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European Commission

Olli REHN

Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro

Speech by Vice-President Rehn at the Italian Parliament

Rome

17 September, 2013

Onorevoli presidenti, onorevoli colleghi,

Il dialogo con i parlamenti nazionali è un elemento chiave della nuova governance economica europea. Perciò sono davvero lieto di essere qui con voi oggi per parlare del cammino verso la ripresa in Italia e in Europa e delle sfide comuni che dobbiamo affrontare insieme.

I am aware that one of my countrymen has featured prominently in the Italian news in recent days. I hope that the signing of Kimi Räikkönen by Ferrari will be an inspirational move not only for Ferrari but also for Italy as a whole. But let’s be clear: talent alone will not be sufficient. Ferrari, like Italy, has always stood for tradition, style and quality craftsmanship. But in order to win on the global growth racetrack you need to design the most competitive engine and stay ready to change and adapt.

As the third largest economy of the euro area, Italy can’t afford to let its growth engine sputter. The engine requires urgent maintenance that cannot be held up by disputes in the pit stops. I hope now that Italy will grab the steering wheel with both hands and stay focused on the track ahead. The grip on the track, at least, is getting better, as the summer has brought encouraging signs that the euro area economy is reaching a much awaited turning point.

A gradual recovery is underway, and we expect it to grow firmer in the coming months and to speed up over the course of next year. This shows that our strategy of differentiated fiscal consolidation and economic reforms that support competitiveness is working and paving the way for a sustainable recovery of growth and jobs.

Of course, there are substantial divergences between our Member States. In some countries, including Italy, the most recent growth data have been disappointing.

In many Member States, unemployment remains at very high levels. Excessively tight lending conditions, especially for SMEs, remain a very serious bottleneck to growth. I am well aware of the difficulties that many Italian households and SMEs are facing to obtain affordable credit.

That’s why statements suggesting that "the crisis is over" are premature. We all know that this crisis is no ordinary cyclical downturn. Its origins lie in the large and unsustainable macroeconomic imbalances that were allowed to accumulate over many years. In the case of Italy, the imbalances take the form of very high debt levels and a long decline in competitiveness. In particular, the price competitiveness of the Italian economy suffered massively and unit labour costs have increased more rapidly than in the rest of the euro area since 1998.

That is why both in Europe and in Italy we have to embrace structural reforms. This will require hard work and political determination. There is absolutely no room for any complacency.

The European Union has consistently pursued a comprehensive strategy to fix public finances while implementing economic reforms for growth.

This has reinforced confidence in the European economy among market participants and the general public.

For investor and consumer confidence to grow further and to lift domestic demand, political stability is crucial. In the case of Italy, where the economy is still weak, political uncertainty is holding back much needed investments and recovery.

Against this background, the European Union has collectively asked Italy to take urgent action. The Council in July made a series of recommendations to Italy: reduce the public debt; implement reforms in labour and product markets; and improve the functioning of the administration and justice system. With one of the highest labour-tax burdens in the EU, Italy was also urged to shift the tax burden away from productive factors.

Three months on, where does Italy stand? Progress is being made to enhance the business environment, address the deep-seated problems in civil justice, and to fight the youth unemployment [youth guarantee]. But continued structural reforms are essential to enhance Italy's growth potential and tackle unemployment [July: 12% seasonally adjusted, ESTAT], especially among young people [July: 39.5%, ESTAT].

Moreover, the recent decision to abolish the property tax IMU on first residences for 2013 raises concerns vis-à-vis the need to shift the tax burden away from factors of production. We will assess the planned service tax from this perspective once the details have been agreed.

Earlier this year we were able to recommend to the Council to abrogate the excessive deficit procedure for Italy. The procedure is closed, but Italy will need to live up to its commitments – as the Italian government has repeatedly stated that it will.

Budgetary stability is essential if Italy is finally to put its very high public debt [around 130% of GDP] on a steadily declining path and see a sustained recovery of growth and jobs. I trust that the Italian authorities will take these concerns into account in their budgetary work this autumn which for the first time will be subject to assessment by the European Commission.

Honourable Presidents, Honourable Members,

The Economic and Monetary Union has gone through a major reform in the past three years. In a spirit of partnership, the Member States and the European Parliament have tasked the Commission to provide its opinion on draft national budgets. Our role is to analyse whether national policy choices are in line with the commitments undertaken by Member States at EU level. We need to make sure that the Member States practice what they preach in terms of fiscal policies and economic reforms. What does this mean in practice?

By 15 October, all euro area Member States must present their draft budgets for 2014 to the Commission and to the Eurogroup. In November, the Commission will assess these draft budgets to see whether the proposed measures are in line with the European fiscal rules and the relevant Council recommendations. Our opinion will be made public. It should be considered as an independent voice contributing to the debate on the national budget, which is ultimately decided at the national level.

If the draft budget is not in line with the commitments undertaken, the Commission will ask for corrections. And our fiscal rules will continue to apply. If a Member State breaches the reference values of the Treaty [deficit and/or debt], the Commission will have to take the necessary steps and open an excessive deficit procedure.

I am confident that the Italian Government and you as Members of the Italian Parliament are fully aware of the implications of these rules which Italy helped to design and supported in the Council.

With the recent new regulations, important reforms have been made and are being now implemented. With these, options for further fiscal integration under the current Treaty have been exhausted.

We are ready to take responsibility for greater economic and fiscal integration, even if our well-grounded recommendations on fiscal policy and structural reforms are sometimes criticised by Member States. But as long as the Member States do not fully recognise that reforms are the essence of economic policy coordination as prescribed by the Treaty, I fear Europe will not get very far with ideas for deeper integration.

A deep fiscal union can be only created through a profoundly democratic process, at both national and European levels. Any step towards increased solidarity and mutualisation of economic risk must be combined with increased responsibility and fiscal rigour – that is, with further sharing of sovereignty and integration of decision-making.

Moreover, at the current juncture, we must address the weaknesses remaining in our banking sector. Progress with developing and implementing the Banking Union is crucial to bolster market confidence and underpin long-term financial stability.

We took a major step forward with the adoption of the Single Supervisory Mechanism last week. The next is the creation of the Single Resolution Mechanism, which will aim to ensure that the use of taxpayers' money is exceptional and minimised. Any funding needed for bank resolution should thus come primarily from the industry itself.

Honourable Presidents, Honourable Members,

The Banking Union needs a sound and solid start. Rigorous asset-quality reviews and stress tests scheduled for next year are a crucial ingredient in our overall growth strategy.

You may recall that still last year, the speculation and fear among market forces of a break-up of the euro, starting with Greece, wracked as it was by political instability. In fact, rather than losing any members, we are gaining one: Latvia. Through its determination in economic reforms and fiscal rigour, in a demanding but relatively short process, Latvia has moved out of its adjustment programme and back to strong growth. On January 1, it will join the euro area. It has demonstrated the adjustment capacity and stability culture that are so vital for euro area membership.

Recent positive news from the European economy shows that our common economic strategy is working and paving the way for a sustainable recovery.

Our strategy is all about reforming the European economic and social model.

Not somehow nostalgically clinging to the status quo, since that would only lead to our economic decline.

Not dismantling the European model, because we believe in the combination of stability culture, entrepreneurial drive and social justice.

But, instead, genuinely reforming and modernising the social market economy, for the sake of sustainable growth and job creation.


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