Loading summary
Transcript61 lines
- [00:01]
A
Well, ladies and gentlemen, a very warm, A very warm welcome to this, which is the latest lecture in the LSE European Institute's Perspectives on Europe public lecture series. Our nose for the most current and lively public policy issues guided our hand inexorably towards an invitation to our distinguished guest today, who of course, is Italy's Minister for the Economy and finance since April 2013, and who also happens to be, as it happened, one of Italy's and Europe's most distinguished public servant. So you can imagine our pleasure when Fabrizio Saccomani accepted our invitation to speak on the future of economic and monetary union here at the lse. Now, apart from having arguably the most important and high profile and, how shall I put this? Challenging jobs in Italy, in Europe, perhaps, Fabrizio Saccomani has been Director General of the bank of Italy, Deputy Governor of the bank of Italy, Vice President of the EBRD based here in London, and many other important roles, including at the European Monetary Institute in the 1990s and the bank of International Settlements and the IMF. So we have more than circumstantial evidence that our distinguished guest knows more than a thing or two about economics and finance, which I'm sure can't do Italy any harm, I'm sure. Amongst his publications is a book which came out, I think, about five years ago. Is that right, Minister? Managing International Financial Instability, which I commend to you. We like speakers who set their sights high and our speaker this evening, Minister Sakomani, has certainly, certainly done that. And a heavy, weighty responsibility now rests on, on his shoulders. He will follow our usual format of Speaking for perhaps 25 minutes or so, and then I'm hoping that we'll have, I'm sure we will have a lively question and answer session and wrapping up round about 7:15 or so. Anyway, without further ado, instead of listening to me, we will move to the main attraction this evening, the only attraction this evening. Fabrice. Minister, the floor is yours. You're very welcome here to the lse.
- [02:55]
B
Well, thank you very much, Professor Fraser. I'm deeply honored to have been invited here to give you my views about the process of economic and monetary union. This is actually the third time I'm sort of here been invited here for a lecture. The first time was when I was Vice President of the EBRD here in London and I spoke about Eastern Europe and the role of the bank for Reconstruction and Development. And then I came here to present actually the book you mentioned and there was a very lively discussion at that time. So I'm very happy to be here again and the London School of Economics is a major institution and I was hoping that I would be invited here to speak about this subject. So the subject of my talk is the future of Economic and Monetary Union. In fact, the title of my speech is Towards a Genuine Economic and Monetary Union with a question mark. Now, the question mark is my own addition to the title of a report that has been presented some time ago by four eminent actors on the European scene. The President of the European Council, Herman Van Rompuy, the President of the European Commission, Barroso. The President of the European Central Bank, Mario Draghi, and the President of the so called Eurogroup, Prime Minister of Luxembourg, Jean Claude Juncker. You will see why I've added the question mark, you know. But before arriving at the question mark, let's review what has happened on the European front. I think this is a good moment to look at where we're heading in Europe because we went through a very severe crisis and I think the time has come for a frank discussion as to what we want to do with the European construction in the future. And it is also important in this country because the current government would like to have a referendum at some time, I understand, after the next general election. But still this is an important issue that needs to be addressed by everybody in Europe and including in the United Kingdom. I think the crisis has created a lot of shocks and at the same time I think it has pushed European institutions and governments to take a number of impressive measures to safeguard financial stability, to restore the sustainability of public finances in a number of countries, and to radically improve the surveillance procedures over economic policies. At the same time, this has changed completely. The way in which European economic governance is being conducted has changed the European financial system. The rules of the game and I think a number of novelties have been introduced. But at the same time the crisis has left us with a very negative legacy. Growth prospects have been reduced and they are rather weak and uneven. Financial fragmentation is an issue in the European financial system. And I think the credit development process is being hampered in a number of countries. And I think the flow of credit to the real economy is, is being interrupted in many cases or it is at an extremely high price. So I think this is the right moment to ask what are the fundamental aims and the ultimate scope of the European construction? As you know, since the Treaty of Rome, the. The policymakers of the time decided to put in the treaty the objective of achieving an ever closer union of the countries of Europe. Now, you know, after so Many years. We have to recognize that this is a concept which is very sort of heartwarming and very emotionally charged, but is also very vague. And I think the time has come to tell the truth about what is the ultimate scope of the European Union. Jacques Delors was a famous president of the European Union many years ago, used to say, quoting Jean Monet, that Europe was. Was bound to make progress with a mask on his face, you know, without revealing its true nature. Progress au visage masque. But this is, I think it's not acceptable anymore. People want to know whether what we are building is a common market with no rules, except perhaps general principles about fair trade, whether we want to build a confederation of states, whether we want to build a federal state or a super state, or just a monster bureaucracy that has no legitimacy whatsoever. So I think people have the right to know. And so, at least in what follows, I will try to explain what I would think would be my wish for the European construction. But first of all, I would like to go over briefly the reasons why we have created an economic and monetary union. And I would like to address this point quite openly and frankly with you, because there is a lot of. About the fact that this project was flawed in its conception and it couldn't work. And a lot of people maintain that the crisis that we've gone through is a proof of the fact that the system was flawed from the very beginning and that the crisis was bound to follow. Now I think my view is that the project of creating economic and monetary union was not flawed, was not conceived by a small group of technocrats. And what went wrong has nothing to do with the original design. I think we have to realize that the idea of countries that are closely integrated should not compete with each other with a manipulation of their exchange rate, with currency. Manipulation, I think, is a fundamental principle that was, I mean, widely shared Also at a political level and in Europe, we have had a long experience of exchange rate devaluations to improve export performance at the expenses of our neighbors next door who actually were producing the same goods that each of us was producing. So it was obvious that this kind of competition through exchange rate devaluation was bound to be only a temporary solution to the problem of lack of competitiveness. You know, and if the car you produce are not of good quality, you know, you can devalue as much as you want your national currency, but you're not going to sell more cars, you know, if your competitors cars are better designed, more efficient and so forth. I think this is a temporary Device which has the advantage of giving an appearance of restoring profitability and competitiveness, but which in fact delays the structural adjustments that countries or companies that are not competitive are bound to make in any case. So you only postpone the adjustment and in some cases for too long. At the same time, devaluation create the sort of trade frictions among countries. So there is a tendency for introduce protectionist measures and to retaliate. And this has again a negative impact on the volume of trade and investment and can be some sort of downward spiral. So I think this fact has to be taken into account. And we in Europe, particularly in the 60s and the 70s, we had a sequence of foreign exchange crisis which led to countries increasing interest rates in certain times, even at double digit level, in order to stem capital outflows and protect the exchange rate. Then devaluations, then tensions, uncertainty and so forth. So I think this was indeed a major reason behind the creation of a European Monetary Union. And I think, as I said, it was a name that was widely shared at the top political level. And it was clearly indicated in the words of prominent politicians like Helmut Kohl in Germany and Francois Mitterrand in France and others in other countries, that monetary union was the first step towards economic union, economic policy coordination and political union. I mean, you can find these quotations easily on any of the sort of Wikipedia type of source. So the fact that, you know, this was this project was not a technocratic dream, was also confirmed with the move towards globalization of financial markets of trade and so forth. And the monetary policy, coordination and cooperation in exchange rate was seen as a way to protect Europe from the oscillation in the exchange rate of the US Dollar, which were sort of creating impact of a disruptive nature in the foreign exchange markets in Europe. And of course, you know, with the progress in globalization, monetary union was seen as the instrument to protect the stability of financial stability in the European Union and avoid the risk of contagion coming from external shocks like then it happened with the crisis in 2007 and the following years. So the decision to go forward with the monetary union was also strictly connected with the progress in the creation of the single market. In fact, I remember that at the time the decision to create a single market in Europe came before the monetary union. And at that time a lot of people said the exchange rate risk is the only remaining barrier to the single market. You know, we have abolished all tariffs and restriction to trade. We have only the exchange rate risk. That is a cost that has to be covered, which is the last barrier to the full integration.
- [17:30]
C
So.
- [17:33]
B
This is the origin of the project. What went wrong was not the fact that the project was imperfect was that it was not carried out to its full realization. The decision to create the European Central bank, which is a federal institution in which all countries are represented, but which takes decisions for everybody at the center, was not followed by a similar development in other fields. It was a political decision, not taken by any technocrats, but again, a political decision to say, well, we have made enough progress towards federal system. Let's stop now for the moment and continue with a system of economic policy coordination based on what is called the intergovernmental approach, namely, in which there is no central authority like the European Central bank or like the European Commission that has the right to make proposal and guide the process. But it is up to the consensus of national governments sitting around the table to find a sort of a compromise solution. Now, de facto, this means that in most cases, very little decisions are actually taken because this system becomes more a forum for exchanging views and doing perhaps what is called peer review or peer pressure, in which, you know, people learn about what policies are being introduced in Germany or in France or in Italy, and try to understand what was the rationale, what have been the outcomes and so forth. But then, you know, everybody goes home with its own ideas and its own. So I think this is my view, the process was a process that implemented various steps. The process has been stopped at the creation of the European Central bank, and the rest has been left to this intergovernmental approach. So we were in the middle of this when the global crisis erupted, exploded. And so the response to the crisis was mostly devoted to create the institutions and the procedures that were not available before. So, of course, we had the European Central Bank. The European Central bank played a very important role in dealing with the crisis. But. The treaty that established the European Central bank did not give the ECB the power to intervene in the bond markets or to do certain type of operations, because its mandate is clearly defined. So we found ourselves that we were not. We did not have the instruments to deal with the global financial crisis with the contagion that this was bringing to Europe, and so decided to build these institutions and instruments that were needed. And, you know, I don't want now to give too many details, you know, and again, I think, you know, I can broadly group the measures that were taken into three categories. You know, the first were measures to address the immediate crisis situation. The second was to create mostly through a strengthening of the fiscal discipline. You know, one of the causes in which the crisis became so serious in Europe because it revealed the unsustainability of policies of fiscal. Of fiscal policies that did not pay enough attention to the growing level of indebtedness and the unsustainability also of large fiscal deficit over a protracted period of time. So there was strengthening of fiscal discipline that was achieved through creation of various legal instruments, a new stability and growth pact, the so called fiscal compact, integrated by the so called two pack of measures, which indeed give a lot of surveillance power and coordination powers to the strengthening of fiscal policy coordination by the again an intergovernmental body like the European Council or the European Council of Economic Ministers, the so called ecofin. Then the second group of measures was the idea to build firewalls to protect the spreading of contagion from one country to another, which had been also.
- [24:01]
C
One.
- [24:01]
B
Of the feature of the initial part of the crisis when financial instruments of a very toxic nature, like the subprime mortgages become widespread instrument to. To speculate and to sort of take more risks than it would have been prudent to take. So the idea to build a firewall was certainly using the role of the ecb, the European Central bank, which was allowed to operate as a crisis management tool, particularly through this instrument of the. Monetary transactions, direct monetary transactions, which in principle allow the European Central bank to intervene in financial markets. And also the creation of the European Stability Mechanism, which should be. Is entitled to provide financing for systemic crisis in the case of countries that have to carry out fundamental adjustment in their. In their economic policies. And then the third pillar of the measures taken was to. And here I come to the subject of this conversation to reconsider the architecture of the more European economic and monetary union. And this is actually the report that was prepared by the four presidents which I mentioned earlier, that was discussed in 2012 and which includes a sort of a roadmap with precise time horizons and which should basically lead to strengthening and creating a genuine economic and monetary union. Now, the first stage of this process, which initially was thought to be completed by the end of this year, so we don't have much time left. And the objective was to create a system to ensure the fiscal sustainability of economic policies of member countries and also of breaking the links, the vicious link between the risk of sovereign which is associated to the high debts of sovereign countries and the risk associated with the banking system. The two have become increasingly interrelated, creating a sort of a vicious circle of negative expectations whereby a country with a high debt would have a negative impact on the solidity of its banking system. The banking system, a weak banking system would require assistance from the governments which would have to increase their indebtedness and so forth. So there would be. So the idea was, you know, to break the link between these two risks and re established financial stability in the European banking system.
- [28:32]
D
Now.
- [28:34]
B
So to achieve these objectives, one instrument is a strong framework for fiscal governance along the lines that I have described and which are the fact of being implemented. The second element is the creation of this, strengthening the project by creating a so called banking union, because we have a monetary union, economic union. But what was missing is a banking union. And the banking union is defined as a system in which you have a single authority to supervise the banks or banking supervision and surveillance. And you have a system that. A single system to assist the banks that are in difficulties and a single system that would provide insurance to, to depositors that they would be reimbursed at least up to a certain amount if the banks was going to fail and the deposits would be in danger. So this was supposed to be achieved in the first stage. And in fact this project of the banking union is making good progress, but will not be achieved by the end of this year. It will be probably achieved by the end of next year. And you know, much progress is being done in creating a single authority to supervise banks that will supervise all the major European banks. But still lack of progress is being made is to be recorded in the other elements, namely the so called single resolution mechanism and the deposit guarantee scheme. Now the second stage of this project of this roadmap outlined by the fourth by the four presidents, was creating a system of. Convergence of so called structural policies. You know, one issue that is constantly debated in Europe is that we have not carried out structural reforms. The system, the European system is still not sufficiently competitive with countries like China or the United States that are more competitive. And so we need to have structural reforms. And while the surveillance at the European level has been concentrated on fiscal policies or monetary policy, which is indeed conducted at the federal level, there is no mechanism to monitor the implementation of this reform. So the idea would be to introduce in this second stage a system of. Contractual arrangements. I mean, the words are not very, very pleasant in the sense that there would be a sort of a contract signed between a country and the European Union in which the country takes the commitment to, to do certain structural reforms in exchange for some form of solidarity, financial support and solidarity. So this is still in a rather vague stage and discussions about this is just initiated. And again it is of an element of discussion to decide whether, you know, the instrument of this contractual arrangement is indeed the best system to promote coordination among countries or is not just a sort of a system of bilateral arrangements between individual countries and the European Union. Then the third stage was supposed to be the stage in which there would be the creation of what is called a fiscal capacity. Here again, the words are not very eloquent, you know, because fiscal union would be better. That would imply that there would be a gradual transformation of the, of the, also of the fiscal, of the debts accumulated by individual countries would be gradually taken over by, by the European Union, had become consolidated, that of the union, not of individual countries. Now this is something that Alexander Hamilton conceived for the creation of the United States of America in order to achieve sort of an, the agreement of these independent states that were still having very different type of fiscal policies. But it is indeed a major issue still debated in which there are strong views opposing it because the idea of putting in common the debts of individual countries is seen as some sort of.
- [34:57]
A
A.
- [35:00]
B
I mean, it entails moral hazard because it would bail out countries that have not been able to follow proper policies. And then in the last stage, this report talks about strengthening democratic legitimacy. And again, you know, one would want to see more clear reference, you know, are we going to political union? Are we going to have a federal state or a confederation or what? You know, instead we're talking about democratic legitimacy. And you know, what is it democratic legitimacy in the construction that we are, we are building. So there is an element of ambiguity again, which is certainly not very useful. So where are we now in the form of implementation of this project? Well, unfortunately, we have not made much progress. And there is also the feeling that the element of urgency that was initially associated with this project, we need to explain to the people of Europe what do we want? Has somehow decreased. And so as I said, there has been progress in the banking union, in the fiscal coordination policies, but very little has been done beyond that. You know, the question of the fiscal union, the question of the political union. And so these are still very much, very much left in the vague. One positive element is that the European Commission, alongside the report by the four presidents that I've just mentioned, issued a blueprint for again, making progress towards monetary. True, they use actually different wording because they say they talk about a robust and genuine monetary union. So there is an element of strength. And indeed the European Commission is much more innovative and much more proposing innovations, particularly in the field of the so called fiscal capacity, where they envisage the gradual possibility of, of the European Union of creating a mechanism for the redemption of the public debt of European countries and replacing it with debt issued by the European Central Authority. And also they advocate for the creation of a European treasury that would have the task of managing the fiscal capacity, as it is called, and the issuance of sovereign debt. So the Commission blueprint, which as I said, is more innovative, it also a little more explicit on the need for a political union. And I think it is important that it is the recognition that we need to move away from this intergovernmental approach that I mentioned before. Because in order to change this distribution of powers within the union, you need again a change in the treaty. And because if you don't do that, then the intergovernmental approach implies that national parliaments would have to play a much greater role than before. Because if you have a system in which decision making is at the European level, is decided by European instances like the European Council with the proposal of the Commission and the role of the European Parliament, then I think it has its own legitimacy. If instead you delegate to national governments to take decision in some form of intergovernmental groupings, then national parliaments would tend to micromanage the decision taken by the national government. You know, just to make the issue clear, you know, the government of Germany is obliged to obtain the approval of the German Parliament every time there is a proposal to activate one of these European Mechanism to support a country in crisis or to deal with a crisis situation. So you can imagine that, you know, if you have a fire in the village and in order to authorize, you know, the fire brigade to use the water, you have to have the permission of the city council and so forth, that, you know, the fire will never be addressed. You know, so I think we have a system in which decision making is becoming very much, very much, very much impossible to achieve efficient results. So in conclusion, what does that mean for the prospect for Europe? As I said, we are at a difficult moment. We have the European elections next year. Anti Europe parties are gaining strength in each country, including countries that have been the founding members of the Union, like Germany, France, Italy, the Netherlands. And people speak openly about the possibility that in the next European Parliament there would be a majority of anti European parties divided by different nationalities, but sort of unified, united in the common aim at going backward. Now, I think, in my view, if that happens, it will be a disgrace for Europe. You know, we would revert back to national protectionist policies. There will be a lot of negative impact on trade and investment. And, and I mean you are young people and so you are accustomed to travel freely in Europe, but there were moments in the not too distant past in which you needed to have an authorization to buy foreign exchange to go to a given country and not above a certain limit. And Eurail Pass will no longer be possible because there will be the different currencies and the exchange rate fluctuation will be impossible to cover in an efficient way. So I think, you know, we have to address this issue very seriously and I think we have to make Europe more proximate to the needs of the people. We have to make the European Union more efficient and more able to respond. Now, I don't want to make a long story already too long, but I would like to recall what a dear friend of mine who passed, passed away prematurely, Tommaso Paduas Chioppa, who was a keen observer of European institution. And his point was that Europe does not need more powers. I think it needs to be able to perform the power that it has under the treaty in a more efficient way. And this is the crucial issue at stake stake today you know, there are lots of policies that could be left to national governments and to be performed in a purely national context. But in a global economy, you know, the protection of financial stability, the need to embark on a strategy of, to fight, to fight recession at the regional level, to fight unemployment, particularly among the young people, which is a common disease all over Europe needs to have a more efficient and integrated approach. And the only way to do this is in a very simple way through majority voting. Now at present, all decision in, in Europe are taken by unanimity. So that means that every country has a veto power. And that I think is not very conducive to efficiency and also to the ability of the European Union to be close to its citizen. Majority voting would mean moving more towards a federal state. Well, yes, but you can, as I said, regulate what are the issues that are left to the competence of the nation states and what is done at the federal level. I think in the United States, the state of Rhode island doesn't have a veto power on what the United States states are doing. You know, while Slovenia or Finland do have such a veto power. So I think this is the, this is the challenge for the future. And I think, you know, it is a challenging job. But I mean, I leave it to you young people that have to re state what the priorities for the European construction action. So no more progrese or visage masque, but openly say what we want to achieve. Thank you for your attention. Thank you very much.
- [47:09]
A
Well, Minister Sakomani, thank you very much for a comprehensive, very wide ranging and also spirited and opinionated presentation which I think judging from the reaction, the audience has enjoyed very much. But they're going to enjoy just as much the opportunity to put some testing questions to you. I'm sure we have a little bit of time for that. Can I ask you please to indicate whether by raising your hand whether you would like to ask a question. Please give your name and your affiliation and please keep it short and sweet. Don't try to smuggle the second question in under the COVID of the first, please. And Minister, are you happy to take questions in say twos or threes or do you want to take them individually?
- [47:52]
B
Well, yeah, whatever. I think, I mean if you answer questions each one by one, I think you are more to the point, if you try to sum it up, you might answer a question it was never asked, you know, so.
- [48:09]
A
Exactly that's my feeling as well. Okay, good, so we'll make a start. The gentleman at the back in the jacket with his hand raised who caught my eye so quite early. There's the other gentleman. Okay, we'll try to. Well, the gentleman, you're holding it. The fickle finger of fate has placed the microphone in your hand. Please ask the question, but at some point I will go to the gentleman at the back who had his hand raised as well, please.
- [48:34]
B
Yes, thank you.
- [48:35]
C
My name is Stefano Bonfa, I'm from Italy, based here in uk. I think you have done a very excellent speech tonight and it looks very modern. You see Europe like Europe in a platform as a service. In other words, you try to eliminate the, let's say, try to eliminate the parliament and to have there's a direct contact with the citizen. This is what I think, my understanding is this is very modern, let's say approach because what we needed, we need some kind of, let's say platform from Europe where everybody can access. Now what is missing in this talking is the concept of how you can reach this objective if you don't have an open access to the information. Still the different nation are close each other so there is no possibility of accessing and to create this new approach towards the citizen. So the question is you need more, let's say bottom up approach, more knowledge from the bottom and develop the strategy and not vice versa, where we have more approach from up, from top down, where you can start with policy, financial and then you can develop your monitoring economic system where you can really, let's say, evaluate and monitoring these strategies. This still is not there yet. Thank you.
- [50:18]
A
Would you like to.
- [50:19]
B
Yeah. Can I speak? No, I don't.
- [50:21]
A
I think the microphone that's on you should carry.
- [50:26]
B
Now perhaps I was a bit misunderstood, you know, when I spoke about the need for Europe to become closer to the citizens, I meant to be more responsive to what people actually need. And in terms of reaction to the deterioration of economic activity, deterioration of the employment situation, of tensions in the financial markets and so forth, you know, the systems that we have developed allow Europe to respond to these crisis, to these tensions, to these needs only in a very long process, you know, and sometimes the ability to understand the need for quick intervention is lost. You speak of a different issue, you know, direct access, transparency, this is all important and I think we are making progress in this direction. In all already now meetings of the so called ECOFIN Council of Economic and Financial Ministers, there are certain sessions that are open to the public, you know, so particularly the sessions that lead to specific decision making. So from this point of view, progress is being made. But I do not think that we can have some sort of direct voting by the people because this is perhaps a little too far fetched and perhaps open to possible manipulation. I think, you know, the fundamental process of a delegated democracy in which the people vote for their representative and then the representative take the decision in Parliament, I think can be improved in terms of transparency, access to data, to information and so forth. But I don't think it can be replaced by sort of direct access either via Internet or whatever new technology, because as I said, at present the risk of manipulation and distortion are very strong.
- [53:02]
A
Thank you. Thank you very much. Actually, just whilst you're on that, I've been very struck by how many grassroots online democracy initiatives in Italy. There seem to be, it seems a country which is particularly active in promoting this kind of democracy more than most other.
- [53:18]
B
Yeah. But also in the United States I think, you know, they have, I mean they have led electoral campaigns or promoted new ideas for political action through this grassroots movements. But still the decisions are then taken by the Congress and I think this can be improved. But the, I mean I, I'm afraid that this process of direct democracy is mostly, it could be used to sort of suggest new ideas rather than implementing legislation. I mean, legislation is a very complicated process and cannot be done in an improvised manner.
- [54:13]
A
Thank you very much.
- [54:14]
B
I think there is the gentleman who.
- [54:16]
A
Was actually, I hadn't forgotten him, but I will keep faith with him. So the gentleman at the back, then. Graham Bishop? Yes. Yeah, please. Thank you.
- [54:25]
B
At last, my name is David.
- [54:28]
A
The question I'd like to ask you.
- [54:30]
B
Is where are you from?
- [54:30]
A
David lseling. So I'm not part of the university, but the question I'd like to ask is what future, future crisis do you see in the future, and how does this framework help really to avoid the way the last crisis of Greece happened?
- [54:50]
B
Well, I think, you know, there is the risk that, as it happens, you know, with the generals that are accused to be fighting, always the last 20, you know, we are trying to now create the instruments to deal with financial crisis, but maybe the next crisis could be coming to Europe through a combination of stagnation of economic activity, high unemployment among the, particularly among young people, and then disruptive measures that would bring us back from the process of integration, thereby creating more fragmentation, not only in the financial markets, but also in the trade markets. And, you know, I remember that there was a book written by an American historian, Harold James, who wrote a book entitled the End of Globalization. And the book was issued only a couple of years ago. And obviously people thought that it would talk about the current crisis. Instead, he was talking about the end of globalization in 1914, because there was indeed an era of globalization between 1870 and 1914, and then the World War I sort of disrupted all this. And then we went through 30 years of protectionism, trade retaliation and competitive devaluation of currencies, and then to another world war. So I think this is a situation that needs to be quickly addressed, you know, because Europe is a continent where, you know, the population is aging. And so there are a number of problems also in terms of sustainability of the welfare state, you know, and if the young people are unemployed and the old people get older and sicker, then there is a sort of a fiscal imbalance of major proportion that needs to be addressed. So I think the next crisis is a crisis that could be of a more traditional nature in the sense a period of stagnation in economic activity that may lead to high unemployment and then crisis of social and economic nature, jointly together. Thank you.
- [58:00]
A
Yes. Graham Bishop, this is a gentleman. Yes, you go to my. Crank it.
- [58:04]
E
Graham Bishop.
- [58:05]
B
Hi, Graeme. What does she minister?
- [58:08]
E
Thank you very much for your comments. And I noticed that you laid out how the improvement in collective governance has happened since the crisis really began. In two weeks time, we start the fourth iteration of the European semester, this annual process of bringing together the overview of the governance. I was a bit disappointed, to say the least, to read that only I think it's 15% of the proposals which have been approved in the past few years have actually been implemented by the member states. Now in a year's time, you will be overseeing the start of the fifth round. So what can you do? What do you think you can actually do to make sure these very powerful proposals for improving competitive competitiveness are actually put into practice by the member states? So there is this greater collective economic governance.
- [59:04]
B
Well, this is one of the things that keep me awake at night thinking about the presidency of the European Union in now sort of, you know, eight months and the preparations that are required. You know, in fact, one of the purpose of my visit to London was to start talking to the UK government, you know, about how they view the situation in the period ahead on European coordination. But you're absolutely right. And I think we need to find a way to implement those recommendations in a way that people see. I mean, the countries involved see the benefit rather than forcing them to enter into a contractual arrangement that might face enormous political resistance at home and be considered as yet an additional form of interference in national domestic affairs. But indeed, you know, Europe needs to be more competitive, otherwise we are going to be becoming sort of colonized by the former emerging countries who are soon to emerge in full force and displace us from our privileged status.
- [61:01]
A
Thank you. Another question, lady member of the audience. Lots of gentlemen in suits and things, but yes. So the gentleman in the yellow jumper just sitting on the edge there.
- [61:22]
D
Tommaso Milani, PhD student, LSC in your speech you did not openly refer to fiscal transfers as a viable policy option to stabilize the monetary union and to address the ongoing issues of permanent current account imbalances. So my question is. Well, you didn't openly talk about that just because you think that at the present moment there are not viable, politically viable options given the strong opposition coming from Germany and other North European countries. Or maybe because you think that this fiscal transfer would allow less competitive countries just to delay structural reforms even further. Thank you.
- [62:15]
B
Well, I indirectly alluded to this issue when I spoke about the sort of the meaning of the so called fiscal capacity in the blueprint prepared, I mean, outlined in the report of the four President. I think I said it is a major stumbling block at present because of the reasons that you have mentioned. You know, transfer union is considered to be anathema in a number of countries, particularly Germany, because it is seen as a way to bail out countries, mismanage their finances. And also for the reason you also mentioned that eventually we'll delay adjustment by Solving the debt problems that these countries have accumulated, they will have no incentive to carry out the structural adjustment measures. Having said that, I think I see the need at some point, if this union has to really evolve into a political union to. In which, if not for the past, but at least for the future, there would be a joint responsibility for the issuance of debt and for the management of that debt. Because I mean, at that point, I think the spread between debt issued by Germany or by Spain or Italy or will be the same because, you know, the. And that would be a powerful element of convergence in the fiscal situation would greatly facilitate the elimination of the financial fragmentation that we are experiencing. Because, you know, the spread, the sovereign spread is the first step on which then you build the banking spread and then the spread that the enterprise sector is going to pay. And so that creates uneven credit conditions across Europe. So I think this is an inevitable step that cannot be addressed entirely by the European Central bank through the promise of intervening in the bond market in case of crisis. It needs to be addressed structurally. That's why, you know, even in Germany, some people have outlined the idea of creating a debt redemption fund which would not remove the responsibility of the country that has created this debt, but would allow its redemption over a longer period of time, guaranteeing that there will be no losses for the creditors and so forth. So I think through a combination of these two instruments, I mean a gradual replacement of future debt through community debt or union debt, and a sort of a mechanism for that redemption, you can really make a lot of progress in the field of giving a sense to a fiscal union.
- [66:05]
A
Any more questions, please? Yes, the lady in this striped black and white stripe, that's you? Yes, thank you very much.
- [66:15]
F
Thank you. My name is Gillian Capiero and I'm an MSc in Criminal justice student here at the LOC. As we progress towards or as we developed monetary union, we progressed towards a fiscal union. Something that we enable is organized criminal networks to pass through the continent in facilitated ways. And you mentioned in your comments that the European Union does not need to enhance its powers, rather needs to act upon the ones it already has, but the ones it already has in terms of law enforcement, criminal control, don't quite function like. Don't quite function an ideal way. So how do you suggest we limit the criminal externalities of increasing fiscal and financial unions?
- [67:05]
B
Well, that's a very interesting question, I must say. I didn't think of that, perhaps because of my education as an economist, but I do see the implications. And I mean, I thought this as to use this argument that we need to strengthen the existing powers, not in a sort of. As a precluding further developments in other areas, but I think at the present stage of the debate in Europe, it is perhaps more conducive to an agreement if you clearly define what are the areas in which you want to strengthen the power at the center. I think the field of criminal justice, law enforcement is obviously another area where you need to have some form of stronger coordination, harmonization and so forth, you know, Otherwise you're going to have some sort of arbitrage of justice systems, you know, and in the end. But we are, you know, in Italy, we are witnessing now this problem of the immigration coming from North Africa and the Middle east and so forth, you know, and these people that come to Italy, to this small, tiny island which is closer to Tunisia than to Sicily, they go there because this is the sort of the southernmost European symbol, you know, and they want. They want to. Once they are there, they consider themselves free to move to any European countries. And most of them actually want to rejoin their families in Germany or France, and some of them also want to stay in Italy. But it is a European problem, and Europe is recognizing this issue only lately. And eventually, you know, there is a tendency to consider that these people, you know, some of them are criminals that are. So they should be treated as criminals and actually sent back, you know, and others, you know, they are political. They seek political, political asylum, so they should be accepted. But then when you have a boatload of 500 people who have been sort of almost starving in the high seas, you know, how do you decide who is sort of a criminal and who is a seeker of political asylum? You just bring them on board and then you try to manage one way or the other. But at some point you need to have a European approach to this problem because, you know, there are similar situation in Spain, southern Spain and Greece, and probably in the future also in other Mediterranean countries like Albania, Slovenia and others.
- [70:20]
A
Thank you. Yes, gentleman at the front. And I'll try and skip through three very quickly, keep them short and sweet. Then corrado and then a gentleman at the back.
- [70:32]
B
There are some people there, you know.
- [70:34]
A
The gentleman at the back. Thank you. Yes, please. Yes, thanks.
- [70:41]
G
I'm Davidenturi from Chatham House. I would like to ask you if you could be a bit more specific on the priorities that Italy would set for its period as a chair of the European Union in the second half of the next year, and also with respect to the need of, like, the redistribution of internal competitiveness in the eu. I think it's very important that you move forward in the institutional reforms towards the banking union and so forth, but also with respect to these macroeconomic issues and also the relationship with Germany, and I think Italy is maybe the most indicated country to start addressing this very important issue in Germany. So if you could say something more, thank you very much.
- [71:29]
B
Well, certainly the agenda of the presidency is going to be crowded by many issues, you know, but there is perhaps a consideration that has to be made at the outset. There has been indications, but from certain countries, including the United Kingdom, but also Germany, that they would like to see modification of the existing treaties to accommodate very different needs and requirements. But, you know, as the country with the chairmanship, I would like to know as soon as possible whether, you know, we are going to discuss a new treaty in 2014 or whether we are going to discuss the implementation of the directives that we have already put on the table within the existing legal framework. That is going to be a priority condition for determining what are we going to do. But. I think, as I mentioned earlier, we should address the question of sort of promoting fostering growth, recovery of economic activity, fighting youth unemployment, the highest priority because of the risks that we are running. And time is going to be short. I mean, actually this should be done now because, you know, the European elections are in the first half of 2014. And so I hope that we don't find that we have, as I said, an anti European Parliament in the second half, because that would be a serious disgrace. So we need to address this as a top priority. And I hope by the time we have the presidency, we can sort of foster a process in which there would be a strong coordination by a strong coordinated action at the European level and also at the level of national government, because obviously unemployment is in each country has its own features and so forth. But I think one should be able to use the available instruments at the European level to the best, the best possible way, because so far not enough has been done very quick.
- [74:23]
A
Corrado McCarren, we have time.
- [74:27]
H
Corrado Macchiarelli, European Institute I have a practical question which is also a bit provocative, if you want, because you say actually you talk about integrated approach for structural reforms, and in my views, of course, many employment strategies fell short of their objectives, also the European level. And so what's your view? And if you could spend some words on how do you see an integrated approach in the sense of fostering people to travel more in Europe, in a sense, because now what we observe is that There is a certain limited mobility among young people. And of course, as a way to fight youth unemployment, of course one would like people to, unemployed people in Italy to travel to Germany, but still it seems the structure of the forms are limited to national borders. So to which extent do you think an integrated approach of this kind could really work? And what are the measures that the government is currently putting in place in Italy in this respect? Like making exchange programs compulsory? Could be an idea, for instance.
- [75:35]
B
Thank you. Well, I think you also, in a way answered your own question. The answer is yes. I think labor mobility is a crucial ingredient and there are lots of impediments that. I mean, one issue that we are trying to deal with is the transfer of pension rights from one country to another, because people start working in one country, then they lose their job, they want to move to another country, but then it's not obvious what happens to their pension rights. And. But there are lots of other impediments and these are. It is indeed a top priority. But you know, the European Union has put up a scheme, the so called youth Guarantee scheme, which is indeed a European scheme for, for sort of providing resources that would allow people, I mean companies, enterprises to hire young people that are unemployed, you know, and you know, there is an element of subsidy, if you want, that is given in order to facilitate the entry into the labor, into the labor market. But I think there is a lot that needs to be done. Also in closing the. What is the mismatch between the skills that people have when they come out of school and the skills that are required by, by the modern day industry in whatever fields? And these I've discovered in the few months I've been minister, that is indeed a problem that it applies to all major European countries. So there is a need to develop more vocational training or at least to create a greater acquaintance at an early stage from people when they're still in high school, you know, to better understand what are the, what it means to work in a company, in a factory, in a workshop, you know, because sometimes people have no idea and even in deciding what kind of course of studies to pursue, sometimes they follow rather abstract ideas or inadequate information. So this is an area where at the European level a lot could be done. I mean, this kind of experiences of training at the European level, well, you know, it's certainly a very, very good idea. And I mean, it's the same thing as the, you know, the Erasmus project, you know, but it should be done at the level of the experience on the workplace rather than Only at the level of your attending courses in university so that people could understand what it means. At the same time, you know, I understand that lots of Italians and the Italian embassy was telling me they are actually thinking of a program to help these young people that come to London looking for a job. They have no idea of where to go, what to do and how to proceed. But obviously they bring a willingness to. In favor of mobility, which has been absent for quite some time, at least in Italy. You know, I mean, following the very massive migration that we've had in Italy in the 50s and the 60s, where, you know, 20 million people moved from, from the south to the north and so forth, there has been a long period in which people say, no, migration is not for me. I want to have the job here where my parents brought me up and so forth. So now I see that the crisis has again reopened by necessity, some appetite for, for mobility, which, you know, I hope would broaden the prospects, open new opportunities and be a positive thing on the whole. I think so.
- [80:46]
A
All right, gentleman right at the back against the wall with the orange T.
- [80:50]
B
Shirt and the lady.
- [80:52]
A
I'd like to find a.
- [80:53]
B
And the red shirt lady questionnaire.
- [80:57]
A
Okay, start with the gentleman at the back, perhaps to start, who's had his hand up for a very long time. Yes, with the orange T shirt. With a sort of peach coloured T shirt.
- [81:07]
B
Yep.
- [81:12]
I
Thanks very much, Minister, for your talk. My name's Anthony Salamone, I'm a master's student in the government upon the lse. Just quickly, if I could ask you, you seem to indicate in your remarks that the solution to the crisis is more integration, in particular fiscal integration that would apply in the Eurozone. So if I could just ask you, where do you see the countries that are not part of the Eurozone, and particularly the United Kingdom fitting into that? So that's to say that if European integration is characterized in the future by more political integration in the eurozone zone, more fiscal integration, then where do the countries that are not part of the Eurozone fit in?
- [81:52]
B
Well, that's a very interesting question. I think in the last year or so the UK government has given indication that they are not opposed to further integration in the Eurozone. They see it as. And they don't want to sort of water down whatever progress the eurozone members want to make in order to keep the door open for their future accession. So in a way this is regrettable from my point of view because I always thought that the full participation of the United Kingdom in all European construction Aspects was a good thing, you know, because they bring a lot of market orientation, pragmatism and experience in dealing with market forces, innovation and so forth. But if the British people prefer not to be part of this club, then I think the club should no longer feel obliged to keep the door permanently open, even at the risk of getting some cold air, you know, and catching a cold. So, you know, more seriously, this would probably formalize some sort of a two speed Europe or a two tier Europe, which in my view should not be a permanent character. But it may be that in the present situation in which we're in, it's better to clarify what are the responsibilities of each of the two groups. I think countries in the Eurozone feel that, you know, this is, you know, the process towards greater integration is almost inevitable. It's a necessity. At the same time we have to keep a good relationship with a partner country like Britain, with which is one of the major trading partners and it's a major financial center. I for one believe that if Britain was a member of the Euro, it would be inevitable that the European Central bank would be located in London. But this aspect has not obviously been fully considered at the time, so. So now we have it, you know, and that I think is not without implications, but as I said, you know, for the time being it could be a solution.
- [85:00]
A
Right, last question. Is there anyone, maybe at the back whose hopes I've cruelly dashed, unwittingly I might add, but who had legitimate hopes of being a gentleman with his hand, hand raised, the gray top? Yeah.
- [85:16]
G
Hello, I'm Mattia Barina, second year student here at lse. Do you think an economic and monetary union can be sustainable in the long run without a banking union? I think you touched on the topic during your speech. But as far as the sustainability of the Eurozone is concerned.
- [85:36]
B
No, no, I think, I think I said that the banking union is indeed a crucially important aspect and it's the only way to avoid this perverse vicious cycle between sovereign risk and banking risk and their interaction. So, and I think this would be in fact one of the hot issues that would be dealt with during the semester of Italian Presidency. So we will try to do our best to promote the full implementation, because as I said in my speech, we have made progress in creating the framework for a European banking supervision that will be conducted by the European Central bank with the collaboration of national supervisors. But at the same time there should be a need to create also the additional institution that form a credible and sustainable banking union, which is the single resolution mechanism and the deposit guarantee scheme. So these are the three elements that should be put forward.
- [87:08]
A
Well, Minister, I think we can all agree we've had a very rewarding hour and a half of your time. You've been extremely comprehensive. It's been a very rich discussion. You've answered questions very fully. You haven't told us when the next Italian elections will be. But apart from that, apart from that, you have done the LAC proud and given it's really magnificent. 90 minutes. Thank you very, very much. You'll be welcome back anytime. So thank you. And if I could just ask you when we've registered our thanks and enthusiasm in the usual LSE way, just to wait in your seats just for a moment until the minister has a chance to leave your auditorium. But, Minister, thank you very much for.
- [87:53]
B
Thank you. Thank you. And to all of you.