Remarks by Angel Gurría, OECD Secretary-General
Milan, 9th May 2011
(As prepared for delivery)
Minister Tremonti, Ladies and gentlemen,
It is a pleasure to be in Milan to present the OECD’s Economic Survey of Italy.
This survey confirms that the Italian economy is continuing to recover from the very deep recession that it shared with most OECD countries. Growth will be somewhat stronger in 2012 than this year, though still only around 1 ½ per cent.
Italy’s exporting sector is benefiting from strong world trade growth. Business investment is recovering, though public investment spending has been cut sharply. Such cuts are part of the government’s welcome effort to reduce public debt.
Private debt, by contrast, is very low in Italy. This is a fundamental strength. It indeed limits the potential impact of financial instability on the Italian economy.
But the Survey argues that more can be done to boost resilience. A combination of well-targeted macroeconomic and structural policies would help achieve sustained growth, as well as contribute to fiscal consolidation.
I shall now elaborate on these points.
Financial markets and fiscal policy, first
We know that short term pressures may revolve around financial markets and fiscal policy. These are closely intertwined.
During the crisis, the government acted wisely, limiting the increase in the deficit. This policy has served Italy well, making it easier to manage public debt. Moreover, pension reforms implemented some years ago, bolstered by more recent action, will ensure that pension expenditure will not increase substantially in the next few years.
This is a testament to prudent policy making. In fact, the Italian economic policy enjoys good credibility in markets. Targets for public borrowing have been consistently met over the past couple of years.
This bodes well for the future, including in relation to the targest of the latest Stability Programme.
Turning to financial markets, even though Italian banks did not participate in the kind of unwise lending that precipitated the crisis, including by maintaining a moderate exposure to fragile countries, they have been caught up in the aftermath. As a result, like many banks worldwide, they need to build up their capital positions. The government has been encouraging and assisting banks to raise capital, and many Italian banking groups have been raising capital themselves. This is appropriate and will re-inforce the solidity of the Italian financial system going forward.
Better policies, better lives
Still, we should not underestimate the challenges ahead. This is where the complementary role of pro-growth reforms becomes essential.
The National Reform Programme highlights many structural policy areas that need action and I am happy to note that there are many areas which were the subject of OECD recommendations in previous Economic Surveys.
Reforms are essential to boost economic growth and untlimately support fiscal consolidation. The idea that growth and fiscal rigour are compatible is a welcome feature of the Development Decree (Decreto sullo sviluppo), which the government approved last week. We encourage the government to pursue its objectives promptly and with determination.
A key contribution can come from labour market and competition measures that reduce barriers to job creation. The expansion of the short-time working scheme (Cassa Integrazione) has helped to restrict the crisis-driven rise in unemployment in Italy. Further reforms to reduce frictions in the labour market must build on this.
In parallel, the education system needs both to instil open and forward-looking values in young people and to prepare them for tomorrow’s job market.
Scientists and researchers from Italy are held in high repute. Yet Italians in many disciplines are often to be found making their names abroad rather than in Italy. And the number of foreign scientists choosing to work in Italy is small. At the same time, possessing a degree gives less of boost to earnings in Italy than in most OECD countries. These are just signs of a certain disconnect between education and the bojs market.
Based on experience of success stories in several countries, the Survey suggests reforms to strengthen Italy’s tertiary education, and thereby provide more rewarding jobs for Italians. Let me mention two of these.
First, university governance. Best practice in OECD countries is associated with independent governing bodies which represent the community and bring on board useful expertise, such as links with private industry. Under the supervision of such a board, strategic leadership should be separated from management functions. University leaders must have strong skills and appropriate incentives, so as to direct the strategy and oversee management.
I welcome the fact that the recently passed Education Law takes many key steps in this direction. It requires outside members with managerial or financial expertise on university governing boards, separates administrative management from teaching and research, and provides for strengthened evaluation mechanisms. It also provides for a better career structure for academics, combined with more performance incentives.
Secondly, private finance and university fees. I understand this is a delicate issue in Italy. In the longer run, a mass university education system requires a greater financial contribution from students. These students are the main beneficiaries, after all. This means higher course fees. This necessity is being recognised, often reluctantly, in an increasing number of countries. Reforms cannot be introduced in a hurry and without consultation. And they need to be accompanied by other measures to guarantee equitable access for the disadvantaged. For this, a system of means-tested grants and loans needs to be put in place.
The survey also contains a special chapter on Environmental Policy with focus on making green and growth compatible. It covers a number of diverse questions, from energy to household waste. Again, I will pick up just two.
First, policy assessment tools. Environmental Impact Assessment and Strategic Environmental Assessment are under-used in Italy. Beneath the jargon, these procedures are ways of ensuring that any damage that projects and policies cause is more than offset by other benefits. Such procedures need to be used judiciously, not to impose unnecessary burden, but they are important to maximise the welfare of Italians.
Secondly, I want to draw attention to a small but instructive point in the chapter. I was struck by something which shows the power of policy innovation. Waste management often attracts negative headlines in Italy, for good reasons. But who outside Italy has heard of the consortia responsible for recycling commercial packaging waste? This innovative system is an example of how well-structured economic incentives can be used to reach environmental objectives. It is also an example of how OECD member countries can learn from Italy’s policy experience.
With this small example of successful innovation, let me return to our starting point. Italy’s economy is recovering. Fiscal policy is set on a challenging path, but one which will maintain and improve sustainability. The National Reform Programme identifies important areas for further action, in line with many of our own recommendations. As always, we stand ready to support you with the identification, design and implementation of reform policies that will help you reach your goals.
Minister Tremonti, Ladies and gentlemen,
A founding member of the OECD 50 years ago, Italy has a continuing close relationship with the organisation. An Economic Survey is the occasion where, once every couple of years, we take a look at each of our member countries’ economies and we suggest ways to improve policies.
We aim to inform policy debates, of which today’s Apsen Institute Conference is very much a part. The Conference rightly focuses on ways to promote Propriety, Integrity and Transparency in the conduct of business and finance. These are the keystones of an economy which commands the support and confidence of the people and serves their needs and aspirations. Aspirations to do things in a different and better way.
It is with this in mind that a year ago, at the OECD Ministerial Meeting, which was run under the presidency of Italy, we endorsed the Declaration on Propriety, Integrity and Transparency. We look forward to further this discussion at our 50th Anniversary Ministerial, which will take place in three weeks, and we are happy to be able to count with Minister Tremonti’s presence.