XXXII Rimini Meeting, 22 August 2011 Speech by Corrado Passera at the Roundtable "Economic development or dynamic stagnation: quo

vadis Italia?" If you have not already seen the Exhibition on Ezekiel you should do so as soon as possible. It is a truly wonderful expression of certain deep, and above all true, ideas; it is about the question of labour, and although it focuses on the crisis, it also represents hope for the future; it is about Mans labour as an opportunity for redemption, about creating a bridge between crisis and hope, and it is really well laid out. Therefore I would strongly suggest you go and see it, and I must admit I personally found it very moving. The subject of this edition of the Meeting is, as always, a very profound, albeit provocative, one, because in order to talk of certainties in todays world, in order to say that existence becomes an immense certainty, one must have considerable courage and conviction. Perhaps such a thought comes naturally to those who have faith, but it is difficult to comprehend if based merely on an analysis of the current situation, which as we all know is characterized by a generalized lack of belief and by considerable uncertainty about the future, deriving from a number of serious, very real factors. From the global point of view, we are in a worse situation than we were one year ago. There is talk of a recession, even though we cannot be sure that such is the case. Nevertheless, we must stop continually talking about, whilst failing to adopt real measures to counter the risk of recession, because by doing so we could find ourselves defenceless against such a recession should it come about. Thus we must not make the mistake of taking everything for granted, as this could be fatal in the medium term. The European situation undoubtedly fails to placate peoples worst fears. We have allowed a small problem in a small country like Greece to bring about a crisis affecting the whole of Europe, and we are now overwhelmed by the problem of the public debt, which apart from anything else is becoming of critical importance vis--vis the financial market situation. As things stand, we know that we can, and should, do more, and that we have the means to do so. Coming back to the question of Italy, each year, here and elsewhere, we continue to recount the usual problems afflicting the country. We know these problems can be resolved, but in many cases this simply does not happen, and this creates even greater uncertainty and mistrust. We feel that society has a very real problem of identity, due to a lack of social cohesion or a shared vision of the way forward. Delusion and scepticism mount, and we lose credibility among other nations. We have to try and understand where the roots lie of this growing sense of mistrust and uncertainty, which often takes the form of a basic misunderstanding of the meaning of things. Everyone in this room knows exactly how difficult things can become if there is a lack of any real sense of community or collectiveness, the only guiding light enabling us to act in the right manner and for the good of all concerned. Clearly one of the main reasons for this mistrust and uncertainty is the lack of development and growth; the

employment problem, above all, is the number one priority at the present time. Therefore the indignation of a great many people, of all of those present here, at the lack of importance given to practical measures for growth and for the promotion of development - measures capable of creating new jobs, especially for young people - is clearly understandable. Fulvio Conti and Giuseppe Orsi have already pointed out that the employment problem extends well beyond the official unemployment figures. The problem of employment undoubtedly directly impacts the world of those who are officially deemed unemployed, but it also involves the discouraged inactive masses, that is, those people who are available for work but do not actively seek jobs. Then there are those forcibly underemployed, that is, those who cannot find a job capable of providing them with a normal standard of living, or of guaranteeing them any future worthy of the name. There is also the category of those suspended from work, that is, those workers who have been temporarily laid off from their jobs. And there are also the great many workers on temporary contracts, the false students, and the nonremunerated registered self-employed. If we put all of these categories together, we realize that each family in Italy is directly or indirectly affected by this problem, and for this reason the problem is becoming increasingly unsustainable. The roundtable poses the question of development or stagnation. It is clear that there can only be one answer to this question: what we need, however, is to understand why growth is not only necessary but also possible. Im talking about real development , not false development: a real, sustainable development capable of generating employment. What we need to understand is how each one of us can help such development to come about. Dynamic stagnation simply does not exist. Stagnation is stagnation tout court, and should it persist, as has been the case for years now, it could lead to the collapse of our entire economic system. Of course, a scenario of this kind would imply the imminent loss of a series of cornerstones of modern civilization, such as the welfare system which successive generations have managed to preserve for the past 60 years, but which could be endangered unless there is a substantial recovery of sustainable growth. In practice, we are doing quite a lot to create stagnation, but very little to encourage growth. Current austerity measures, both here in Italy and in the rest of Europe, a plethora of cuts and very little investment in the future, are certainly not going to create the optimal conditions for future economic development. Every entrepreneur and there are a large number of you here today knows that if one works exclusively on costs year after year, without investing in innovation and growth, at a certain point your business enterprise will inevitably go under. There is clearly no such growth plan for the Italian economy or for Italian society in general. There is, on the other hand, this terrible feeling that everyone is out to look after themselves: the impossibility of reaching agreement on a shared policy for sustainable development, or the incapacity to do so, is all too evident. We need to restart from Europe, whilst working at both European and Italian levels. There is a fundamental

need to inject new energy into the European project: we need more Europe, because in a certain sense the European vision seems to be fading with every passing day. What we are witnessing is an increasingly absent European Commission, a number of States going it alone to the detriment of the shared, multilateral nature of decision making. Fortunately, there are those who deal with such problems in a serious, competent manner, of course. However, from the point of view of the vitality of the European project, this feeling of the remoteness of the institutions in question, this scarce presence and lack of involvement of the Commission since replaced by an excessive degree of inter-governmental governance have certainly not helped handle the Greek crisis. So all of us, first and foremost Italy as one of the European Communitys founder members, must do more to re-launch Europe once again. Having a common currency is important, but it is only one of the many pieces of the wider picture. We have realized this during the current economic crisis: the common currency alone cannot cope with the crisis, nor can it create the required level of competitiveness for the EU to compete on equal terms with the other major economic areas of the world. A lot could be done at the European level, but a lot more could also be done within Italy. This is clear from the ongoing debate conducted, albeit in a rather disorderly fashion, in recent weeks: a kind of national brainstorming session has thrown up a considerable number of good ideas. Valid ideas, regardless of their source, must be listened to and included in an organic plan designed to pursue renewed economic growth. Of course, it is not easy for Italy to get out of the corner it currently finds itself in. It is also true to say that had we dealt with certain problems at the right time, we would not have found ourselves in this present situation. We now need to be even better and stronger than before, and we need to bring together a series of aims which may well seem incompatible. Nevertheless, this is what we have to do right now: we must, at one and the same time, grow, map out the future, and render our accounts sustainable by structurally reducing public debt. This is not an impossible idea: indeed, it is perfectly achievable. However, in order to do so we must cope with the looming crisis whilst at the same time laying the foundations for a brighter future. We must recoup international credibility and trust, as their loss is proving extremely costly for Italy. We can grow. A country like Italy can, and must, grow: we have said as much on numerous occasions, and in various ways, in recent years. We have to convince ourselves once again that this is possible, otherwise what sense would it make to commit ourselves to such a venture? We can do it for the simple reason that many of the worlds growth sectors see Italian undertakings in positions of strength. Im not just talking about manufactured products, but also, for example, about the machinery sector, that is, the entire world of mechanical engineering and machine tool production: demand from the emerging nations is continually rising. Similarly, there is the fashion sector, the housing sector, agribusiness, tourism, not to mention the entire world of healthcare, where Italy boasts a very strong position and is going to experience a genuine boom in forthcoming years. All of these are sectors that can act as drivers of economic growth. The country also needs considerable work to be done in order to complete its modernization: modernizing

means investing, and investment leads to an increase in GDP, so in no way should we fail to grasp this opportunity to finally get economic growth back on track. We have the force, the energy and a series of unique advantages that can help us, as a nation, to meet numerous competitive challenges, and not only in the European market. It goes without saying that we possess a series of unique characteristics and energies in all of those sectors, and Italy has always been capable of employing these even at the lowest ebbs in the countrys history, some of which were clearly much worse than what we are currently experiencing. Of course, we need courage to achieve this; we need to change various ingrained habits in order to find solutions that involve a degree of risk due to their original nature, and because of the need to overcome a series of vested interests and of cases of situational rent. We need to demand that sacrifices be made, and this is certainly not an easy thing to do, and we need the ability and the will to fairly share out the benefits that eventually accrue from such efforts: we need to make short-term sacrifices in order to obtain future gains. This means that the task we will be faced with in coming months will call for Great Politics, because when we need to recreate a broad consensus in a society as divided as ours, what we need more than anything is a competent, far-sighted governing class, one that is capable of focusing on both the present and future situation of the nation as a whole. A governing class with an integrated vision that enables it to ensure that the various sectors of the economy and of society in general meet the current challenges, because if either fails then this inevitably brings the other to a halt; this is an arduous task that only Politics with the capital P can, indeed must, perform for the good of the country as a whole. A medium-term vision is called for, one that goes beyond the electoral timescale, since in order to make certain investments, and to build for the future, a few months are not enough: years, sometimes decades, are called for. Furthermore, you cannot start from scratch every time a government or parliament changes. This is what Great Politics means, using the language that President Napolitano strongly urged us to use in his speech yesterday: the language of truth, based on the strength to face up to problems, the courage not to hide them from view, not to put them off or minimize their impact, because trust does not derive from the denial of truth, but from the ability to deal with it in an intellectually honest manner, and from the will and ability of each one of us to work together towards an understanding of the truth, and to look towards the future. We have to adopt a multidirectional approach and work on a broad range of issues, as there is no one definitive, redeeming economic reform. There is no philosophers stone - no killer application as the Americans would say - that when put into practice resolves the Countrys problems once and for all. We have to sort out the various pieces, as each segment of the economy and of society holds together the adjacent segment; just like with a car, where one punctured or flat tyre blocks the vehicles movement completely despite the fact that the other tyres are perfectly inflated and in good working order. We are all sitting in the same car, and this is why an integrated approach is required, one that brings together the competitiveness of companies, the national economic system, social cohesion and all the different energies

fuelling our society and rendering it dynamic. It is clear that we need to start with the companies, as it is the companies that represent the principal driver of growth and employment, as previous speakers have shown more clearly than I could: it is the success of companies that underpins the sustainability of the overall economic system. This is not difficult to understand: if there were no manufacturing sector, 80% of Italys total exports would be lost, and consequently we would no longer possess the funds we need to cover our energy requirements . We should never forget just how important the manufacturing sector is for the Italian economy. Fortunately we have managed to keep this important sector almost intact, even during the most turbulent points in the crisis. We also need to deal with an important aspect of overall productivity: we need to increase industrial productivity whilst at the same time increasing salaries. This could be achieved, for example, by working on the tax wedge, as our aim is to improve the standard of living of everyone so as to substantially raise consumption levels. Thus, we need to pursue a much higher level of productivity than what we currently have, and recover the several points lost (almost 10 over the course of the past ten years) in relation to our European competitors not to mention countries such as China and India. We need to grant companies greater freedom of movement; we need to change the nature of our relations with the Public Administration through the establishment of a set of clearer, stabler rules, and by demanding quicker responses and simpler procedures. These problems are well known, but until we have resolved them, we need, at least here, to constantly reiterate them and renew our pledge to eliminate them. We need more innovation and greater internationalization if our companies are to grow, not necessarily through the shelving of small and medium-sized enterprises, but through the creation of networks or mechanisms the Compagnia delle Opere is a perfect example that are capable of working on the synergies present, and capable of sharing services, instruments and know-how in order to create those economies of scale that smaller companies can not benefit from. We need to ensure that certain resources which Italian companies do not currently possess, compared to their direct competitors, are made available to those companies, the most important of which being energy at a fair price: on this point I agree with the criticisms of the Robin Hood Tax made by Conti. Then there is the question of the repayment of the enormous indebtedness forced upon Italian companies as a result of overdue, unpaid receivables due from both the countrys Public Administration and from major companies. All of this, at the end of the day, mounts up and makes the difference here, because the system of credit would also work better than it does if there were no need to resort to bank loans in order to cover such abnormal delays in payments. We need to work on human capital because, as Orsi has said, many companies cannot find the skilled workers they need, which is of course paradoxical in a country with so many unemployed. So I would like to reiterate the fundamental importance of the strength of companies, first and foremost. This is then followed by the question of the National Economic System, given that companies can be as

competitive as they want when left to their own devices, but if they are operating within a national economic system that does not function, then overall productivity inevitably suffers. Im talking about the required infrastructures (we are probably between 200 and 300 billion euro behind our competitors). It is often claimed that the funds are not available: this is simply not true, the required funds can be found. The real problem is the efficiency of the procedures that we have formulated, the quality of the decisional mechanisms we have adopted, the reforms that have proven a failure and that need to be corrected as quickly as possible: because rectifying your own mistakes makes for upstanding, wise people. We need to invest more, and differently, in education and training, in order to meet the previouslymentioned need for skills that are currently lacking, because there are aptitudes that are not being sufficiently encouraged and developed within our schools, and because there is an increasing need for a genuine lifetime training system, due to the fact that in todays society, newly-acquired skills very quickly become obsolete; and also because schools need to go back to being a means of social elevation, a function which they unfortunately seem to have lost in recent years. Then there are the questions of justice and security, two things which often are not given sufficient importance and which only come to the fore when they make the headlines for all the wrong reasons, but which are of decisive significance above all for the everyday functioning of the nations companies. All those companies present here today are made well aware of this when they try to recover credit; and official figures for investment by foreign concerns also reflect this fact, when as a result of problems associated with justice and security in Italy, foreign concerns choose to invest in other countries to the detriment of Italy. A national economic system that functions well would obviously benefit society, and in particular the South of Italy which, I have to say, represents our best possible opportunity for the future due to the very lag separating it from the rest of the country. Given that we always end up talking about national averages, the performance of our economy is to an extent impeded by the poor economic performance of the South; however, if we do the right things, those within our means, Italys South represents a great opportunity for the country as a whole. However, competitiveness, whilst important and indispensable, is on its own not enough, since without cohesion, a society simply ceases to exist. If the countrys citizens have faith in the future and not fear , then we can actually achieve the necessary growth. Social cohesion means a welfare system providing mechanisms protecting members of society and providing them with essential services, which Italy has and which makes this Nation I have to say a society that is qualitatively superior to the majority of other societies throughout the world. This is why our welfare system is one of the great achievements we can be proud of. In terms of benefits and pensions, we have made considerable progress, rendering the entire system sustainable in the long term. We are nearly there now, and in my view we need to proceed as fast as possible to complete what we set out to do, taking full advantage of the present occasion. Our healthcare

system is, on average, among the best in the world (we are all aware of course that within this system there are certain extremes both of excellence and of embarrassingly poor performance). This is a question we need to deal with seriously, as it could well get out of hand, as in fact happened in the case of pensions. We have a welfare system that requires strengthening in various different areas: family services, reemployment, social integration and immigrant workers. The Third Sector and Social Enterprises now play an important role in the welfare sector, as well as in other areas of the economy. It is clear, as everyone is now aware, that in those sectors where neither private nor public concerns are capable of functioning to their full potential, the Third Sector is assuming an increasingly important role. Im talking about a role which if exercised properly will guarantee the survival of the welfare system as such. If we prove incapable of utilizing the Third Sector as we would hope to, we risk losing entire segments of society along the way, and in particular those weaker and poorer segments that do not possess the means with which to deal with periods of crisis like the present one. With regard to the questions in hand, our Group, through Banca Prossima our bank specifically appointed to help Social Enterprises , has the chance working with more than 50,000 non-profit organizations both to perceive the great desire among Italians to create new projects in this direction, and to get to know the vast areas of fragility that could compromise the realization of such projects. The problem, which we try to resolve through, for example, the provision of support to fund raising, is represented by the damaging situation created as a result of extreme delays in payments by the Public Administration. It is clear that if there is both competitiveness and social cohesion, then we really need to speed things up here. The accelerator, the dynamism of society, derives from a great many things we dont really have time to go into this here today but without a doubt it concerns what we call the principle of subsidiarity. Since subsidiarity has to do, first and foremost, with meritocracy, it means establishing good rules, it means making correct evaluations, and it means letting private concerns profit or non-profit making freely compete with the public sector within the framework of a clear, guaranteed system of rules. It means that each public service must be assessed, it means that incentives cannot be handed out randomly, it means that good pupils and students must have their education paid for, whilst those who are not, or who can afford to pay for their education, should do so in full. This is something you should never forget, because this is precisely where the basic solution can be found to many of the bogged down mechanisms currently hindering the countrys functioning and development. Then there is the reform of reforms, the one that costs nothing, namely the reform of the decision-making processes as such. Our country we all know, weve said as much several times in recent years has ground to a halt as a result of a series of reforms that have granted veto rights to everyone, that is, the right to block any decision without having to assume responsibility for this action. This is true of a great many things: of infrastructures, of permissions and of works. Well, these are all measures that cost nothing, but in order for them to be implemented, a substantial, solid political will to do so is required.

All of this needs to be done whilst at the same time guaranteeing the sustainability of the countrys public accounts, because it is clear that we need to quickly eliminate the deficit and reduce the public debt for the very reason given by President Napolitano yesterday, that is, for the simple fact that we cannot pass this unsustainable situation on to future generations. It is clear that we need to review all items of public expenditure: we are talking about 800 billion euro here, and there can be no doubt that every single one of those present today knows that when the amount in question is so great, there is always going to be a certain percentage of spending that could be cut, or at least reduced. The example should be given by a reduction in political costs, although there is always room for manoeuvre, cost-cutting wise, in all public services. As a Nation we must reform the working of the tax system, as indeed we are thinking of doing, to the greater benefit of companies, labour and everything else that generates growth and employment. We have to tackle the problem of tax evasion (as the President of the Republic mentioned in yesterdays speech) in the knowledge as many of you are aware of that the pressure that honest individuals and enterprises feel when it comes to paying their taxes is in fact becoming unbearable. Even if we were to achieve all of this, it would probably still not be enough, and we would have to ask people for a special contribution, perhaps in the form of a lump-sum tax or contribution, in order to provide that little bit extra for the reorganization and re-launching of the country and the economy. Nevertheless, if such a plan were in place, then Italians would respond. Italy and the Italians have repeatedly proven that they are prepared to make the necessary sacrifices; the important thing is that their efforts and sacrifices are part of a broader plan, rather than ending up in a bottomless pit of wasted funding. Politics has the task of directing all of this, and of mobilizing the social forces required in order to enable Italy to recover the ground recently lost in terms of reliability and credibility. To sum up then: the banks feel that they must make a greater effort than they have made up until now, also given what other countries are doing to encourage economic growth. We have definitely resolved the 20082009 crisis, involving both banking and non-banking enterprises, better than other countries have (this is an objective fact), because our banks were, and still are, operating within the real economy. Today were are faced once again with the harsh reality of a new crisis which, as before, originated outside of Italy, and which makes our job very difficult, at times impossible. Fortunately, as banks we had set aside resources, and brought forward the collection of funds on the long-term interbank markets which in the meantime have virtually ground to a halt throughout Europe. Fortunately we managed to do all of this in advance, also in capital terms, and thus here Im speaking on behalf of my own bank, although this undoubtedly holds for many other Italian banks there is soundness and reliability, and a willingness to make the required efforts. We are not concerned about current share prices although of course they can hardly be viewed with any satisfaction as these values have nothing to do with the fundamentals, that is, with the actual value of our banks.

One final point. Our country runs serious risks if it fails to restart growth. However, all the elements, ideas and energies required to achieve this purpose are in place, if we are willing to work together to get the economy going once again. Im referring, first and foremost, to the necessary skills and responsibility. Everyone must do their part, as several people prior to me have already pointed out. The key factor here is clearly going to be the quality of the countrys politicians and of its governing class as a whole. In any case, we know that all of this can be achieved. We know it is worthwhile remonstrating loudly if this is going to lead to a real, lasting undertaking to implement change. President Napolitanos words confirm and back up what we have said today. The spirit and the individuals breathing energy into the Rimini Meeting are living proof of this. Thank you all very much.