Signore e signori, è allo stesso tempo un piacere e un privilegio per me intervenire oggi all’Istituto Universitario Europeo, da tutti riconosciuto come il centro d’eccellenza per le materie storiche, politiche e giuridico-economiche dell’intera Europa, nonché uno dei migliori al mondo. Il nostro incontro cade in un periodo di discussioni serrate sull’economia e la società europee: quasi tutti i paesi membri, compresa l’Italia, hanno completato i propri programmi nazionali di riforma nel quadro della strategia di Lisbona e tra soli due giorni si svolgerà a Hampton Court il vertice informale dei capi di Stato e di governo sul modello sociale europeo. “Pour le citoyen qui, avec bon sens, considérait que la construction européenne était avant tout un projet économique, une conjoncture défavorable dont il subissait le conséquences – stagnation de son pouvoir d’achat, ou augmentation du chômage – lui faisait porter un regard négatif sur l’Europe. Les sondages d’opinion signalent clairement le lien que fait le citoyen entre une situation économique dégradée, un immobilisme européen et une perte de crédibilité du projet”. Ladies and Gentlemen, this quotation might have been taken from any current essay on the present state of European affairs. It is, instead, Jacques Delors’ own account of how he saw Europe in late 1984, on the eve of his appointment as President of the European Commission. There is normally an economic downturn behind a sudden surge of public scepticism toward the European project. This script was played out once again in the spring of this year, when the French and the Dutch refused through referenda to ratify the EU Constitutional Treaty. Commentators largely agreed, afterwards, that both rejections had very little to do with the Chart itself. Voters were rather sending a message of protest against a European elite that they perceived as not doing enough to protect their welfare. As for opinion polls, according to a whole series of them taken repeatedly throughout 2005 by the European Commission’s Eurobarometer, Europeans see unemployment and the economic situation as the two most pressing concerns facing their respective countries. Addressing these concerns by reviving growth and job creation is thus the precondition for a political re-launch of Europe. Twenty years ago Jacques Delors understood this all too well. He thought that the best way to achieve an economic revival was to make the internal market a reality. In today’s Europe both the diagnosis and the cure are basically the same. But while back then fostering the internal market implied an institutional reform (obtained through the 1986 Single Act), this time the institutional road is both barred and beside the point. Barred because the ratification of the Constitutional Treaty is stalled and will remain so for another two or three years – according to the President of the European Commission, José Manuel Barroso. And beside the point because there is nothing in the new chart that affects the economic governance of the Union. The basic tools of Europe’s economic policy, and their distribution between member states on the one hand, and the Union on the other, were fixed in the 1992 Maastricht Treaty and left untouched ever since. You know how the whole thing works in practice. The Union is responsible for regulating the internal market - through legislation and antitrust – and for the monetary policy of the 12 countries of the euro zone. Member states are responsible for fiscal policy (albeit within the constraints of the stability and growth pact), and for employment, social and innovation policies. This division of labour is part and parcel of the so-called Lisbon strategy. Reviewed in 2005, the Lisbon strategy was found nowhere near, or even on course to, meeting its (too) ambitious 2010 target. If anything, Europe has lost ground on several indicators, with growth - which has been particularly sluggish for the big three of the euro zone, i.e. France, Germany and Italy – productivity and employment opening a hypothetic list. The public anxieties captured by the opinion polls are well-founded. In June 2005, therefore, European leaders wisely decided to drop the bombastic (the most successful knowledge-based etc.) and to concentrate on the practical: growth and jobs. How? At the Union level exactly as Delors saw it two decades ago: by completing the internal market legislation and by enforcing its rules via competition policy. The completion of the internal market is in just one word: services. For most services what we have in Europe today is as many markets as there are member states – and probably more, being several service activities fragmented along regional and local lines. Services account today for over two thirds of the European economy, but they cover only one fifth of its internal trade. Therefore, breaking the barriers to their movements within the internal market, fostering a real competition in their provision, is the mother of all structural reforms. As such, it is meeting a strenuous resistance. When the European Commission tabled its draft directive on services in early 2004, it probably did not expect it to become the villain of the no campaign at the French referendum - even though it has nothing to do at all with the Constitution. Ultimately, it is member states’ governments and the European Parliament who will decide what to do with the Commission proposal on the internal market for services. But it is clear that an internal market whose rules apply only to thirty percent of the European economy is no internal market – a mockery of all the rhetoric on structural reforms, market-led flexibility, innovation and competition used by Europe’s political leaders in summit after summit over the last decade. The Lisbon strategy, however, has another pillar, consisting of those levers of economic policy left to member states: fiscal, employment, social and innovation policies. On the fiscal side, there is precious little they can do: expansionary policies are made impossible by the stability rules. France, Germany and Italy are already struggling to keep their public deficits within the limit of 3% of GNP prescribed by those rules. Nor has, at the Union level, the European Central Bank any intention of relaxing its monetary policy. All this amounts to say, in practice, that the only economic policy EU member states can pursue is, once again, structural reforms. Employment and social policies must be geared to opening labour markets, allowing firms to hire and fire (and innovate) rapidly – while at the same time providing safety nets, retraining, continuing education and opportunities to re-enter the labour market to the workers displaced in the process. Europe’s employment rate is eight percentage points below that of the U.S. Active employment policies should, quite simply, put more people at work, especially among women, the young and the over-fifty. The spirit of free enterprise must be encouraged by reducing the administrative burdens, the costs and the time involved in setting up new businesses. Countless sectors of the European economy hide rents, from the liberal professions to financial services, to utilities. They must be opened up to competition. Market-led flexibility is thus the cure to Europe’s economic malaise agreed upon by European leaders in June 2005. It’s a two-pronged approach, with the EU institutions deepening and policing the internal market, and member states drawing and implementing national reform programs over a three-year (2006-2008) time span. This is what the revamped Lisbon strategy is all about. *** The Italian reform program – that we call Piano per l’Innovazione, la Crescita e l’Occupazione, or PICO – was approved on October 14 by the Council of Ministers. It lists five broad goals out of the 24 guidelines on growth and jobs approved last June by the European Council: - extending the area of free choice for citizens and markets, i.e. deregulation and liberalization; - granting incentives for scientific research and technological innovation; - strengthening education and training of human capital; - upgrading tangible and intangible infrastructures; - protecting the environment. Working on the program, we first tried to understand whether Italy was already doing something coherent with the guidelines on jobs and growth. And we found out – somewhat to our surprise – that between 2001 and 2005 the Italian government had been allocating € 29.9 billion to initiatives perfectly aligned to the overall objectives of the Lisbon strategy – with an additional € 3.8 billion already budgeted for the period 2006-2008. The idea in our program is to inject a further € 12.7 billion over the same period 2006-2008. These are asset management resources, i.e. they will result from the proceedings of public property sales, allowing us to stay within the budgetary limits agreed upon in Ecofin. Preliminary estimates indicate that the overall macroeconomic effect of the program ought to be a raise of 1% in our GNP and 200,000 additional jobs, especially among the young. But this, you may object, is the usual Keynesian way out of the quandary: growth and jobs by throwing money at the economy – even though I hope you will appreciate that we won’t just fill potholes, but actually focus on R&D, human capital and infrastructures. So, you still may ask: where are the structural reforms, the no-cost measures? What is there for market liberalization? The present Italian government has already done a lot on one crucial front, i.e. the labour market. Even the Centre for European Reform admits as much when it notes in its merciless (with Italy) Lisbon Scorecard V “Italy has the lowest [employment] rate among the old member states at 56.1 per cent, although it has at least recorded a 3.4 percentage point increase in employment [since 1999]”. The effects of the labour market reform are also visible on the unemployment rate, which has been steadily going down and now, at 7.7%, is below both the eurozone (8.6%) and the EU-25 (8.7%) averages, and compares rather well with France’s and Germany’s 9.6%. On top of that, our reform program foresees the widest possible liberalization of the services sector through: - national measures to apply the recommendations made over the years by our Market and Competition Authority and by our sector regulators (for energy, TLC etc.) in their analyses of relevant markets; - a strong support to the Services Directive in its original form (including the principle of the country of origin) and to the whole idea of making the internal market in services work, including the unilateral adoption by Italy of some provisos of the draft directive in anticipation of its final approval; - an end to price and tariff regulations wherever that fosters competition and lowers prices, as for example with the liberal professions. In addition, we intend to enact more effective legislation to prevent fraud and protect intellectual property rights, to streamline the bureaucratic procedures facing companies and individuals (better regulation) and to improve the overall performance of the Italian public administration. *** The Lisbon strategy looks well and reasonable – until one asks the European electorate whether they agree on embarking on the road to structural reforms. The French of the referendum on the constitution showed little stomach toward the measures outlined in the Lisbon strategy. And the same goes, unfortunately, for the Germans of last September general elections. Angela Merkel is about to became chancellor in spite of the fact that voters did not reward her platform of bold reforms. A majority of them chose instead to support either the timid reformers (the Greens and the SPD) or even the outright counter-reformers of the extreme left. General elections will be held in Italy next spring. Most observers hold that the Union, a coalition of leftist forces which includes two parties that call themselves Communist, is ahead in the polls. On October 15, the day after we approved our national reform program, the Left was marching in the streets of Rome against the Bolkestein directive. The Left as a whole, including prominent politicians from Mr. Fassino and Mr. Rutelli’s parties – side by side with the Communists die-hard. They somehow seem to forget that Mr. Bolkestein sat in the Prodi Commission, which unanimously approved in January 2004 the draft Services directive with no small part played, in the occasion, by the President himself. As you know all too well, Romano Prodi is the candidate to the premiership of Italy’s leftist coalition. Do I make too strong a political statement if I say that if the left wins in Italy the chances to carry out structural reforms in Italy and in Europe will look increasingly slimmer? The real and present danger to Europe’s future, therefore, is to remain stalled on all fronts – in which case a free fall will inevitably follow. The old functionalist approach – peace via prosperity, economic growth in the common market as the road to political integration – looks truer than ever. But this time around, policy makers are deprived of the economic quick fixes of times past - such as deficit spending, monetary expansion or trade barriers. Fragmented and protected markets, as well as profligate states, have so far provided to most Europeans a cosy shelter from the cold winds of global competition. The shelter was affordable when the competition was weak. But it is no longer when, as now, billions of people around the world are rising from poverty through hard work, successfully competing for resources and markets. There is only a narrow road of microeconomic measures left open to Europe’s economic and political renaissance. Taking this road will imply a great deal of political courage to convince a sceptical public that there really is no other way out. The mission is not impossible. Britain and the Nordic countries largely made it over the last decade. It is now time for continental Europe, and its big countries in particular, to show that they too can make it. I hope that the decision taken by the Italian government – perhaps late in its first mandate - to embark on this unavoidable road will be duly appreciated by foreign observers and will be rewarded by the Italian electorate. Thank you.