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Tria: «Government commitment to the euro. And the debt will fall»

Corriere della Sera - 06/10/2018

Interview to Giovanni Tria by Federico Fubini

The Economy minister: «The government position is clear and unanimous. There is no discussion about leaving the euro. «If we used miniBots, we would solve nothing - we will pay suppliers on time and in cash»

Giovanni Tria, 69, is a professor with an ironic smile, behind which transpires an ability to toughen up for the things he believes in. He apologizes for not having a business card as Economy minister ("I haven’t had time to have it printed yet"): from the moment he stepped into Treasury palace in Via XX Settembre, in Rome, he’s done nothing but check data and files.

Minister, the government is having a difficult start. There is a large gap in yields on government bonds between Italy and Spain or Portugal. On short-term maturities, even Greece’s risk premia are lower. How do you explain this?
«The situation in international markets is complex in general. There is an increase in the price of risk and volatility everywhere. Against this background it’s normal that there may be apprehensions in a moment of stark political change in Italy. But the fundamentals of our economy are fine».

Investors do not seem to believe it. 
«Let’s stick to the facts. At any point in time over the past 25 years, Italy has had a primary surplus (before paying interest) among the highest in Europe. We can’t be accused of adventurous budget policies. We’re carrying a debt that comes from a long time ago, of course. But now we have a net international investment position almost in balance, almost as many claims as debts, and at this rate we will be net creditors in the rest of the world in a few years. We have a significant current account surplus. Are those objective elements for a financial crisis? I would say no. I explain this phase with the normal questions that accompany a political transition».

Several representatives of the government majority say: "We do not want to leave the euro". But this does not rule it out in case the market leads there. Are you determined to guarantee Italy's future in the euro area?
«The position of the government is clear and unanimous. There is no discussion about leaving the euro. The government is determined to prevent any emergence of market conditions that would lead to leaving the euro. It’s not just that we don’t want to leave it: we will act in such a way that conditions that could call into question our presence in the euro area don’t start to emerge. As Economy minister, I have the responsibility to guarantee, on a government mandate, that these conditions do not take place. The statements of the Prime Minister are along these lines and the government as a whole is responsible to the country».

Do the statements by politicians moving markets against Italy bother you? 
«A lively political debate is normal at the start of a government. There is a coalition with various points of view. It is an initial adjustment. But there is a program and attention must be paid above all to what the government says and does, starting with the President of the Council ».

The EU’s Ageing Report shows that the sustainability of the pension system in Italy has worsened. Is it really appropriate to dismantle parts of the Fornero reform? 
«I know that report and I’m aware of the need to ensure the long-term sustainability of public finance. The pension system legislation requires not only a look at the short term, but also at the medium and especially the long term. I think our pension legislation can be improved, but it will be done with attention to sustainability. Including the long-term one. We will study improvements, knowing that we can’t improvise on these matters».

But there are already many announced commitments: 12 billion euros to cancel the VAT increase, 2 for employment centers, 5 for pensions, then there is the launch of the so-called "flat tax". Where will the 2019 deficit come in? Within 2% of GDP, within 3%?
«The government has just taken office, so it would not be serious to indicate numbers before an overall review. The new budget will be presented with the Def (Documento di economia e finanza) update in September. But the budget will be fully consistent with the goal of continuing on the road of reducing the debt/GDP ratio. It is an explicit objective of the government, about which there have been clear statements from the President of the Council. There must be no doubts. In any case, the preparation of the note will follow a continuous dialogue with the EU Commission, of course. As is always the case".

Have you begun working on coverage? On the “fiscal peace” tax pardon? And how much budget room for maneuver do you think, for example, by reducing deductions and exemptions? 
«Regarding ‘fiscal peace’ we have to calculate estimates and simulate what can be achieved. As long as the norm is not defined, coverage or revenue can’t be defined. As for tax deductions and exemptions, I have already launched some analysis and simulations. For some of these tax expenditures you need to understand fully what they represent in order to assess their social impact. Others are part of our industrial policy and impact businesses. We need to look at the situation as a whole. But I would like to add something ".

Go ahead, professor. 
«We must not only discuss individual spending commitments, linked to individual program points and the search for individual coverage, considering the fact that on every measure there must also be financial coverage, including for constitutional obligations. The larger picture of the operation is more important: within the goal of reducing debt and deficit, the budget law will reflect basic choices on how and when to implement the program».

What do you mean? 
«We need to draw attention to the overall logic behind our plan. The goal is growth and employment. But we are not aiming to re-launch growth through deficit spending. We have a program focusing on structural reforms and we want it to also act on the supply side, creating more favorable conditions for investment and employment. In the DEF update in September I ask you not to look only at the bottom line, but also at the national reform program».

Is that program another of the many European bureaucratic steps? 
«Look, our focus on keeping the budget in order and reducing the debt is not there because Europe tells us, but because we need to preserve the trust in our financial stability. That trust is the premise of our strategy».

Then, how does the rest develop?
«The relaunch of public investments is crucial, decisive for strengthening the overall competitiveness of the country. They do not only raise demand, but help to increase the expected return on private capital, therefore they also bring more private investment».

Do big investment projects like the Tav or the Tap make sense too?
«Public investments are a driving force for medium and long-term growth. This is the importance of making fast progress on this front. And to ensure the re-launch in a first phase, the availability of additional financial resources is not crucial».

That is to say, they will be financed with the European funds and the Italian ones that have already been allocated?
«There are many resources available. But to gain credibility in Europe we need to resolutely remove all obstacles preventing us to use those funds: procedural ruling obstacles or those related to the failed strengthening of the administration’s technical competence. We are already envisaging a task force tackling those issues as soon as possible. We need to solve administrative hurdles and restore the administration’s technical competence to plan and implement the works. Over the last decades, that competence has been almost destroyed».

Is the goal confirmed to decrease debt in 2018 and 2019? 
«I confirm this is the goal. For this year everything has already been defined and I will oversee it to ensure that nothing changes. The 2019 goal is to go on. Evidently, how we will meet that commitment will depend on the new economy estimates».

Do you fear a slowdown? 
«We haven’t made the new estimates yet».

Mario Monti has been talking for many years about deducting investments from the Stability pact. What do you think?
«I’ve been writing about it since the 1990s. The problem is that even if they were deducted from the deficit calculation after a European agreement, we would be allowed to spend more, but that would affect our debt anyway. Of course, one thing is a debt reduction process with unbalanced current expenditures, another thing is a debt that decreases more slowly because of the increase in investment spending. The latter is better for confidence».

You seem to care more about market constraints than EU rules. 
«I care about both. We have to free resources within the limits of credibility. The Italian public debt is fully sustainable, as all international bodies say. We just have to avoid creating moments of mistrust because of factors not related to our economic fundamentals.»

Do you know what people fear in Berlin? Italy might try to threaten a debt crisis, if its partners don’t grant the more policy wiggle room. 
«I have already spoken with my German colleague Olaf Scholz. In Europe we discuss, we don’t threaten. And we don’t accept threats, and so do others. I think the dialogue will be profitable if each country, including Italy, will be able to clarify its arguments but also consider those of its partners. The goal is to enforce the national interest that coincides with Europe’s general interest. If all parties play like that, the convergence will be easy. My task is to convince our partners that my advocating national interest – I believe in it – is in the interest of Europe overall. I don’t think the dialogue is impossible. It’s all about restoring mutual trust.» 

France calls for common bank deposit insurance and a Eurozone investment budget. Germany wants monitoring on member States by a European monetary fund and debt restructuring procedures. What about Italy? 
«Scholz yesterday said Italian public debt is a matter for Italians and he’s definitely right. We agree with what France proposes. We want to move forward on many aspects of euro area governance and the Banking Union. I just say that: as for the monitoring, the EU commission has done a very good job, I don’t see why we should create an overlap with the intervention of a European monetary fund. More in general, we are not going to accept measures which, albeit unintentionally, may cause financial instability. Let’s avoid unintended consequences. Let’s be careful to avoid self-fulfilling prophecies. Italy is committed to reduce its debt, but for this process to go on we can’t accept proposals undermining confidence in our debt sustainability.»

Will you pay the commercial debts issuing mini-Bot like «parallel currency»? 
«The idea points to a real problem: the State’s debts to businesses. I believe that the best way to deal with it is to eliminate it at its root, to ensure that payments are made on time and in cash. Nothing is solved with solutions that only shift the problem down the line».

Will you go back on the reform of Banche popolaru and the Cooperative banks? 
«The government has just taken office and the topic has not been dealt with. There is always a need to strengthen the banking sector, but there has been progress. NPLs have already fallen by 25% in 2017. We will see whether there are reasons to strengthen the system, but reworking existing reforms does not seem to me to be the first problem to face. I want to remind you that we have participated in aid to contribute to European financial stability, we have never asked anyone for a euro.»

If the government pushed Cassa depositi e prestiti to play a very active role, Eurostat could consolidate Cdp in the state budgets and the debt would rise by 10%. Are you worried? 
«Cdp must promote development, but respecting sound management and being attentive to its income statement. As far as I am concerned, Cdp should stay outside the perimeter of the state. There is no question on that.»