Italian Prime Minister Enrico Letta, who met with President Obama on Thursday, spoke with Lally Weymouth beforehand about Italy's efforts to emerge from recession and spark growth. Excerpts:
Lally Weymouth: What will you discuss during your meeting with President Obama?
Enrico Letta: We have to reaffirm the strategic interest of our friendship—Italy and the U.S. We have to work together on many issues. We share the fact that after five years of crisis and austerity in Europe and the world, we need to have years of growth. Second, the main concern is instability.
L.W.: Are you worried about refugees coming into Italy if Syria continues to be so unstable?
E.L.: We are, because the situation today is out of control in Libya, Egypt, and Syria. We had a terrible tragedy [of refugees drowning] around Lampedusa [an island south of Sicily] some days ago. We [have] decided ... Italian ships and aircraft will patrol the sea between Libya, Lampedusa, and Malta.
L.W.: Is that to let immigrants in or keep them out?
E.L.: To rescue them if their ships capsize. We had a rescue operation two days ago saving 150 people, children and women. And of course we have to block the Libyan human traffickers—those who are creating these ships.
L.W.: You want to stop the organizers?
E.L.: The main problem is that Libya today is a weak country, so it is very difficult to deal with them but absolutely necessary to help. First, we must rescue people in the sea because we can't [allow] the Mediterranean to become a sort of death sea. Secondly, we also have to deal with the failure of some states, like Syria. We want to deal with refugees. In our constitution there is the right to accept refugees. The main problem is that we had a big change in migration trends. ... Ten years ago the migration trends were completely focused on economic reasons. Today, more than half are refugees from failed states.
L.W.: You have Syrian refugees?
E.L.: Yes, in Lampedusa, for instance.
L.W.: Many analysts call Italy, Spain, and France the troubled countries of the eurozone. Can Italy do enough to remain in the eurozone?
E.L.: We need to have a banking union in the European Council because if we had had the banking-union mechanism [whereby failing banks can be aided or shut down], we would have avoided the banking crises. ... Second, we need to have a stable situation in the markets. Since one year ago when [European Central Bank President] Mario Draghi said the ECB would do whatever it took [to buy government debt], that was the big change and stability came for Italy, Spain, and France. ... [This week] we approved in the [Italian] Council of Ministers the budget for 2014. And for the first time in five years, the general debt will be lower. The deficit will be 2.5 percent, so it will be lower than the 3 percent of this year.
L.W.: How will you do that?
E.L.: By cutting public spending.
L.W.: You're going to cut public spending? But haven't the unions already threatened to strike?
E.L.: Yes. They are not very happy, but I will convince them.
L.W.: Isn't Italy's deficit to GDP at 3.3 percent right now?
E.L.: We're at 3 percent for the deficit. ... The general debt today is 132 percent. ... Next year I hope we will have 130 percent.
L.W.: You're talking about debt-to-GDP ratio?
L.W.: It's horrendously high.
E.L.: Yes, it is. The main problem is the lack of growth. [But] the debt next year will be decreased, the deficit will be lower, and public spending for the first time will be lower. And, fourth, we will reduce taxes for the first time in years.
L.W.: From what to what?
E.L.: Today we have a tax threshold that is 44.3 percent. At the end of three years, it will be reduced to 43.3 percent.
L.W.: If you cut all these things, where will you get revenue?
E.L.: From a privatization process. I think now the markets are ready to buy and we will sell public assets. ... Fincantieri, for instance—a shipyard. We will sell one part of Terna, which is the national electric grid. Of course, not 100 percent, but 49 percent. We will present this privatization plan, and I think it will be a very important step. ... The other main issue is the cut in public spending. That is, of course, not easy, but I think it is necessary.
L.W.: In order to attract outside investment?
E.L.: In order to have the budget completely under control and to have low interest rates. That, for a country with such big general debt, is absolutely decisive. We need low interest rates. Today, I am very happy that we have reached the lowest interest rates in two years.
L.W.: What is that?
E.L.: It is 4.2 percent on a 10-year bond. It is the best result in two years. For me, personally, it is a big result because the success of my government is linked to lower interest rates. It is a way to restore confidence in the markets.
L.W.: You feel you are restoring confidence in the markets?
E.L.: Today's result is a fact—it is a concrete achievement. I am happy about that, and we have to continue.
L.W.: What are the central elements of your economic program?
E.L.: Cutting public spending, privatization and, of course, the cut of labor taxes. That is the main issue for pushing growth and jobs.
L.W.: What is the reaction of the labor unions?
E.L.: They are happy about it. It gives companies the chance to give more jobs with lower taxes on labor. The problem with unions is that they want more cuts on labor taxes. But of course, to cut labor taxes is not easy because we need money.
L.W.: You feel Italy is on the path to financial recovery under your government?
E.L.: Yes, we are, because next year we will reach the targets I stressed, and these targets are absolutely necessary for having lower interest rates.
L.W.: What about your banking sector? Many analysts worry about the European banks.
E.L.: Our banks were obliged to recapitalize with public money for 3 billion euros in these last five years. It was, in the eurozone, the lowest level of public money for saving banks in Europe. It was a demonstration of the solidity of our banks and it was just for one bank—Monte dei Paschi.
L.W.: Only one bank needed capital?
E.L.: Yes, and only 3 billion euros, which is peanuts in comparison to Ireland, the U.K., Spain, and so on. This is the demonstration of the solidity of the Italian banking system. We in our budget passed some important tax rules to give them more capitalization.
L.W.: What if Italy ran a stress test? The U.S. banks had to mark down their balance sheets.
E.L.: The ECB and the banking authority at the European level ... are very tough with the stress tests. And the Italian banks passed.
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