Ladies and Gentlemen, thank you for having invited me to this round table. It is indeed a timely initiative, since Italy has just adopted its national reform program in the framework of the Lisbon strategy. There is no doubt that Italy’s economic performance in recent years has been thoroughly disappointing. Numbers are numbers: if a train’s speed nears zero, that train is coming to a halt. In the Italian political debate there is a never-ending row of who, or what, is to be blamed for the current lacklustre performance of the economy: – whether it is the legacy of the centre-left’s efforts to bring down in a very short time-span (1996-1998) both the rate of inflation and the budget deficit to make Italy eligible for EMU; – whether it is the centre-right’s ineptness at managing the economy since 2001; – whether it is the euro itself to be blamed; – whether it is the consequences of 9/11 – or what have you. My contention is that the slowing down of Italy’s economic growth is not a recent phenomenon. A serious consideration of the country’s economic performance over a longer period of time leads to the conclusion that the problem of Italy’s sluggish economic growth is a longstanding one. If one breaks down by decades the post-war period, one can notice that in the years 1951-1968 Italy’s average annual rate of growth was 5.6%. Then it went cyclically down to 4%, 3%, 2% - down to the current 0 to 1%. I insist: the problem is both serious and longstanding. In a sense, this consideration might help in taking away some of the heath from the political debate. Were it not for the coming general elections of next spring, it might even help in forging a bi-partisan consensus of where the problems really lie and what to do about them. It is also fair to say that Italy’s predicament is not uncommon in Europe. Think of France and Germany, for example. Demography has an obvious role here. Ditto for the double pressure on Europe’s economy stemming from the competitiveness of the U.S. economy and the Asian economic boom. Had Italy been an isolated case, there would not have been any Lisbon agenda. On the contrary, its very existence attests to an awareness of the common problems that confront today the European economy. Italy’s post-war economic miracle was due to an upsurge of investments, which led to average annual productivity increases of 4.6% between 1948 and 1968. In its turn, productivity growth led to higher competitiveness and increasing market shares. This stimulated even more investments, thus closing a virtuous circle. The feature special to Italy - always to be kept in mind - was that the growth of its manufacturing sector was due mainly to new entrepreneurs – the tens of thousands of SMEs that make our economic system renowned. As soon as the rate of birth of this new entrepreneurship declined, Italy’s economy as a whole begun to sputter. As the data I quoted show, our economic problems date back to the late sixties. However, from the seventies until the end of the nineties, a number of macroeconomic devices were at hand to remedy the underlying causes of a decreasing competitiveness. We used them abundantly. I refer here, first, to exchange rate adjustments – to compensate ex post for the dynamics of wages, which was the result of the aggressiveness of the trade unions and for the rigidity of the labour market. In other words, currency devaluations were the ex post device to prop up competitiveness. A second device was the reckless expansion of government deficit, both as a way of alleviating the dynamics of labour costs, and of sustaining domestic demand. From an export-led economy, Italy basically became an economy led by internal demand - propped up by high and growing government deficits. Maastricht marked the end of all this. Once the total debt went over 100% of Italy’s GNP – on the eve of our adoption of the euro it had actually reached 126% - the spending feast was over. This consideration should close once and for all the discussions on whether we did the right thing by joining the euro. It is obvious that EMU was for us the inevitable recognition that the trick of spending ourselves out of trouble had come to an end. The euro is for Italy no more and no less than a bitter but necessary medicine. At the same time, having been through the process of joining the euro, it has always been clear to me that the medicine could not cure but the symptoms. Addressing the underlying causes of our malaise was left to us. This needs still to be done. Perhaps bad habits are hard to die. I would also add that the attitude of the ECB has been stiffer than one could have hoped for. The fact is that, after the euro, Italy had to come to terms with these problems and it is doing so only lately. As I said, Italy shares its problems with other European economies. Without going back to the conditions of the UK economy in the sixties and the seventies, one sees many of the problems that Italy faces today in France and Germany – in particular the rigidity of the labour market. Silvio Berlusconi’s government, though, did manage to make a major reform of our labour market, whose effects have been acknowledged even by CER’s Lisbon Scorecard - notwithstanding Italy’s general placement as the “villain of Europe”. I’ll come back to this later on, however. The pension reform, begun by Lamberto Dini’s government in 1995 and followed up more recently by Berlusconi, was no less incisive – but its results will become apparent many years from now. The crux of the matter, in nowadays Italy as in the pre-Thatcher UK, has to do, however, with the prevailing ideological attitude toward the market economy. Italy’s post-war political system has been dominated, up until yesterday, by two forces: the Christian Democrats and the Communists. Deeply divided as they were by their respective international allegiances and their differing visions of the state and of individual freedom, they did share an explicit or implicit distaste for the market economy, coupled with a strong sympathy for state ownership. As a result, Italy had by far the largest state-owned manufacturing sector in Western Europe, producing anything from food to aircraft carriers. Up until the mid-nineties, almost the whole banking sector was in public hands. Thus, in order to recreate the conditions toward that virtuous circle of productivity and growth I referred to in the beginning, we need a profound cultural change. We need a profound change of attitude toward the market economy. This is far more difficult to produce than any package of specific measures. It is a slow and long and painful process, with no quick fixes. It is in this spirit that I took up the responsibility – assigned to me by the government - to draw Italy’s national reform program in the framework of the Lisbon strategy. The difficulty of the Italy’s Lisbon exercise is that it comes late – if not too late. We should have started at least ten or fifteen years ago. Now our growth problems have reached dramatic proportions, triggering those gut reactions of fear that led France to reject the draft constitution. This is the political message of the Italian Lisbon program, which I’ll briefly describe now. It is not a master plan. It is an Agenda of things to be done. It includes two types of reform projects, at cost and at no cost. When it comes to public spending, it is my considered opinion that the Maastricht train has always the green light with respect to the Lisbon train. Thus, the emphasis is mostly on competitiveness reforms at no cost, because it is there that our pro-market cultural revolution must lay. The Italian reform program – that we call Piano per l’Innovazione, la Crescita e l’Occupazione, or PICO – was approved last Friday 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 – the legge Biagi, from the name of his architect, Marco Biagi, who, while working on it, was killed by the Red Brigades: there is no such thing as no cost measures. The effects of the labour market reform - I was saying - 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. I must say that I found much of the same approach in Gordon Brown’s recent paper on “Global Europe: full-employment Europe”. Let me now say a few words on the vexata quaestio of the European social model. I am not advocating to get rid of the European social model - whatever that means. The problem, as I see it, is to put that social model on a sounder basis. What threatens it today is not the market ideology, as a large part of the European left seems to believe. It is the slowing down of Europe’s growth. It is not that one wants to do away with social security. It is, rather, that social security becomes unsustainable in a society in which the dependency ratio (active vs. non active workers) tends to go beyond 60%. There is a conflict here, just waiting to explode, between those who work and those who make a living out of the taxes paid by the former. To put it differently, it is not that social security must be reduced to prop up growth. It is that we have to avoid that the burden of social security destroys the basis of growth. This is Tony Blair’s central message in his last June speech at the European Parliament, if I understood it correctly. The distance between the British brand of socialism and the continental one is, unfortunately, far wider than the British channel. To sum up, let me emphasize again that the greatest asset of the Italian economy is its plethora of entrepreneurs, the makers of Italy’s economic miracle of the first two decades after WW2. SMEs are still the backbone of our economy. Given their dimensions, you cannot expect from them great efforts in terms of R&D, for example – that kind of investments in the future that only large economies of scale can afford. On the other hand, their strongest suit is their capability to innovate by small, quick and flexible incremental changes. Our reform program aims at re-creating the most favourable economic and cultural environment for them to thrive and expand. What we want to do, in a nutshell, is to rekindle the animal spirits of Italian entrepreneurs – you see, Keynes does not deserve to be associated only with deficit spending. If I were a foreign observer I would ask which of the two competing coalitions, is more likely to promote the changes in the direction I indicated. Can a coalition, which includes forces that in Germany the SPD was loath to ally with, ever deliver on the Lisbon strategy? Last Saturday, 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 the party of the Democratic Left and individual politicians from 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. If reducing the public deficit was the only problem for Italy and if a sound fiscal policy would be sufficient to solve Italy’s competitiveness problem, perhaps Mr. Prodi might be the right man, by doing again what he did in 1997. But if implementing the Lisbon agenda in the context of a pro-market cultural revolution is the correct answers to Italy’s competitiveness problem, then you may reconsider whether Mr. Berlusconi is fit to govern. Ladies and Gentlemen, the 25 EU member states have been working on their national reform programs – as of yesterday, nine countries had handed over to the European Commission their draft plans, including Italy. As you know, the Commission will now begin to review these national efforts and in time will issue a report on their contents and their on-going implementation. I have a question, though: is that all as far as the EU level of governance of the Lisbon strategy is concerned? Frankly, I do not think this is enough. I believe, for example, that it would be advisable to set up a special formation of the competitiveness council – to be attended by the member countries’ Mr. or Ms. Lisbon – to review ideas, exchange best practices and periodically assess what we are doing toward achieving the goals of the strategy. But this is just one suggestion. What I believe it is necessary now is to raise the political profile of the whole exercise. Lisbon needs a strong political impulse at the highest level. Who is better positioned to give just that than the current British presidency? I hope that this will be the focus of the informal European summit convened by the British Presidency for next week. Thank you.