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Exclusive interview with Minister Padoan: “Ferrovie and Poste IPOs within 2015”

by  Fabrizio Forquet

FORQUET Mr. Padoan, last Friday the Government approved a new step in the labor market reform. It is an important step, but unemployment is still very high. Will it be enough to stimulate employment?

PADOAN Businesses want to saturate their production capacity before increasing it through the hiring of new employees. For this reason, empirical evidence demonstrates that a recovery in employment arrives always with some delay with respect to a resumption in productivity. The speed with which employment will increase depends on trust: if the positive expectations of entrepreneurs are consolidated, they will rapidly prepare themselves so that the production capability is adjusted to the growing demand.

FORQUET The implementation of the tax reform has been delayed several times. Why?

PADOAN It is not true that the reform has been postponed. It is a very broad reform, a veritable operation entailing an extraordinary overhaul of our tax system. One part has already been launched and is operative. In fact, in 2015 for the first time the tax return will be precompiled by the tax authorities.

FORQUET That is only a small part of the job, perhaps just 15%....

PADOAN It's an important improvement in terms of a new approach in the relationship between the tax administration and taxpayers. In any case, a package of further changes containing important news for businesses was scheduled for the Council of Ministers last Friday, and it was postponed to the next Council only because we considered it important that Italy could be represented by the Finance Minister in the Eurogroup meeting that was taking place the same day in Brussels. The package will be discussed at the next Council meeting, then, in May, we will present the last package that concerns the tax audits, the administrative and criminal litigation, the tax collection.

FORQUET The privatization of state–controlled enterprises was often announced, then postponed or even stopped. Why should markets believe that this is the right time?

PADOAN Italy has done much more than other countries to progressively withdraw the presence of the state from the economic sectors where the market can be more efficient. There are still sectors that can be opened up to competition, aiming at creating greater efficiency and better services for the citizens. This is the case with the railways and postal services. In any case, we decided to renew the management of the state-controlled companies that operate in these sectors because we don't want to sell off our national assets but enhance them. And to do this, we have requested them to review their business plans. In 2015, we will make available to private investors the capital of these companies, as long as market conditions will allow us to achieve appropriate values.

FORQUET What will be the next move? Enel?

PADOAN Enel is a listed company, the sale of a block of shares is a financial operation to carry out when market conditions are favourable. In the case of the postal system, on the other hand, capital is made available so that private investors can contribute to the increased efficiency of the company and the sector. The IPO will be launched within the year, but even here market conditions are an important variable.

FORQUET Northern European countries fear that ECB’s Quantitative Easing will reduce pressure to enact painful reforms. Is this fear grounded?

PADOAN I am convinced that this is an unfounded fear for two reasons. The first is that the negative implications the reform can produce in the short term can be better addressed in the favourable phase of the economic cycle. The second one concerns the speed with which the results are obtained: with a recovering economy reforms function better. For these reasons, responsible governments know that this is the moment to accelerate the reforms as the Italian government is doing.

FORQUET Why should financial markets believe that the huge Italian debt is sustainable in the long run when the ECB “protection” expires?

PADOAN Because the ability to repay debt depends on income generation, on the capacity to create wealth. When the effects of the QE end, the growth of Italy will be more intense and sustainable because in the meantime the reforms that we are working on now, will have increased the competitiveness of our economy. But I want to mention two other points. Above all, the wealth of the country as a whole: the sum of the public debt and the private debt of Italians is lower than that of many other countries, where the public debt is lower but private individuals and enterprises are more indebted than we are. The second concerns the demographic variables and the pension system: the European Commission affirms that under current legislation Italy is the country with the most stable financial outlook of all of the European Union.

FORQUET The Italian budget seems close to EU approval. But will Italy meet EU requirements in order to avoid a macroeconomic imbalance procedure?

PADOAN The Commission has already recognized that the measures of the Stability Law make the requested corrections that are considered sufficient. As far as the debt is concerned, it is high but sustainable for reasons that I have just explained. The ratio between debt and GDP in recent years has grown,but not because Italy has not kept its budget under control; as a matter of fact, I recall that we have an historic series of primary surpluses longer than any of our partners. The problem is the almost ten points’ fall in GDP, that was accompanied by a fall in inflation. And, despite all of this, we have been among the main funders of countries in crisis. Excluding these special factors, the decline of the debt would have already begun and will, in any case, begin soon.

FORQUET Italy is struggling to emerge from its longest recession since World War II and is expected to return to growth this year. What will make the difference between success and failure?

PADOAN After the measures taken by the government with the budget law, success in 2015 depends largely on trust. If consumers, families and businesses have a greater confidence in the future, higher available income, hiring incentives and the other mechanisms to encourage investments will translate into growth. However, we are aware that this confidence depends on the government's consistency in implementing the reform program. And I have no doubt about the determination of the government in this regard.

FORQUET It is often said that investments are paramount. What is the Italian government doing to stimulate both foreign and national investments?

PADOAN Above all, we have introduced measures to open up the credit market to alternative channels to banking, because the financing of businesses in Italy is too unbalanced, with banks taking the lion’s share. We have also promoted investments in research and development through the tax credit. During the Presidency of the European Council we have promoted an investment plan that was launched by the Commission’s President Juncker.There is still much to do, but we will continue on this path of simplification and of opening up the markets as we did again last Friday with the Competition Law.

FORQUET What about the Italian “political risk factor” after the breakup of the pact between Matteo Renzi and Silvio Berlusconi on political reforms?

PADOAN Italians want the reforms. All of the political representatives know this, and no one can stop them