COME L’EUROPA CI HA PRESO IN GIRO – Giuseppe Di Taranto, Luiss Guido Carli

Welcome to and welcome to Giuseppe Di Taranto, economist and emeritus professor at the Luiss Guido Carli of Rome I would like to start with the declarations of 17 July of the International Monetary Fund, that revised downwards the estimates of Italian growth for 2018/2019 Then, remembering that the Monetary Fund International – for example – in 2015 failed to predict the impact of austerity measures imposed on the Greek economic system, I ask you: might it not be that these statements are related to the topic of custom duties? That is, to the trade war between Trump and China, Trump and Germany? Let me say immediately, regarding China, which I perfectly agree with Trump’s action because of course China uses dumping and unfair competition In one of my volumes called “Diachronic globalization” I defined globalization as the recomposition of economic systems, therefore substantially socialism and – in fact – democracy, through the market But here is a big difference because, while some countries like the United States and Europe and all countries – let us say – Western ones follow the liberal line of the economy, in reality, China has – in fact – exploited the market Let me explain: globalization is a process of internationalization of the economy China has internalized globalization using it against other countries and in particular against the United States This is because both these countries they now use the market, but politically they are completely different, they are opposite Being China, however, a socialist regime or (let’s face it) communist in all respects, she used an internalization process of globalization That is, in fact, she tried to attract inside all the companies that have relocated, but through a system that allows then China to use state aid, to use companies that are part of capitalism of state and not of market and therefore at the end unfairly competing with the United States Let me remind you that one of the intellectuals most important in the world today, Noam Chomsky, said that: “The mortality rate in the United States it has increased very much in those areas where unemployment was higher for the relocation of manufacturing industries and iron and steel industry ” And he added that: “This happened, previously, only in war times”, and this was Trump’s electoral message Why did you use the word “unfair”? After all, they are economic systems that work differently, it is not a given that America is right Chinese protectionism, after all, seems to have done well because thay are one of the very few countries where the average per-capita wage has risen in the last ten years, at least And it could not but go up, as China stands to become the world’s first power It is expected that in 2020 it will exceed in nanotechnology the United States, and that will be confirmed in 2050 as the world’s first power What is the underlying problem? It is that while in the liberal market economy model state aid isn’t expected to reach companies in China – which has a system, for heaven’s sake, in the just in the sense, that they chose it and they have always been like that – it has a collectivistic system, at that point with find ourselves with unfair competition model because some businesses (that’s why those Trump’s duties on steel and on aluminum ) because some Chinese companies either are wholly state owned or have huge contributions from the state Now, in a globalised market dialectic in reality this could not happen That’s why I defined it as decomposition (globalization) of economic systems – so capitalism, if you want collectivism -, however (alas!) it is the market

that has unified these two systems, but they remain completely different political systems And it is significant that in Davos it has been China who has strongly defended globalization Even Germany, however, uses a lot of state aid, even if disguised in some way For example, when we entered the Euro it was the first to overrule the Maastricht parameters financing businesses Look, I’ve always been very critical about the EU rules, but I have never advocated to leave the Euro, also because it would be a disaster: and Greece has taught us a lot Germany and many countries in the north are benefiting from European rules starting with the Maastricht Treaty Let me remind you that on the twelve countries who signed the treaty, whose focal points were: compliance with the 3% deficit / GDP ratio and debt / GDP at 60%, of these twelve countries – in 1992 – five were out of the relationship debt / GDP and four from the deficit / GDP ratio Yet the Maastricht Treaty was signed In many countries there were referenda and many countries (I’m talking about England, I’m talking about Denmark, I’m talking about Sweden, Norway said directly no), despite entering – in fact – in the European Union, they maintained some fundamental prerogatives The first: they renounced the Euro The second: they have maintained their welfare state systems This is very significant and also explains why, today, Britain has left the European Union In reality it is as if it had never been there You think that just during the Treaty of Maastricht the Chancellor of Great Britain wasn’t even present at the signing of the treaty Do you think they did not want – as is well known – the Euro, they did not even want to the charter of fundamental rights of European citizens on their territory You see, something that can make you smile, but that’s interesting, the evening of the referendum, when in the UK Brexit won with 52%, the question the most clicked on the Internet by the British was: but what is the European Union? Why would it be disastrous to leave the euro? (Exit)From the Euro would be disastrous – as I wrote in one of my books “L’Europa tradita” – because I define the Euro as a steel cage from which you can not get out (and Greece has taught us this) until the European institutions can not protect, therefore changing their regulations, a country that wants to go out I’ll explain If the ECB could – for example – be a lender of last resort and purchase the Government Securities of countries that wanted to leave the euro this would avoid speculation, but unfortunately this will never happen because the interests of the northern countries are such and many at the expense – unfortunately – of the southern countries Let me remember a fact that I believe is very interesting Today there is much debate – rightly – of the German trade surplus There’s a 2011 rule in Europe – it’s called “Six Pack”, – according to which a country can not, as a three-year average, have a trade surplus with respect to GDP over 6% Germany has been between 8 and 9% for years and has never been sanctioned But the most interesting thing is a chart that’s in my volume: “Europe betrayed”, where I have rebuilt these surpluses from ’91 to 2016 Well, what really seems to me to be emphasized for those who listen to us is that trade balances had a surplus compared to the GDP of Italy and France always positive until 2000 The only … the only – indeed – negative was the trade balance of Germany

Look, since 2000/2001 we then collapse in this graph, in the sense that we pass from a surplus to a trade balance deficit, while Germany flies and continues to fly until today Did this happen by chance? No! This is precisely the underlying problem It’s no accident because if Germany had retained the Mark it would still mean its currency would have grown in value by an estimated 40% So Germany pays in a currency – which is the Euro – that compared to its economic condition is a devalued currency, like other countries in the north And this explains the German exports boom In contrast, southern countries pay in a currency that is revalued (the Euro) compared to old currencies This means that we should have a Central Bank, one of last resort, but above all a Central Bank (as happens in all the countries of the world outside the European Union) able to be able, through discount rates, to regulate the various infringements that are occuring in the various countries and above all the different currency values This, unfortunately, is impossible There is a fact that few know You know that today – in fact – we have two schools of thought: that of austerity and that of growth The austerity one headed by a Nobel Prize and his students, that was Milton Friedman Well, few know that in 1997 Milton Friedman – therefore a monetarist and austerity leader – wrote: “If you create a single currency, as you are preparing it, the only countries that will benefit from it will be: Germany, Austria and the Netherlands ” And he was a supporter – as well as Nobel Prize – of austerity and monetarism What is surprising is that the year after, in 1998, a group of economists from the opposite school, new keynesian, wrote a poster that was called: “Against unemployment in Europe” It was the year when the ECB was born, 1998, in which they stressed that the ECB statute it was (and in my opinion it still is) wrong, because it can not have only one goal the level of inflation not above 2% and leave out completely – like the Fed and how they supported, these economists – the problems of growth and employment So here we are talking about Nobel Prizes, of two opposing schools saying: «You are wrong», but nobody gave them credit So much so in my volume “Europe betrayed”, I called this paragraph: “Nobel Prizes? All recommended!”, because obviously – maybe – it’s like that, since no one has ever listened to them And both the Nobel prizes of opposite schools were perfectly right At the beginning of this interview you were talking to me about Greece Here, look, Greece I believe that it is precisely the handheld example Now, if you read the newspapers even these days we say: “Oh! Finally Greece is back on the market, the ECB reappears the titles of Greece ” How much has this return of Greece on the market cost? How much is still costing, since the troika however, he gave another series of indications before leaving You are absolutely right! How much is still costing! Let me give some data – that’s a lot interesting -: 30% (not 3, 30%) of children born in Greece are at risk of total social deprivation What does it mean? It means that there are no hospitals no more medicines, means that poverty is such that we do not know if a family – so a mother – will be able to keep her baby or will have to give it up for adoption to others Pensions have been cut in Greece to 40% and salaries to 50% It is necessary to understand that the social balance is not given by numbers, but is given by the level of well-being of the population: Greece is now totally exhausted We talked before about Germany

Good! The troika has done everything to privatize (they made a special fund in Greece for privatization) and what happened? that in that fund there were also fourteen airports that are more lucrative to Greece because – somehow – they connect the most beautiful, the most important Greek islands Well, they were bought all fourteen by Germany On the other hand, inside the troika, the International Monetary Fund itself has taken a critical position towards the rigor that has been implemented in Greece and he always tried to say that it was necessary – and luckily he won -… that was necessary a greater – how to say – dilution of Greek debt and also a cut of the Greek debt Look, public debt – for example – Italian is not as dangerous as it is in Greece or in other countries because the problem it’s not the amount of the debt, the problem is the sustainability of public debt The moment in which in Italy there is private wealth which is three times our public debt, means that our public debt is not dangerous and it is not dangerous also for another reason, because 70% of the public debt is in Italian hands What happened in Greece in 2010/11? And why we arrived in Italy too at 575 with the spread? Simply because all the Greek titles – most of the Greek Securities – were held by French and German banks There was an agreement – right, right – not to sell these Greek Securities, otherwise we would have had an immediate default of Greece, between France and Germany The first to rescind the agreement was France in 2010 because – let’s not forget – the President of the ECB was a Frenchman They immediately began to sell the Greek securities and also followed by German banks until you get to the point that, once that these banks of Greek Securities had been released, in 2012 there was a Greek debt restructuring cutting it by 50% and that then was – substantially – charged only to the Greek banks that had – how to say – the remaining titles What does Italy have to do with it? Italy has to do with it because, since the beginning of 2011, they began to sell (both French banks and German banks) also Italian titles, but nobody knew it The thing was discovered after June 2011 because the banks have a semi-annual balance sheet which must present What did this cause? Beyond an immediate increase in the spread, that many American funds – which by law must have titles with a certain ranking – automatically, I mean I mean it was not speculation, the same computers automatically had to sell many Titles and this is how we then arrived in November to a spread at 575 And here’s an interesting thing that many, perhaps, do not know With the Berlusconi government, the spread arrived only four times over the 500 level When the Monti Government arrived (but the thing has passed completely unnoticed) the spread exceeded 19 times the 500 share So with these premises how can you reform Europe if until now they have always answered no and have they always responded with austerity policies? In fact I think it’s very difficult Would be very difficult and I can give you a counter test You know that in 2017 they celebrated their own from us, in Italy to the Campidoglio here in Rome, 60 years of the community were celebrated and the program of these festivities it was the implementation of a two-speed Europe There was this summit: nobody talked again about a two-speed Europe But something very interesting happened – and in my opinion, not very democratic like European institutions – that is, they arrogated the right of a reform of the euro, on that occasion,

Macron and Merkel Reforms that still need to be done, but that from the news we have will be made exactly according to the canons wanted by Germany The underlying question is: “But who authorized France and Germany to make the eurozone reform? But then do the European Commission, the European Parliament exist, do they have powers or not? ” Let’s never forget Merkel’s and Sakozi’s smiles and the consequences on our economy of those smiles Here I want to clarify that our economy is a solid economy We have already talked about the public debt, let’s say that even with regard to the deficit, we have not exceeded 6% for years and we keep in mind that the issue of flexibility was wanted by an Italian government And I would like to remind you that, either (I never do politics, I want this make it clear in my interviews) was a Left Government (I speak of Renzi) that argued that it was necessary to return to Maastricht What does it mean? As with the Fiscal Compact we should arrive at budget balance, wanted by the Monti Government, we managed to get flexibility with the Renzi Government, what does it mean? Agree what the annual deficit may be with the European Commission to get closer more and more to the 0.5% deficit that – in fact – is equivalent to a balanced budget But at the time Renzi said: «Let’s return to Maastricht», which meant “we return to a greater deficit to make investments that do not exceed 3%, but up to 2.9% ” This Government, this new Government we have in Italy I believeit will use the same systems I say “I believe” because we do not know yet, that is, to finance investments through a greater deficit But let me remember another important point: from the Berlusconi government, to the Prodi government, the Letta Government, the Renzi government has always been said that we must exclude from the 3% deficit productivity investments The last statement was made – I can be very precise about this – in March 2017 (just think) from the European Federation of Industries Did it happen until now? No! Yet the Italian economic debate these days tells us that we must increase investments because you know, you can’t increase employment with laws or regulations: you have to invest because investment create income and income creates employment That’s why the policies of austerity have – only in some way – made the economy degrow And we must therefore move from austerity to growth We should never forget (let’s explain it well to our viewers) that the Maastricht Treaty does not speak of absolute deficit and absolute debt, but it speaks of deficit / GDP and debt / GDP ratio Which means that if the GDP increases (wealth, growth), the ratio decreases and therefore Italy is more closing following the rules of European and European Treaties Many do not know that the German public debt is only slightly less the Italian one, however, as the treaties speak of ratios and they have a much higher GDP than ours, they find themselves at an advantage – with respect to European regulations – towards our country And we never forget that 85% of the debt German public is held by foreign investors, which means that when you need to give the funds – for example – to the state-saving fund and so on, they give them almost for free Instead, when we give this money, we do not do it other than by increasing our public debt And we are the third contributors to the state-saving fund

Can you offer some historiography of the steps they have led to the signing of the Maastricht Treaty? What was the socio-economic situation? then and, summing up, how do we compare now? Of course, I want to start from a given: everyone agrees – rightly – that our productivity has collapsed since the 1990s And it’s true! So then let’s take a step back From 1950 to ’92 (by coincidence ’92 is when there was the Treaty of Maastricht) Italy, France and Germany themselves have had a cumulative income for many years which, you think, it was even higher to that of the United States Then it was implemented in Europe – let’s say yes implemented – the premises of the European Union through the Single European Act of ’86 that has liberalized the circulation of services, goods and people – let’s say, in short – all of the productive factors, because then this is the method that you should use We also remember that the first to liberalize the capital in 1990 were Italians, then it came to ’92, to the Treaty of Maastricht and then in 2007 to the famous Lisbon Treaty Just think that even the Treaty of Maastricht did not foresee that a country could go out, from what will be the European Monetary Union So you have to ask yourself: how is it that we – that we were among the largest countries income: from ’50 to ’92 so not for a few years, but for a long time – we have seen suddenly fall in our productivity? Because since the 90s – and so since, how to say, the European adventure has begun – in fact our country has had to change completely many of its institutions? I’ll explain We had to resort to privatization, we had to implement a banking reform in 1993 because we have entered a system free competition in which – in fact -, except for some strategic sectors, it is prohibited the intervention of the State and – after 42 years, in fact, of development in the sense of cumulative income of Italy (as in France and as in Germany) Our crisis has begun Personally I think everything is due just to the fact that we were a country of mixed economy, think of the Cassa del Mezzogiorno – for example, no? -: extraordinary intervention of the State in the Mezzogiorno Here I like to remember that the only period in which the (Italian) north / south divide has diminished was precisely from the mid-60s to the early 70s, when the Cassa del Mezzogiorno worked best Then we entered a system that was completely different from ours, that is where the intervention of the State was forbidden, where we had to to privatize everything, banks have become public limited companies And I think this has influenced a lot on the fall of the economy of our country How important is political communication for economic purposes? How much does it affect the state economy? Communication is essential, I can also give you some examples First of all communication can damage – and not by little – a state In February – so before the election of our country – Junker made a statement (I think it was February 23 or 24) expressing all his fears about future Italian elections Well, if you go to see theEquity level of of that day, you will notice that at 2.30 pm, when there is this declaration of Junker, all titled collapsed Until 16.30, when Gentiloni claimed exactly the opposite Sometimes I wonder: who should pay these damages done to some countries for declarations

which – among other things – also prove to be untrue because we all remember that then, when there finally were elections, nothing at all happened So communication today is fundamental and – alas! – can be used as a weapon from a country compared to other countries We must never forget that we are the second economic power in Europe and so you know – let’s put it this way -: the more you spread the spread, the more we have to pay as interest on our Securities, less investments we can make, more other nations benefit from it According to you what will happen in Europe between now and 5 years? It’s hard to predict because if they changed those rules that, as we said, benefit especially the countries of the north at the expense of those of the south, the project would probably go on If this does not happen … I said that it is difficult to foresee why? Because I had called my book “Europe betrayed” But I think I would then have to make a new edition calling it: “Europe is over” Let me say that what is happening as regards the problem of migration, leave aside politically if you agree or less, it has already demonstrated the end of Europe if it will not change its course and it will not become a cohesive Europe, a united Europe in which substantially all the premises are not shown false promises