Handelsblatt 21 April 2011

The path of virtue

Corrado Passera sees the German economic policy as a model for Italy

In 2010, Italian exports returned to approximately their pre-crisis levels. Widening the reference time horizon, the figures show a country that, since the introduction of the euro, has defended its market share in foreign trade deftly, while all the other major OECD economies have lost ground. The only significant exception is Germany, which has gained market share. This show of resistance and reaction has been underpinned by the competitive strength of the 200,000 exporters that make up the backbone of Italian by a manufacturing. This system has proven its mettle at innovating and effectively propelling itself onto international markets - as clearly demonstrated manufacturing balance of trade of 41 billion euro. In contrast with the erroneous perception of Italian business as an industry made up of companies that are too small and too uncompetitive to operate in mature sectors and that obviously struggle to take part in internationalisation processes, the facts instead demonstrate that our manufacturing industry is capable of attaining extraordinary positions of global leadership, often alongside Germany. These successes are reached in fields such as industrial automation, fashion, home furnishings, and the agri-food business: all sectors and industries where demand is growing fast, especially in emerging countries. The virtuous similarity with Germany, however, stops there. On the two key indicators used to assess the performance and success of an economy (GDP growth and job creation), the comparison between the two countries in less comforting. In terms of GDP; Germany has now almost completely recovered the ground it lost with the economic crisis, recording a V-shaped economic recovery. Italy, on the other hand, is crawling out of recession with extremely weak GDP growth. At these rates, it will be 2015 or 2016 before the economy returns to its pre-crisis levels. On the job creation front, the economic crisis in Italy put paid to over 600 thousand jobs, plus the hundreds of thousands of workers that have been placed on temporary welfare schemes or that, discouraged, have left the job market completely. Conversely, German employment rate is higher than in 2007.

Obviously, much more can and must be done to improve the competitive standing of Italian businesses, especially those that are still struggling to find outlets in international markets. In particular, we are talking about almost 600,000 firms only in the manufacturing sector. Incentives for innovation and internationalisation, as well as for growth in business size, need to become part of an industry policy which, without giving in to command temptations, may boost a modern and competitive organisation. The widest gap between Germany and the Italian national economic system can be observed in their competitiveness and efficiency. In this case, efforts need to be concentrated on structural reforms. Germanys capacity to integrate economically its former East and West parts in just 20 years should be an example for a country that in 150 years has not managed to overcome its North-South dualism. Italy should look to Germanys ability to reform industrial relations so as to tie productivity and wage growth, as well as its capacity to combine tax discipline with selective public investments in strategic infrastructures. Germanys federal model should also encourage Italy to reform its institutional framework, where understanding who decides what has become increasingly more complicated, making the decision-making process costly and clumsy. Solidity, in terms of economic competitiveness, goes with solidarity. The reforms needed in Italy to make the economy more competitive must be accompanied by measures to strengthen social cohesion, which today has been torn to tatters by rising unemployment and underemployment, especially among young people and women. There is also the issue of dynamism and the method needed to unleash the social and economic energy of the population. Competition, meritocracy, and equality of opportunities are concepts that should become a bigger part of the Italian economic policy vocabulary. Even on this front, Germany has useful lessons to give. Its model sets not only an economic, but also a social example of how to combine competitiveness with the battle against inequality and the promotion of social mobility. No easy recipe exists to kick-start growth and job creation, no single wonder cure to resolve the situation once and for all. Rather, Italy needs a strategy capable of thrusting into action all four engines of economic growth: competitive businesses, efficiency of the national economic system, social cohesion and dynamism. Italys banks, thanks to a business model firmly focused on services for the real economy, have sailed through the crisis unscathed and, even in the most difficult times, they stood staunchly by the side of businesses to boost their competitiveness and by the side of households to put into action their plans. Banks in Italy represent a solid and competitive pillar of the national economic system, but they also have a further, precious role to play in the other engines of growth. By acting as a bridge between the

various economic and social players, banks bring together the public and private sectors. They fund infrastructures, universities and businesses and promote innovation, venture capital, financing of corporate reorganisation and growth, as well as the profit and non-profit worlds to strengthen social cohesion. Banks inspire confidence and, therefore, can inject the fuel needed to keep the propulsive force alive of all the engines of economic growth. The author is the CEO of the Italian banking group Intesa Sanpaolo