into budgetary consolidation, and Italy is among the countries that are deploying huge political, economic and social efforts in this regard with the aim of achieving budgetary balance already in 2013 - which will mean a primary surplus net of interest payments of 5% of GDP - all of this shows we reject old style policies of purely intentional growth through deficit generated demand growth.

But let me come to the last part of my intervention and this is to say that although structural reforms, not ephemeral deficit spending, is the answer, we must not neglect the fact that structural reforms per se do not deliver growth. Because if a country becomes more productive and competitive, but there is no demand for its products domestically or around it, growth will not materialize and, in effect, all the structural reforms and budgetary consolidation measures that we are now putting in place if anything are deflationary not creating growth. So we need demand to be there. I believe that we have to cater for categories of expenditure that at the same time create demand today and generate an expansion of supply tomorrow, which is not the case, for example, for government-consumption expenditure, but which is the case for well-defined, cross border or domestic infrastructures and investment projects be they private or public. Public investment is not necessarily worse for the European economy than private consumption, although the present framework of policy treats it in this way. This is not about putting into question the fiscal compact and the other budgetary discipline weaponry. But about avoiding that in two or three years those budgetary discipline instruments go through the same inglorious end of the stability pact in 2003. We must look forward to other growth-enhancing policy instruments and actions such as the increase of the capital of the European Investment Bank, cross-border infrastructures and a more appropriate treatment of genuine public investment in the national accounts. We need to consider all of this with an open mind not, as a way of eluding budgetary discipline, but as a way to make budgetary discipline really sustainable in the medium term and really enforced because it will be in a context of growth and not in a context of depression.

With a government which is somewhat atypical but supported by the three large political groups in Parliament - which in the past were hardly talking to each other - Italy is deeply committed to budgetary discipline and structural reforms. Having been possibly the first, several months ago, to put growth on the EU policy agenda, we welcome the greater accent now given by others to the growth objectives in the EU policy agenda and we believe that we should all together work very fast to have a strategic framework for growth without conflicting with the good work on the budgetary discipline side which, German impulsion aside, is something that is needed in European Union. Thank you very much for your attention.