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Chianciano Terme, 9 September 2011

UDC National Convention

Contribution by Corrado Passera at the round-table conference The Agenda

for Growth

Alberto Orioli:

What should or could the country do to overcome the crisis of confidence shaking

markets? Should we presume that the markets which have discounted a measure

worth a whopping 54 billion euros over three years are expecting a new measure,

version number six perhaps?

Corrado Passera:First of all, I would like to thank you for inviting me here today, because this really is a

time in which we need to gather ideas and act in haste to put together plans for

growth.

Before answering the question and coming to the serious issue raised by Mr Orioli

because today the problem really is one of credibility and a loss of confidence in our

country I would like to go back to what Mr Pezzotta said.

He asked, What kind of Italy do we want, and how do we measure a countrys

performance? Is GDP, for instance, a sufficient criterion? Obviously it is important for

understanding certain things, but if we were to choose an indicator today to give an

adequate assessment of the quality of our performance, we should choose a

parameter that tells us about employment, about an economys capacity to create

jobs.

Today we underestimate the hardship being faced, which is much more widespread

than what the statistics show. Sometimes, we are content to see that unemployment

figures are relatively stable, by which I mean the well-known two million unemployed

which is actually a huge number. What we fail to see, though, is the true extent of the

hardship that is growing throughout the world, in Europe, and especially in Italy. To

understand the depth of employment problems, we need to look beyond the

statistically unemployed and consider discouraged workers those who have given

up looking for work, the underemployed, precarious workers those who do not have

sufficient work to be considered employed, and then all the fake students and fake

self-employed, who are actually suspended from the workforce.

If we put together all the numbers, we come to six, seven, even eight million people

who, together with their families, are suffering profoundly.

This is the problem that needs to be addressed. It is clear that the means to do this is


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through growth. Not just through austerity, not just through cuts. Sometimes, even in

politics, means are confused with ends. The main objective must be that of kick-

starting growth sustainable growth, not the finance-induced kind and to do so we

must create jobs through structural measures.

This is the parameter which all our leaders, and not only our political ones, must

consider to be most essential among the means necessary for doing their jobs

properly.

The second, though equally important issue, which Emma also looked at, is that

everyone has to pull their weight. We all have to bear responsibility for everything.

The belief that everyone contributes to the common good through their selfishness, by

working in their own interests in a market pushed to the extreme, is well and truly

over. As a dogma it never worked, though in recent years it has been the source of

countless troubles. The truth lies elsewhere. Societies are held together by sharingresponsibility, by being cohesive in action.

Today, as Emma and Mr Pezzotta said earlier, we are in actual danger. For when we

speak of the credit spread, we are not just talking about technical matters tied to

finance. The credit spread means having or not having the funds to support the

welfare, pension, health and education systems. The credit spread means having or

not having the money to guarantee loans to businesses. Loans to businesses translate

into investment and jobs. So that damned number that keeps going so badly is not just

something for the insiders. It weighs heavily on the economic and social equilibrium

of the country and not just ours, but also on others that are much weaker than us.

We can achieve growth. Our industry is strong and, as we have demonstrated even in

recent times, we are able to export and hold our own on international markets almost

like no other. Our level of private debt is very low. Our banks are robust we are one

of the few countries in which the state has not had to spend a cent to save or prop up

its banks. And our welfare system works. In recent years, if you recall, all those famous

little professors considered social security, education and health to be a sort of dead

weight on government finances. Instead they are the true conquests of civilisation,

enabling society to hold together and look forward to the future without fear. Because

if people fear for the future they wont invest, they wont marry, they wont have

children, they wont consume, they wont do any of the things that fuel the energy

levels of society.

The final consequence of what I said Everyone has to pull their weight bringing

me to the issue of the sort of Italy as we want it to be, is that we can indeed save

ourselves. It is time to stop thinking that only Europe can save us. It is absolutely

mortifying, since we have all it takes to restructure and relaunch the economy. For as

long as we are country that needs saving, over which a member of the board of


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directors of the European Central Bank is prepared to bang his fist on the table and

resign, we will be a country that counts for nothing. If we want to sit among the

leaders as we did during Europes finer moments, if we want to reclaim that seat and

not become Greece mark II as we currently risk becoming, then we need to sort

things out fast, and on our own, relying on our own strengths. We can do it. The key

lies in sustainable growth.

We can return to growth, for the reasons I stated earlier.

You cannot grow, though, with a slap on your shoulders. Growth cannot be achieved by

makeshift measures or by simply making cuts. And certainly not by austerity alone.

Cutting expenditure can sometimes be necessary for certain cost items, but it can be

ruinous in others, defeating the purpose of growth.

There are many sectors and functions, from justice to education, investment to

research, in which we need to increase expenditure and investment. Bear in mind thatin recent years Italy has managed to accumulate a delay in infrastructure spending

estimated at 200300 billion euros.

Infrastructure is by no means a secondary issue. Better infrastructure translates into

greater competitiveness for businesses, and the system as a whole. If we set about

building with public, private and European funds 30 billion euros worth of

infrastructure per year for ten years, we would obtain an extra two percentage points

of GDP per year. Despite this, and despite the fact that the money is there, we

continue not to invest. This is just to say that to kick-start growth we need to put

everything in order and we need to all work together businesses, banks, government

and administration aware that, first and foremost, businesses must be competitive to

promote growth. We need to help those who invest, those who expand, those who

internationalise, and those who put money into their businesses. We need to make

sure that businesses are surrounded by a competitive, efficient system, which is by

suitable infrastructure, modern education and justice systems, and a public

administration that works. Under many aspects we are closed to investment due to

law and order problems and the slow machinations of our justice system. And we are

cutting spending there too. Are we out of our minds?

Competitiveness alone, though, is not enough. Countries which do not have a shared

system of values and mechanisms for cohesion, which are tied fundamentally to

welfare, are ultimately countries struggling to grow. Hence it is urgent, given the

context, to push ahead, as Emma said, with reforms to the pension system. We were

one of the first countries to do so, now lets finish what we started, lets do it fairly,

and lets deal with the issue once and for all.

Healthcare is a means of attaining both cohesion and growth at the same time. It is

one of the sectors with the most growth potential in the world, and one we are strong


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in, in spite of a series of shameful episodes in various parts of Italy. As concerns

welfare, we all know how weak we are on the issues of family benefits, immigration,

assistance for unemployed workers seeking to return to the job market, and fighting

new forms of poverty. These are all areas in which we need to invest more money.

The Third Sector is a key means of squaring the circle of a welfare system which the

private sector will never fund, and which the public sector increasingly will not have

the resources to support. We need to make a commitment to supporting it and the

world of social enterprises, because it is a fundamental cog in an important driver for

growth. You might have already spoken about it this morning with Marco Morganti: we

have launched Banca Prossima especially to create opportunities to work with the fifty

thousand entities which make up the Third Sector.

Then there are all the other drivers that are the true energy of a country, such as

social mobility and meritocracy. We need to pare back the idea of rewarding meritsolely on the basis of seniority. For us, true meritocracy primarily means good credit

and giving credit to the initiatives that deserve it, even where the business risk to be

taken might be higher, and of course knowing when to say no. First and foremost

though, meritocracy means deregulating sectors that are closed to competition.

But what determines a national economic systems efficiency more than anything else

is the speed of decision-making processes. Today we are completely at a standstill.

We have built a whole series of mechanisms that are too complex, too long and only

superficially participatory, which as a matter of fact guarantee the right of veto to

anyone. Thus, it takes four to five times the amount of time it takes in other countries

to do anything in Italy.

Nevertheless, this problem can be resolved.

Federalism offers a useful opportunity to sort out the tasks and duties of each

decision-making level, from the central government to the local municipality, so as to

understand who has the responsibility and the resources to do things.

The list can go on and on, but the message to be conveyed is this: we can achieve

growth, we have all it takes to do it and we have proven it, and we have the resources.

Once the budget is approved, we need to pull out the courage to activate a strong,

sweeping plan for growth that gets all engines firing.

We need to reduce our debt, if we want to save ourselves. This is not just rhetoric. We

have often been the leaders of Europe; we need to become a leader again. This will

happen through growth, which is measured above all by the number of jobs a country

can create.

Alberto Orioli:

Mr Passera, we are talking in the contest of the convention of a political party. In his


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address just earlier, Mr Pezzotta spoke of a national unity government.

We need to get all engines firing, but does the helmsman have to be the one we have

today? Is it capable of firing those engines or not?

Corrado Passera:

The role of government is most certainly an important one, but let me tell you that

much of the road, as on other occasions, can be covered by social partners. The world

of producers, businesses and trade unions can contribute very much to achieving

many of the things we have spoken of so far. In many spheres and in many sectors,

that has already been done.

In my view, politicians could take the world of social partners as their example, but

only if they manage to get talking and if they work together in unity, on both sides of

the political fence. Of course there are many things that will only work if you havegovernment, laws, rules, public funds and so on. We need to force them in this

direction and, as Emma said, if they do their jobs well we will be the first to applaud

them. But otherwise we will need to change, because we cannot waste time in putting

together an effective plan for growth that will enable us to bring about fast all the

things we have said.

Alberto Orioli:

There are various threads I would like to pick up on from previous addresses. Earlier

we spoke of what kind of growth we need, but with you we have not gone into

sufficient depth on fiscal policy, which I find interesting. Mr Bonanni dusted off the idea

of fiscal imbalance and the issue of tax evasion. Then the topic of a wealth tax came

up.

I am curious to know your opinion, as a banker and a financial markets man.

The G7 summit is currently underway and one of the topics of discussion is the

possibility of a Tobin tax on global financial transactions.

It is a chimera that often rears its ugly head. We have often expressed our perplexity

over it, as it would appear to be a solution that is technically too complex for practical

application.

Though it must be acknowledged that the global sentiment is turning on this type of

taxation, and some of the former technical complications could be rendered less

complex today.

Finally, I would like to pick up on the issue of minorities that block investments, which

is a huge ball and chain on growth.

And finally, let me launch a bit of a provocation. Much has been said of a rather

individualistic binge on the miracles of finance. Can you offer some self-criticism on


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the sector for our audience?

Corrado Passera:

Some of these issues are tied up together. Speaking of fiscal policy and investments, it

has to be said that one of the big changes that really is needed is the introduction of

effective rewards, in terms of fiscal incentives, for companies that pursue investment,

innovation and internationalisation, and for business people that invest money in their

companies to grow in size.

Therefore one of the objectives of fiscal policy for growth should most certainly be to

reward investment in technology, innovation, growth in foreign markets and in size,

and the capitalisation of businesses.

Then we have to work on modifying and reducing the tax wedge and social security

burden, which in Italy has reached extreme limits with respect to other countries, so asto put more money effectively into peoples pockets, if we want to see consumption

and growth take-off. And that is not incompatible with a rise in productivity.

There is a series of opportunities that we, all the social parties, can seize on to boost

productivity while at the same time boosting peoples purchasing power. It is not

impossible to do.

On the topic of tax evasion, if we really wanted to, and we all know this, a definitive

solution could be found to this very serious problem.

The figures shout out for revenge. Besides regular employees, as a matter of fact

nobody in Italy declares an income of over one hundred thousand euros, which is just

not possible. Three or four things are all that are needed, if we really wanted to.

We know where to find and recover the money to enable those who pay too much to

pay less. Again, if we really wanted to, it could be done.

As concerns a wealth tax, personally I would look at the issue with a clear, balanced

mind.

If we can assure Italians that all the waste and all the inefficiencies are eliminated

including those wound up with the costs of the political process and public

administration; if we kick-start investment and growth; if we put more money into the

areas that will help create a real future, such as education, justice and fighting crime;

if we can show that we have all done our duty, that everything that can be done has

been done to get growth and employment to take-off; if, at that point, we decide that

extra effort is needed to lower public debt, then I think we can start considering a

small wealth tax.

I believe that if Italians were sure that a wealth tax would not end up in the flames of

waste, and if it were proposed only after serious efforts were made to restructure

government finances and get the economy growing again, then they would be


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prepared to accept a wealth tax.

Of course, as Emma said, first we would need to sell those public assets which the

public sector puts to no good use, and to privatise those assets which the public sector

holds for no good reason.

Only then would we be able to say the emergency stage is over, lets give growth an

extra boost with a properly designed wealth tax, which gradually lifts the burden off

small incomes and progressively places it on higher ones. At that point, Italians would

respond positively to it.

The Tobin Tax is perhaps one of the very few things on which Emma and I do not

agree perfectly.

I have always said that this is something that needs to be examined very carefully.

There is no good reason at all not to have a micro-tax on transactions.

The idea would be to levy half a cent on each of all those billions of easy transactions,of buy and sell trades and deals made through a simple software programme tied to

any acquisition and disposal mechanism, that is a market, and in so doing raise

significant revenues, hitting those who trade on the stock market not as investors but

as speculators.

It is obvious that the big traders, who perform billions of transactions a day, are

against it.

I am not talking about a major tax calculated as a percentage of volumes or value. I

am talking about a small trifle per transaction, which would not obstruct or interfere

with any stock market transaction performed sensibly, with a spirit of savings and

investment.

I would not say no a priori I have always said so, and have even put it in writing.

Lets think it over, because at a time in which we need to make some big investments

to build the future, this could be a useful source to tap into.

I have been in banking only for a few years, so I do not feel any obligation to defend

the sector.

I have an industrial background; I have always worked in industry, whether public or

private. I am at home with a well-managed small firm, a micro-business.

I have always viewed, and will continue to view this job of mine, which I feel very

fortunate to have, with a certain objectivity.

Of course the conduct of some banks in certain parts of the world contributed

significantly to the crisis.

The crisis, however, has been caused by many things by macro-economic

imbalances at the global level, by bad rules, by inadequate liquidity policies, and by a

lack of supervisory controls. If only the rest of the world had had the controls that we

have in Italy, at least as concerns the banking industry, we would not have witnessed


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the disaster that happened.

Some actions were completely inconsistent not only with an ethical approach, but

also with the rules and with law. So again, this was a matter of supervisory control.

Banks most certainly contributed to the great financial crisis, which wreaked damage

in 2007, 2008 and 2009, before spreading to the real economy in the form of a real

recession, but they did so in very different ways for different types of banks.

An enormous contribution came from the most aggressive merchant banks, especially

those that live off market trading. Savings and loan banks contributed less, though

these banks, whose business lies with customers, were penalised the most, through no

fault of their own.

So different segments hold different responsibility.

The banks of different countries also hold very different responsibility. England, which

taught us the lesson, saw almost all of its banks go bankrupt or be nationalised notall, but almost. In America, they caused huge trouble.

Italy is one of the countries that played its cards right, and managed to sail through

the crisis without any great problems. Credit flow never dried up the figures show it

clearly. We have opened up our market to one of the most competitive sectors we

have national and international banks, direct and indirect banks, small and big banks,

and even Banco Posta.

So any analysis of the reasons for the crisis needs to be complete and exhaustive.

Could we have done more to avoid many of the errors that were committed? For sure.

Yesterday, for example, I held a meeting with my thousand managers in Turin. Our

business plan includes 150 projects for improving the way we do our job, so of course

there is room for improvement.

But if there is one sector in which Italy can truly hold its head high anywhere in Europe

and the world, as I have often had occasion to say with Emma, then it is definitely the

banking industry, where we have done some great work with the trade unions.

Thus, it is not impossible to do what Emma said earlier, to get more money into

peoples pockets and increase productivity. Just a few years ago we showed that it

was not impossible to make giant leaps forward in the way public administration

works.

We experienced, for instance, five magnificent years with the Italian postal service.

Poste Italiane was considered unrecoverable. It was like a metaphor for an Italy that

could no longer be recovered. So we got down to work together the company,

institutions (with Ciampi and Maccanico at the time) and the trade unions and we

managed to put into practice and make the most of a plan that looked incredibly hard,

almost impossible.

In this way we showed that it not at all true that we cannot recover from the brink of


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situations that seem doomed to failure.

Poste Italiane has thus become an upside-down metaphor not of an Italy that

cannot sort out its affairs, but of an Italy that can mend its ways and get back on

track.

I really wanted to say that, because I was involved directly, and it really was an

important experience for me.

Thank you.

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