As the third largest economy of the euro area, Italy can’t afford to let its growth engine sputter. The euro area economy is reaching a much awaited turning point and a gradual recovery is underway. We expect it to grow firmer in the coming months and to speed up over the course of next year. But statements suggesting that "the crisis is over" are premature. We all know that this crisis is no ordinary cyclical downturn. Its origins lie in the large and unsustainable macro-economic imbalances that were allowed to accumulate over many years. That is why both in Europe and in Italy we have to embrace structural reforms. This will require hard work and political determination.
The European Union has consistently pursued a comprehensive strategy to fix public finances while implementing economic reforms for growth. This has reinforced confidence in the European economy among market participants and the general public. And for investor and consumer confidence to grow further and to lift domestic demand, political stability is crucial.
Against this background, the European Union has collectively asked Italy to take urgent action. The Council in July made a series of recommendations to Italy: reduce the public debt; implement reforms in labour and product markets; and improve the functioning of the administration and justice system. With one of the highest labour-tax burdens in the EU, Italy was also urged to shift the tax burden away from productive factors.
Three months on, where does Italy stand? Progress is being made but continued structural reforms are essential to enhance Italy's growth potential and tackle unemployment. Earlier this year we were able to recommend to the Council to abrogate the excessive deficit procedure for Italy. The procedure is closed, but Italy will need to live up to its commitments – as the Italian government has repeatedly stated that it will.
A deep fiscal union can be only created through a profoundly democratic process, at both national and European levels. Any step towards increased solidarity and mutualisation of economic risk must be combined with increased responsibility and fiscal rigour – that is, with further sharing of sovereignty and integration of decision-making. Moreover, at the current juncture, we must address the weaknesses remaining in our banking sector. Progress with developing and implementing the Banking Union is crucial to bolster market confidence and underpin long-term financial stability.
We took a major step forward with the adoption of the Single Supervisory Mechanism last week. The next is the creation of the Single Resolution Mechanism, which will aim to ensure that the use of taxpayers' money is exceptional and minimised. Any funding needed for bank resolution should thus come primarily from the industry itself.
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