"The euro has defended Italy," says Katainen

How do you judge the creation of a new government in Italy?
We welcome the appointment of the new prime minister and we look forward to working very closely with him. Hopefully the political situation will stabilize and Italy can move on after the referendum.
 
Are you disappointed by the referendum result?
We always respect the people's will. You may disagree with the substance, but like always a democratic referendum is the most important thing, and the Italian people decided what they decided and we do not have anything to criticize.
 
How concerned are you that the political crisis can put on hold the reforms that the European Commission has encouraged Italy to implement?
 We have full confidence that the new prime minister and the new government will continue with the same policies as the previous government, because the economic reality has not changed. The Commission is ready to support the Italian authorities and the government to do the necessary reforms. The political changes have not changed the economy and the referendum did not change the economic reality, so we expect Italy to continue to pursue reforms. This is not because of the EU or the Commission, but for the sake of the Italian people and the future of Italy.
 
The Commission saw a risk of fiscal slippage in the 2017 budget. Now that a new government is in place, will you ask for additional corrective measures?
 We don't have any additional demands for Italy. The Commission has communicated very clearly what we do expect from the Italian government, so we expect that Italy will continue with the same path as the Renzi government had committed to do, so no news on this front.
 
The new government may turn out to be a caretaking government. How can one realistically expect it to implement the kind of reforms, such as cutting public spending or reforming the product market, that the Commission wants Italy to pursue?
A government is always elected to govern. This is no different even if there is a caretaking government. Governments are always temporary because there are elections. We expect that Italy will do what is necessary to do to achieve better growth prospects. As we have seen, even before the economic crisis, Italian growth was below the Eurozone average and everyone agrees that this is because of the structural weaknesses of the economy. This is why the Renzi government decided to implement reforms and we expect that the new Italian government under the leadership of the new prime minister will continue to do so. It is only for the sake of the Italian people and Italy as a country, not because of the Commission.
 
There have been moments of tension between Matteo Renzi and the Commission. Do you expect to have a better relationship with the new Prime Minister?
We had good cooperation with Matteo Renzi. Of course, there were differences every once in a while, as it is always the case in politics, but I have nothing to criticize Matteo Renzi for, he has pushed forward an ambitious reform agenda, and we welcomed it, because Italy needs reforms.
 
Let me turn to the situation of Italian banks. Are you concerned that these problems could spin out of control and create a new banking crisis in the Eurozone?
The Italian authorities have had strong views and good plans to deal with the Italian banking system and we trust them on this. Even though there is political turmoil, we trust that the Italian authorities know what to do. There have been challenges for quite some time, but the authorities have worked together with the banking sector and the EU authorities to ensure there is stability in the financial sector. We do not have any other expectations than for them to continue with the same policies.
 
There is a concrete possibility that in a week time, Italy may be forced to inject government money into Monte dei Paschi. Are you not concerned that, once again in the eurozone, taxpayers' money is being used to rescue a bank?
We do not comment on any particular bank. The situation is sensitive and Vice-President Dombrovskis Commissioner Vestager are the ones in charge of these issues, so I cannot comment on anything relating to this particular bank. More generally speaking and not only in relation to the Italian situation, we have rules in the euro area in order to defend the interest of taxpayers, so the Commission stands ready to advice the Italian authorities if there is any need, but I do not want to speculate further. The rules are there to safeguard the interest of taxpayers, in the case of a banking crisis.
 
Would you encourage Italy to seek help from its partners via the ESM, as Spain did?
I will not comment at all on this because the situation is completely open and I do not have any specific information on particular banks.
 
The Eurozone is continue to recovery, but how confident are you that this will be felt by ordinary citizens, who have been struggling with high unemployment for a long time?
There are some very encouraging results in our economy at the moment. The Commission is expecting the Eurozone to grow by 1.7% this year and by a similar amount in the next two years. Growth is coming back, it is quite OK, but of course it should be better. Looking at the unemployment rate, it is lower now than in 2009. We are almost at the pre-crisis level or very close to it. This is a very positive issue: the better employment we have, the better it is for the people as they have more opportunities. This is a significantly positive change. Also, looking at the issue of structural reforms, what the member states have done so far has been quite significant. The fact that we have managed to get relatively robust growth back is because of the structural reforms. So, reforms are bearing fruits. When looking at investment, this is peeking up, but it is lower than the long-term average. This is why we need to work on this field more.

What can be done?
On the investment side, projects to strengthen the European single market, for example the Capital Markets Union is very important. Another one is the European Fund for Strategic Investment. On this, Italy is an example to the other countries. In terms of the number of EFSI projects, Italy is number 1 in Europe. Italy is a very creative economy, one of the most creative in terms of adding value, thanks to its small and medium enterprises and their ability to innovate. Italy is using the EFSI funds to such an extent that 190,000 SMEs could benefit from them. I know there are many more SMEs in Italy, but this is a significant number. So I must congratulate Italian banks and the national promotional bank on this issue. This will help Italy to reform its economic base. Even though Italy is a very competitive industrial country, the competitiveness in the medium and long-term comes from its SMEs and access to financing has been one of the bottlenecks in Italy. EFSI is helping significantly to reduce them. I am sincerely happy that the Italian authorities have been so active.
 
You are right to point to the supply-side bottlenecks, but some would argue that the real problem facing Italian firms is on the demand side. The Eurozone has approved a new fiscal stance. How significant do you think this will be?
On aggregate level, it would be good if our fiscal stance were slightly positive. The Commission used the working assumption at in an ideal world there would be a need for a +0.5% positive fiscal stance. This means that the surplus countries, the countries that can afford to stimulate their economies, could do it, but there is only a handful of countries that can do it, really. Most euro area countries cannot do it because they are in a situation where they need to defend their credibility. What we need at the moment to boost demand is that the countries that can stimulate the economy could do something more and those countries that cannot raise deficit and debt levels, these should do structural reforms that would liberalise the economy and create a better market environment. The combination of fiscal stimulus with better competitiveness is a tailor-made solution for the euro area. This means that we need decisive governments that can pursue vigorous reforms in the individual countries, otherwise we are just in the middle of gradualism. Things will get better gradually, but sometimes this is too slow.
 
Would you include Italy in the second group of countries?
Italy is certainly a country that cannot afford to do more fiscal stimulus, but Italy is a country that should reform itself and has said openly that it wants to do so. Hence, we support very strongly the reform agenda the country has had for a couple of years now.
 
Do you think the Commission does enough to encourage countries that could do more to stimulate the economy further? Would you agree that you are much tougher towards the countries that need to cut their deficits?
We have encouraged surplus countries to stimulate demand, but the Commission cannot tell any country to raise their deficit and debt. So the reason why for the first time we issued the whole euro area fiscal stance was that we wanted to raise awareness that we do not have to only look at the situation country by country, but that we also have to look at the euro area as a whole. That's why the moderately positive fiscal stance was mentioned: it is a message to the countries that could afford to do something more. But it is not a magic wand: basically, the euro area member states should shake their hands and agree that those who can afford to do more are ready to do so, and those who have to do the reforms are ready to do the reforms. The worst case is if the wrong countries do the wrong thing, so surplus countries increase their savings, and countries that do not have fiscal space increase their deficits. That would not be a good thing.
 
Just to be clear: in the group of countries that could do more you would include Germany.
Germany is one of the countries. There is also the Netherlands and other small countries, whose impact on the Eurozone is more limited than Germany and the Netherlands.
 
The ECB's expansionary monetary policy is helping to unlock credit to the economy, but there are some who think that these measures are delaying structural reforms. Don't you think there could be an issue of moral hazard? For example, Italy has used the extra savings on interest payments to cut taxes and increase spending rather than to reduce debt levels.
The ECB has played a significant role in ensuring there is stability in the Eurozone and we never comment on its policy as it is independent. I fully agree with what Mario Draghi has repeated time and again, that while the ECB is stimulating monetary policy, the governments should reform their economies, otherwise the monetary stimulus does not help. This is quite a simple and understandable message. Governments should do their part while the ECB is preserving stability.
 
Let's turn to the interaction of politics and economics. Some see the referendum result in Italy, or the rise of anti-establishment forces across the eurozone and in Southern Europe in particular, as the result of the excessively tight austerity policies. Do you think this interpretation applies, for example to the Italian case?
Looking at the rise of populism in Europe and elsewhere, there seem to be a lot of different reasons, not only fiscal policy. For instance, the US presidential elections have nothing to do with fiscal policy: populism played a major role, while fiscal policy had been loose. So it is too simple to say that responsible fiscal policy is the reason for populism. In some countries, some political movements may oppose responsible fiscal policy and they may be in favour of larger public deficits or debts. But looking at populism more generally, I would not say fiscal policy plays the only role. In the cases where fiscal policy is one of the reasons for populism, what is the alternative? If governments or politicians decide that because populism is rising, that is a good reason to destroy our national economy, I do not think this is responsible. Difficult things are always difficult and all those people that are offering easy and nice solutions to complicated problems, they are usually wrong. Responsible political parties and politicians should make that clear. I know it is politically difficult and may be politically costly to do so, but politicians are elected to govern a country in a responsible manner. Sometimes this is easier, sometimes it is more difficult.
 
The 5 Star Movement, now one of the largest parties in Italy, would like to hold a referendum on the euro and is asking that the Italian government rescue the banks ignoring the EU's rules. Why should Italians ignore these messages?
I do not want to interfere in the Italian political debate, because our role in the Commission is just to ensure that all the member states are reliable to each other and respect the same rules. The EU is not like a menu where everyone can select the course they like the most. This is a Union of values and of the rule of law, it is very important to remember that every single member State is not reliable to the Commission but to the other member States. Our destiny is shared and that's why everyone should play according to the same rules.
 
It seems that convergence at level of the euro area has slowed if not stopped altogether. Do you share that concern?
I am concerned that our economies are quite divergent. Looking for instance at the future of EMU, the number one thing that is needed is convergence in the economies, otherwise we cannot take care of each other. So the basis of the economies should be healthy and everybody should have a more competitive economy basis. I think convergence is the number 1 priority in the Eurozone at the moment. It will take some time and it is never easy, nevertheless all the member States are in a situation where the economic reality has changed because the economy around us has changed. This is why all the member states should reform accordingly. The current situation in the currency union is not optimal, that is why the Commission is paying attention to convergence, meaning we are encouraging member States to reform their economies. One of the issues that is little talked about but that to my mind is one of the most important is the quality of education. If you compare the Member States in this respect, there are huge differences. Education, knowledge and skills are some of the main drivers of an economy. Also, it is one of the main issues when looking at the huge resilience of our economy. It is quite surprising that these kind of basic things has not been higher on the agenda.
 
There are many people in Italy who think the euro is not working for them. Italy has traditionally very supportive of the EU and of the euro, but this support has seen a pretty sharp collapse recently. How would you respond to these concerns that are becoming quite widespread among the public? Why are the euro and the EU good for Italians?
Looking at the stability, what Italy has enjoyed in the last few years and especially at this particular moment, that shows that the euro area has defended the Italian economy. Italy's economy would be much more vulnerable without Europe at the moment. The challenges of the Italian economy are very structural in nature. During the first decade of the existence of the euro, Italy's growth was significantly lower than the average in the Eurozone. The widely-shared view is that this was because of the structural weaknesses of the Italian economy. That is why even if Italy were not a member of the Eurozone it would still be forced to reform its economy. I consider the Italian economy one of the most creative in Europe, especially its SMEs and its manufacturing sector. I do not know where exactly that comes from but the ability of Italian people and companies to create added value is phenomenal, that is why it is sad that the societal structure does not help to obtain higher economic growth at the moment. The euro has supported Italian growth, it has defended stability in Italy but the currency itself cannot do everything. It is the governments that are responsible of reforming the structures of the country. I know this may sound boring, because people have been repeating these kind of opinions on structural reforms for many years, but there is no shortcut to the success.
 
Is there anything which you as the Commission can do to be perceived as closer to the needs of the Italians at this moment of disengagement?
Nothing more than what has been said so far. The government knows the strategy very well, and the Commission shares it. The question is that all these projects that have been identified as ways to overcome bottlenecks of growth should be implemented.