Venezia, 3 giugno 2011 Workshop Council for the United States and Italy PASSERA: Thank you.

Thank you very much for the invitation and thank you very much for the kind words by David. The only very important piece of information that was missing in the CV and I have to tell you because you have to find a reason for me to keep smiling despite the lack of nice information is that less than a week ago I got married! So thats (applause). Second thing I would have said, if Sergio Marchionne were here, is that I want to congratulate him for the way he represents our country in the United States so even if hes not here, I want to stress this point because (applause). And there, before we start, for sure, a number of people in this room could discuss the issues and the topic that I was given much better than me, but I was given this task so I will do my best to try to answer a question that at the beginning, when we first discussed the topic, was, is it worth investing in Italy? Then we said, lets talk a bit broader. Lets talk about if it is worth or not investing on Italy, because one of the lessons also of the recent crisis is that if you want to understand very much in depth if a country works or not, the economys only a part of it. You have to look at countries with a broader view, so I will try to go through it. In any case, the answer, as far as I am concerned, to both questions, is it worth investing in Italy and is it worth investing on Italy, is a yes. Its a yes that I will qualify. We will go through a number of strengths of our country; we will go also through a number of weaknesses. What is good about the strengths is that we are not taking the best out of them yet so it is an opportunity for us. And as far as the weaknesses are concerned, I would try to prove that they are manageable. We can address all of them and the solution to most of our problems is certainly within our reach. In any case, as the words are said in English, we have to be cruel to be kind. Lets start with the problems. We certainly are a country that is not growing enough, that is not creating enough jobs, new jobs. Second, we have a massive, we have a very big public debt that is a limit to our growth and, for sure, we are not a country attractive enough for the international community. So these are things that are clear. As far as growth is concerned, we have been missing at least one percentage point per year, vis--vis not China or India, but vis--vis the average of the Eurozone in the last 10 years. Its a lot because in 10 years its more than 10%. In terms of money, we lost almost 700 billion. We would have more than 150 million more each year just by growing at the same speed as the Eurozone. So we have to accept, we have to take into account that there is a problem, there is something that is missing. We have to build; we have to foster sustainable and sustained growth in a new way. Having said that, our growth is solid growth. I mean, certainly, we have not enjoyed a growth based on over-debt. We have certainly not suffered from real estate bubbles. So small, not enough, but solid

growth, thats the first point. Second point, the public debt is certainly a problem, is certainly a constraint, is certainly a weakness of our country, but we have to acknowledge that we are managing it in a very decent way. Certainly, we have been courageous enough to go through the reform of our pensions that was the real bomb, the real bomb around the corner for our public debt, and we are one of the very few countries that has gone through a real reform based on the new demographics of our country. At the same time, we must acknowledge that our government, even in the worst part of the crisis, has managed our deficit, our public deficit, in a very effective way. Not many countries in Europe have kept the primary deficit at the level we have been doing in the last few years. In front of the public, very big, the public debt, we have a private sector that is certainly less indebted than most private sectors in other countries in Europe. Households, corporates, are certainly not very, very in debt and if we put together all the three debts, and so we make a total debt of the country, Italy is certainly not amongst the very top indebted countries. So thats another important point. In front of this total debt, the total wealth of the Italian households is very significant, seven, eight times total debt. So there is no relationship. You cannot use the wealth to cover the debt, but a country where households and corporate are not indebted and where there is this reserve of savings and of wealth is certainly something that the international community has to take into account and, in fact, it takes it into account, given the way our public debt is looked at. Another important point is that we have, and I represent this industry, in the last 10 years Ive been a banker, we have a solid banking system. We have a real economy-oriented banking system that has gone through the crisis very strongly. No bank has asked for money to the government. Our resilience, our model, has proved to be very resilient to the crisis. Credit never stopped. Figures say very clearly that the credit flow into the economy never stopped. Today, since a number of quarters now, the credit volumes are growing faster than in the Eurozone and in Europe in general. So this is another important strength from the financial point of view. Last, the third weakness I mentioned before, the lack of attractiveness for international investors is certainly true in terms of size. I mean we have only 400 billion worth of foreign direct investments. Other countries that are more or less similar to ours, like France or, Germanys a different animal, but they are well beyond one trillion, but what we see in the last few years and certainly in the last months is a growing interest coming from the rest of the world. Before we enter into a possible action plan to foster growth, sustainable growth, in our country, let me make a last point because all of you know very well Italy, but a number of international people are not aware of something that is very important in analysing our country. Our country, if we look at it from a purely statistical point of view, if we take the statistical Italy that comes from the average of everything, that

comes from the average of the different regions of the country, actually does not exist because we have two very different opposite countries within the country, both with opportunities, but that are so different amongst each other that when you average them, you create a purely statistical country that does not exist. We have nine regions in the north and in the centre of the country that, if we keep them and if we consider them a European country, this country would be at the very top of the European rankings in any respect; employment, export orientation, industrialisation, quality of life. Were really talking about, if not the first, one of the very first countries in Europe. Then, we have a number of regions that create a theoretical second country in the country, in Italy, that has a totally opposite situation where things have to be built, where there is room for growth, by definition, because were talking about regions that are amongst the worst-performing in Europe, the least growing in Europe, but this kind of difference. So many regions above European average and so many regions below European average is a situation that does not exist in other European countries and its something that we have to take into account because, again, let me say that for the last time, never look at average as a representation of Italy because its really an average between two very different situations that need a different diagnosis, that needs a different therapy, that have different levels of opportunities. In the south, for sure, as theoretically opportunities that are even higher than the northern part of the country that, I want to stress it, is already one of the richest, most active, most performing regions of Europe. If we want to address all our problems, the answer is, the instrument is growth, sustainable and sustained growth. So we have to try to understand whether or not a new phase of sustained and sustainable growth is possible in a country like ours and in order to answer this question, we have to identify the main engines of growth for a country like ours and evaluate altogether if these engines are available, if these engines are working properly, if we can accelerate these engines. Which are the engines? In my opinion, a country like Italy can base its long-term sustainable growth on four main engines and each of them has a different performance we have to take into account. First is the competitiveness of our companies, firms competitiveness. Obviously, thats the most important engine and we will elaborate on it. The second is, whatever is around companies, is the productivity, the efficiency of the country system, all those elements that are not controlled by companies but are very important components of the overall competitiveness of the system. We will mention some of the elements, education, justice, etc. But competitiveness is not the only part of a long-term sustained and sustainable growth phase because social cohesion and social dynamism, the energy that is part of the society and of the economy, are the other two important engines. So we have four engines and these four engines have

very different performances. Competitiveness of our companies, on average, and I will give you some figures afterwards, strong, good engine, engine moving in the right direction. Social cohesion, I will give you some evidence to prove that its a strength of ours. Its an engine pulling in the right direction. The other two engines certainly are pulling in the wrong direction. One is the countrys overall productivity and effectiveness, problems that can be solved but that have to be addressed because the performance today is not positive and the dynamism, meritocracy, mobility, speed of the decision processes, very, very weak. So we have two strong engines, two weak engines. Two wheels that go to the right way, two wheels that are slowing down the country. What do I mean by that? Lets take the first engine, firms, companies competitiveness. We are one of the most industrialised countries in the world. We have enjoyed a performance, also in terms of exports, rather positive. I mean we are one of the countries that has lost the least in terms of market share in international trade. Only Germany has performed better than us in terms of market share in international trade. Were very strong in a number of industries that will enjoy enormous growth also in the future. Were second only to Germany as far as the machinery, as far as industrial automation is concerned and emerging countries are asking for a lot in those industries. We believe that globalisation will be an opportunity for us. Lets consider, for example, the hundreds of millions of new consumers for Made in Italy and Made by Italy kind of products in any industries. Lets take, for example, tourism. Its already 10% of our GDP and may be double in the next years if people just do the right things. We have a very diversified and so sounder kind of economy than many other countries in Europe. Service industries are growing, but at the same time we have a strong manufacturing sector. We have a strong, even if small, agribusiness kind of activity. We have a lot of tourism. I mean, its another strength that not many countries can put on the table. What should we do to make companies competitiveness even stronger? What should we ask entrepreneurs and what should we give entrepreneurs? What should we ask entrepreneurs and what should we, as banks for example, support entrepreneurs in doing, certainly is increase innovation capabilities, increase internationalisation kind of investments and for achieving those two objectives, we have to increase, gradually but in a very determined way, the size, the average size of our companies. We suffer, we have five million companies, but on average we still have a too small size of these companies and when a company does not have the critical mass, cannot invest in the two main competitive weapons that are innovation and internationalisation. So those are the areas we have to ask our entrepreneurs to invest in, to concentrate, and what, for example, banks have to do to help them. What should we give them? Because, as a system, we certainly are aware of a number of competitive disadvantages and some of

them are, for example, energy costs, weight of bureaucracy, labour regulations. That certainly does not help the development, the growth, the creation of new companies and where certainly things have been done even recently but certainly we have a competitive disadvantage. A tax system, a fiscal set of rules that does not support companies that invest, entrepreneurs that pour money into their company, that does not reward companies properly enough when they hire people, when they hire young people. So these are the things where we are working, things that are clearly within our reach and where we can certainly do something rapidly to support the effort by our entrepreneurs. So the engine number one is a good engine, is an engine that proved to be strong also during the crisis, is an area where room for growth is certainly available because, as I said, globalisation for a country like Italy is an opportunity and not only a threat. So engine number one, not bad. Engine number two, the competitiveness of the overall system, the efficiency and effectiveness of the country system, thats an engine that has to be at least partially fixed, and the main areas where we have to invest and concentrate our efforts are infrastructure, because we have accumulated quite a gap in terms of important, critical infrastructures. My estimate is that the gap we have accumulated vis--vis the main competitors, our European competitors, is between 200 billion and 300 billion euros, that on the one side is a problem, on the other side is another area of opportunity for growth because we can invest, we can develop at least 100 billion in the next few years without jeopardising our public accounts, just by speeding up the procedures that are the main problems in this area. We have a lot of money that has already been devoted to these projects and simply not used because of these procedures. We can involve private money. We have created a bank for the infrastructure projects and for the partnerships between public money and private money so there is a number of these infrastructures pay for themselves. There is a lot of money available from the European Union that is not used or certainly is underused in our country. So we have this reserve, important reserve of growth that is also a part of the second engine. The second part of the second engine is education. Education is an area where our country has to invest more and something is happening also there and when I say educational system, I mean all the levels. University, university today are very dispersed, very few poles of excellence, but where a number of them are performing very well, but there is room for quite an improvement. We have to invest on the primary and secondary education because the skills needed by the new world, by the global world are, to a certain extent, different and were not providing those skills in the proper way. And then there is the middle part of the educational system, the technical and professional levels, where we have quite a number of very interesting examples of things that can be done, but tonight were simply making a list of the things we have to do. Education

is certainly one of the most important points and Bank of Italy has made an estimate recently that says that at least one percentage point of GDP can be achieved with better investment in the educational system. Always also on the second engine, the country system productivity, we have our justice system. That is another area where we have to invest, where we have to introduce a number of reforms because the performance is very poor. Both the civil and the criminal part of the justice system is an area where we have to do a lot, where we find one of the main reasons why international investors are not investing, because the timing of the justice decision is such that its certainly not in favour of those who invest. And the last important point in this country system productivity engine is certainly the Public Administration, the Public Authorities way of working and, as David mentioned before, I personally have the evidence that the room for improvement in the area of whatever is state-owned and public-managed is enormous. The room for improvement is really enormous. I mean we took the Post Office. It was one of the worst in Europe. They used not to keep the Post Office in the rankings and in the averages at the European level because the performance was too poor and, at the end, we became one of the very first, both in terms of profitability and in terms of service level, but without doing magic things. Just by finding and developing the potential that was inside. And the same kind of approach has been done in a number of other areas, can be done in a number of other areas, so this is certainly an area that today is not a strength of the country but where room for improvement in a reasonably short period of time is not small. Third engine, social cohesion. Social cohesion matters and even recent history has proved that countries where people stay together stronger, where the safety nets are better managed and designed, where people are not afraid of the present and of the future, are countries that perform better, that are more resilient to crises, that are more open to growth. This is an area where our country has a number of strengths. We have a very good, in general, welfare state system. We have a very good, at this point, pension system that very few countries outside of Europe can say the same. We have a strong healthcare system, one of the best in the world, even if the performance in the different parts of the country are very different but, on average, were talking about one of the best healthcare systems in the world. Obviously, we have to invest more, as I said, in education. We have to invest more in terms of policy for developing employment, flex security. We have to invest more on whatever has to do with the family policies. But I mean these are things that are very much easy, if I can use this word, while the big blocks are strengths of ours. If we talk about social cohesion, we have to mention a part of the society, not only of the economy, the so-called third sector, whatever is known profit that is a very strong strength of this country. Were talking about four, five million people. Were talking about tens of billions of euros in

services provided by foundations, social companies, NGOs, whatever has to do with non-profit organisation, thats a strength in terms of social cohesion we have in the country. When we talk about social cohesion, we cannot forget that we have a problem that can also become an opportunity because social cohesion, welfare state services are mainly funded by public money and today we have a problem in our country that goes under the title of fiscal evasion, evasion, people that do not pay their taxes. This is an area where we can improve reasonably rapidly. We are talking about 100-150 billion worth of non-paid taxes that, you understand very well, in a few years, even if we collect part of it, can really change the face of the country. Last engine, dynamism, because its not enough to be competitive, its not enough to be cohesive, you also have to have the energy, the dynamism, the will to grow and dynamism is made of many things. In some cases, we are reasonably strong, in other, we are not. Social mobility, US is the example of what social mobility and meritocracy can create in the medium term. These are two areas where our country is not that strong. Doesnt mean that everything is not working according to meritocracy, but there are still a number of areas of our country where meritocracy is not the rule of the game; where seniority is the only rule of the game. We are fixing it, we are changing it in a number of areas, but its still an area weakness. Competition, competition is the rule of the game in most industries, but not all of them. We still have a number of areas of activity. Take, for example, public services at the local level or some professions where those markets are not open to competition and we know what competition can do. We have lived with the evidence of what an injection of competition can create in terms of growth, its the banking system itself. We were a very fragmented non-competitive, very locally monopolistic kind of bank, most state-owned until 15 years ago. Some courageous and wise politicians have been good enough in liberalising, obviously through, with the right controls, privatising the old system. And this combination of liberalisation and privatisation has created an enormous increase in competition that has led to restructuring, to consolidation, to the creation of a number of rather big banks. Today we are one of the most open banking systems in Europe. We are one of the most competitive because we have any kind of banks also coming from other parts of the world but, at the end, the final effect was growth, was improvement in service, was better prices for the consumers. So if we can use the banking system as an evidence of it, we should use this way to increase competition in a number of industries to foster growth. Last point, that is a very important point if we want to understand our country properly and has to do with dynamism, has to do with decision mechanisms in our country. Especially from an institutional point of view, this is the reform of the reforms, as we say, is a reform that if we succeed in doing we really change the face of our country. Today the decision mechanisms are really almost

blocked because we have so many institutional levels internally, the state, the regions, the provinces, the municipalities, and we have so many entities always involved in any kind of decision without none of them the responsibility to get to the final decision in the due time, that today we are in a sort of situation where everybody has a sort of veto power without the responsibility and without paying the cost of the veto. So if I had to choose the first reform and the easiest from the economic point of view, because it really doesnt cost anything, I would tackle the decision mechanism that are responsible for the immense duration of the process, for example, for infrastructure. It takes 10 years when things could be done in one or two. So Im saying that because I think that the objective, the goal of these discussions amongst us is to understand together what is working well and what is not working well and where we should concentrate our efforts and together with our US friends, we want to share what we are doing. Certainly this component, this element of our social and economic life, is certainly a weakness of ours. So, in summary, from these metaphor of the four engines, we have two very strong engines, engines that if you dont have them, it takes decades to create them. Company competitiveness, social cohesion are two very strong platforms on which to build the new phase of growth. We have to work on the country system, on the country productivity, education, justice, infrastructures and public authorities, and we have to have the courage to inject into the system those elements that have made our country, and for sure the US, very successful countries like, again, meritocracy, mobility, speed in decision and competition in general. Is it feasible? I mean can we do all these changes? I think so because in a number of cases, as I tried to tell you, we have already done things that other countries have not. Pension reform is one of them. Certainly we have to speed up. We have to tackle some of these issues. We have lost some time on a number of them. For sure we need the cooperation of all the components of society, because if you want to make those two engines work in the proper way, you need the collaboration and the contribution of business, of trade unions, of politicians, of media people, of the cultural people in a country, and what we probably need most is a leadership capable to have all these components work together with a long-term view because one of the main problems in many countries, not only in our country, is the short-term, is just to look at things that can be done in the next weeks or years. Some of these things have to be done with a system view, with a vision that is long-term, and in our long-term, and also in our present, Europe is the most important framework to take into account. And hanks to Europe, we have done most of the things we have done, most of the things we have achieved. So the answer to the question is and remains yes. I wanted to share with you not only the good parts and the good reasons for being optimistic, but also the other components of our country that without exceptions can be fixed in a reasonable

time by ourselves. Thank you very much. (Applause) HELENIAK: A very few questions, but Mr Passera is prepared to answer. PASSERA: Is prepared to try to answer. QUESTION: Where would you start? I mean youve put on the table a number of pros and cons, but you have to be selective. Where would you start? Considering that I have some difficulties when you said we have a very good healthcare system. HELENIAK: We have? QUESTION: A very good healthcare system, but thats unimportant. Where would you start in terms what we should do first to make Italy more attractive to foreign investment? PASSERA: The answer might be disappointing for you, but I would not put things one after the other, because if we put things one after the other, a century it would not be enough. What is very important is to have the global view and to put all those engines - I used the metaphor of engines - in parallel, and there are different people taking care of the different engines obviously, but if we want to reach what we have in mind to reach, we have to have them being fixed and being running at the same time, because each of these engines can block the others. If you are competitive as a company but not as a system, if you are competitive but you dont have social cohesion, if you have social cohesion but there is no energy in the system, you dont get the results. So what we badly need is a plan, is a total integrated plan where the different things are being invested, designed and implemented in parallel. For sure, in the short term, what I think can trigger a new phase of growth has to do with companies performance and, for sure, whatever supports and whatever rewards investment and innovation and in increasing size and in internationalisation is number one. The second thing that I would put in the immediate, because it has immediate results and long-term benefits, is the acceleration of infrastructure projects. So if you ask me to choose two to start, I would choose these two. But if we dont work on an overall plan that at the end brings all the engines at the same speed, very rapidly, we dont get the results and only when the four engines work at the same speed you get that fuel that is the fuel of all the four engines, that is confidence. People today are non-confident about the future because they dont feel they are part of a plan, they are part of a long-term design for their country. So the answer is yes, lets do immediately something, but lets put the four engines in parallel. HELENIAK: Another one. QUESTION: Quite a very wonderful speech. A very precise question. You talk about growth and innovation so my question is quite specific, its about venture capital. Venture capital was almost an unknown word until a few hours ago in Italy. We are improving and just remember that now in these days, probably there will be some

young kids in United States that are creating new companies that all together, like Google, Facebook, Twitter, YouTube, blah, blah, blah, in 10 years time they will have 80% of GDP of US, so its a terrific engine that push the growth of a country. So, in your opinion, what Italy can do to increase dramatically this kind of topic? PASSERA: I totally agree and, for sure, we have a number of proposals on the table. We have to have a proper regulation for venture capital, something that is very well known and very well developed in other countries like in the United States and that today is certainly not rewarded from a fiscal point of view, that is certainly not facilitated from a trade union point of view. Its an area that has not been well covered by regulations and the development of new companies is another sub-engine of engine number one. We, as a bank, we decided to not wait for the rules, for the new rules about venture capital and to invest in a number of them, but we simply have to copy what the US has been doing in the last century, not even decades. (Applause)