“Breakfast With” is the brand new section of our blog.
Within this part of our newsletter, we would like to interview influential European leaders from fields including Politics, Economics, Science and Technology.
Person of the month:
Marco Gay, President of the General Confederation of Italian Industry -Young Entrepreneurs (Giovani Imprenditori Confindustria)
The General Confederation of Italian Industry commonly known as Confindustria, is the Italian employers’ federation and national chamber of commerce, founded in 1910. It groups together more than 113,000 voluntary member companies, accounting for nearly 4,200,000 individuals. It aims to help Italy’s economic growth assisting, in doing so, its members.
Dear President Gay, first of all many thanks for giving us the opportunity to interview you. As President of Confindustria Giovani, you are directly experiencing the deep changes in the economy. What is the role of Confindustria? Is it still able to play a compromise between the Industries, the Unions and the Government? What has changed?
At this point it is clear that in these years there has been a regression in the role of the intermediate parties – politics, unions, associations, etc – in the social, economic, cultural life of new generations. Such a deep regression is mainly explained and caused by social medias, that nowdays hold more importance than social relationships.
On the other hand Confindustria is the biggest manufacturing association in Europe: it connects 150.000 manufacturing enterprises (18%), but also in the field of services (14%), public and private, which employs more than 5 million people.
We have a big responsability: to transform the crisis of representation into an occasion. At a practical level, through an approach of subsidiarity by which every service which needs the proximity of the enterprise and of the territory – from the trade union negotiation based on the productivity to the promotion abroad of the specificities of a district – it must be done by the local Associations, because to guarantee adequate simplicity and velocity to the industrial system where authorization and bureaucratic processes have phases infinitely inferior. But, at the same time, this strategic localization permits to the “Centre” to concentrate over big national deals: from the industrial politics, by which we suffer the absence, to regulating principles of the labour market to transform the politics of consensus in strategic politics based on impartial analysis and capable to resist to changing governments.
Recently Confindustria has implemented a deep reform about its organizational structure. Is it enough or further changes will be necessary?
Restructuring doesn’t only mean to change assets but also substance: the unification of associations on the territory it is not done in perspective of mere spending review but of enhancement of the internal expertise to give to the associated enterprises better services. From the fiscal assistance to the one for the internationalization, from the trade union to the innovation, the one who joins Confindustria wants some competitive services that permit the enterprises to be more competitive in the market. Furthermore, they can strengthen the network and business opportunities. There are still implementations to complete, but I think that the direction is the right one.
Everything is changing, even the President of Confindustria. What should be the profile of the next President?
The maximux effort of the one who embodies the enterprises has to create the conditions in order to make wealth – acting on the factors of production that we know well, from the bureaucracy to the energy to the transports – and so to be faithful to this principle on the negotiation premises. That is defining pay politics which, over the minimun granted, are strongly linked not to predefined inflationary dynamics, but to the productvity of the individual employee and to the enterprise’s objectives. This is what Confindustria of the future, apart from its new president, must be able to bring back home. Under the specific profile, I believe that an essential factor is not the original sector but to have a President who understands the needs of the manufacturing and who is interpreter of a long entrepreneurial history, but that at the same time – because of the variety of our associative basis is the precondition of our strenght because when Confindustria talks, it means that all the employed Italy is speaking – he must be also able to represent the needs of people who provide services and of the start-ups and, above all, to integrate theese two worlds.
Let’s speak about the economy. What do you think about the reforms implemented by the Italian Prime Minister Mr. Renzi? Are they sufficient to boost the economy?
This government has certainly changed the pace to Italy: in two years there have been the “80 Euros” to more than ten million people, Irap to lower labor costs and tax incentives of JobsAct, the “superammortamento tax” to 140%, agricultural tax and the tax credit for the Southern Italy. But also the alternating training that although it has no immediate impact, it will have in the future over the level of our human capital. The results are evident: exports grew 4.3%, orders in industry looking to 2015 mark an increase of 5.2% (the strongest since 2010), and mortgages are at 97%. Furthermore, a few days ago, ISTAT has determined that the growth of GDP was 0.8%. If we think that the Government Monti had closed with -2.3% and -1.9% with Letta Cabinet it is definitely a good result. But the GDP volume is still below the level recorded in 2000 and other countries – such as Germany and the US – have taken advantage of more of the economic conditions (fuel, cost of money, increased orders) to transform what it looks like a fresh start in a real recovery. And, at the same time, without acting on domestic demand, which marks yet again deflation with prices coming down by 0.3%, we can not succeed. They need more consumption and more justice or stagnation – zero point more or less – could be secular.
What should be done additionally?
We need to invest! We have a debt exceeds 132 percent, or 2.17 trillion euro, and yet the Italian families have an immobilized richness of 4 trillion. This means that we are a country which spends but doesn’t invest, that doesn’t finance new works and new businesses but only current expenditure. We need, in short, a finance development: for intance, have been counted 845 well subsidized instruments that are obviously too many and not very effective. They must be re-organized according to a logical system capable of supporting the company throughout its life cycle (from the seed where hardly a start-up is able to access credit because they are too risky for venture capital, to growth, and up to the economic crisis). There are insufficient incentives for the private (deductions for those who invest in startups arrive at 20% while in the Uk touch pitch of 85%). There is a lack of the strategic public demand with direct investment, perhaps through the pre-commercial procurement. Because when the tools are there, Italy is ready to innovation: if we think, the Sabatini bis and superammortamento, are two measures which meant that in 2015 gross fixed investment returned to growth, with an increase of 0.8%, the first positive variation from the crisis. We have to go in this direction and release investment from a logic of rain incentives: we need a strategic industrial plan identifying growth drivers, the productions of excellence, the sectors with highest growth towards which converge these investments.
Recently, the Italian Banking system has suffered due to the financial turmoil caused by the soft landing of Chinese economy, the implementation of Bail in and the rumors about the creation of an Italian Bad Bank. The Prime Minister Mr. Renzi has recently approved the legislative reform about the “popular banks” and now is approving the “cooperative credit” one. These reforms will lead to a better economy of scale and major financial stability. What do you think about these reforms?
It is desirable, as pointed out by the Bank of Italy, a clarification of the exceptional nature of the way-out. This because, as analyzed by our Design Center, the new rules for bank rescues (bail-in), which impose losses on shareholders, bondholders and depositors over 100 thousand euro of crisis institutions, which are aimed at protecting the taxpayer, in reality, compared to systemic difficulties, they quadruple the cost to taxpayers than traditional bank bailouts. While some rules for banks recently adopted in Europe and others that are being discussed, all in theory aimed at strengthening the banking system and reduce the risks to the economy – are actually counterproductive. The proposal to place a limit on the purchase of domestic government securities by banks does not break the link between bank debt and sovereign debt. Banking systems remain “national” because in each country the yield on government bonds drives the medium to long-term rates, in particular, the cost of bank funding. Moreover, the limit will not flow more credit to the economy, in fact decrease.
Notwithstanding these reforms, it seems that a new wave of M&A between European banks and financial institutions is necessary in order to be able to face the challenges of the globalization and still be competitive. However, this scenario is obstructed by politics, because a new wave of M&A between European banks is mainly a political matter. Nowadays financial institutions represent the “National Champions” that finance the Public Debt and help the national companies to be more internationalized. What do you think about it? Is it desirable and feasible?
The banking union, as well as the fiscal one, are still incomplete and these are key priorities as these would generate the necessary tools to struggle systemic crises and to act not only on the monetary plane but also on the creation of wealth. The creation of the European Fund deposit guarantee, as proposed by the Italian Government, is a possibility that enhance trust through the sharing of risks and increasing financial stability, as well as the creation of a real European finance minister able to manage a budget with adequate resources and the transformation of the ESM into a European Monetary Fund. We need more Europe if we want to be competitive.
Banks, finance and capital markets. Give us a rating of the ECB’s QE.
Surely the QE of Mario Draghi was, along with the cost of energy, the main factor of development of the last months. However, in Italy, there are still pockets of vulnerability: the absorption of non-performing loans still proceeding slowly and the banking system appears to be weaker than the one of other countries. It is a limiting factor for companies that even if, thanks to QE, can count on a lower cost of credit, struggle to have access to credit. This will limit investments, innovation and growth. A set of interventions to immediately free up bank balance sheets, including the creation of more special purpose vehicles in which to transfer the suffering, the dilution of any losses over several years and the acceleration of the timing of realizing security, is essential to revive the credit and the economy. And this Italian and EU should collaborating.
Despite having low oil price, QE and a rising aggregate demand, the Italian manufacturing production is still low and did not recover to levels comparable to the 2007 peak. The problem is still the atomic dimension of Italian Companies. The result is that outstanding companies such as Grom or Piaggio Aerospace have been bought by foreign companies. What should be done by the Government and Confindustria in order to incentivize the mergers and acquisitions between SMEs?
Not only Grom or Piaggio! Companies that changed hands in these years of crisis are many more, with IDE in Italy of hundreds of billions. It is true that the size is a key factor to compete at a global level and often these acquisitions are an advantage for the companies themselves because they fit into the big international groups, increase the customer base and make scale and scope economies and synergies. The real question then is rather how many of our large companies are concluding similar operations abroad. But do not count only the absolute size: Italy should not aspire to become the country of the multinationals but home to companies with a size suitable for your market segment and with such a dose of innovation that allows them to continue to grow. Take the booming young entrepreneurs: 66,000 net customers in over a year, a performance that gives us for the first time a positive record in Europe, that of youth entrepreneurship. They are often highly innovative companies – as demonstrated by the more than 5 thousand start-ups recorded in the Register of enterprises which employ 22 thousand people. Here this is the real factor of development, and as the government and Confindustria we must support both the growth in size and in the integration with the traditional manufacturing companies. And ‘from here that was born the fourth industrial revolution, which can give a real boost to a production that in the past month increased by almost a point.
If you were Prime Minister, what kind of taxes would you like to reduce? With which priority?
Firstly, it will seem trivial, but I would start to collect in a systematic and effective way. We have a burden that is called tax evasion which accounts for 122 billion. Now if 2015 was a record year in the fight against tax evasion – with 14.9 billion euro recovered from the state – we should not be happy. It is a matter of tax fairness but also a key macroeconomic factor. Because the tax burden is still at 43.3% of GDP and only in 2011 was two points below. So what taxes to attack? We have said and repeated a thousand times: they aren’t those on rent – movable and immovable – but those at work and on the company, because if cutting taxes on houses is an electoral move that pays ruler, cut down on those who create wealth is a strategic move for Italy. And we need statesmen not politicians.
Does the Jobs Act work well?
I rely on Istat data: in January the employees on permanent contracts increased by almost 100 thousand on the previous month and nearly 500 thousand on a year ago. And despite the 100% relief on assumptions both fell, after one year, to 40%. Means that on one hand the labor market re-designed from the Jobs Act works better – is more reliable and simple and flexible on production requirements – and on the other that businesses once again have confidence in the future. This is an essential fact which tells us of an Italy not only in recovering, but also in which its citizens have more opportunities to build a decent future. Of course, the fact that youth employment remains at nearly 40% per cent remains the first national emergency to be solved, because the brain drain can cause a permanent net loss of highly qualified human capital, to the detriment of Italy’s competitiveness. In the medium and long term, as well as damage to an entire generation, it may undermine the prospects of Italy’s economic growth and also its public finances.
Are necessary other measures in the pension system?
The prediction made by the INPS’ president, Mr. Boeri, has recently made the headlines: the generation born in the 80’s will receive a pension lower than 25% compared to their parents. In addition, as certified by the Court of Auditors, the INPS 2014 deficit was closed at 7 billion Euros because, despite the spending performance has been constant over the two years is greater than the contribution revenue. It is so obvious that the pension system needs to be reviewed to make it more equitable, flexible and sustainable to implement. But do not just act on public benefits, they should be integrated with a complementary and private pensions up to it, as is done in Europe, and we must act on the revenue. In short, once again on the creation of jobs without which there can’t be any balance.
Spending review or not spending review?
In times of limited resources and limits on the financing of the deficit spending, a real spending review, aimed at reducing current spending and in order to reintegrate investment spending is more urgent than ever. It serves a reversal of the downward trend of capital spending, now at 1.4% of GDP, the lowest point ever touched. It serves to rationalize the purchasing centers and spending and reduce municipal. For example by digitalizing the PA could recover 3.6 billion that today costs us the technology gap in terms of services and times. This is called smart spending review and if companies in these years of crisis have made an impressive cost saving to improve its profitability, should succeed on this also the state.
Interviewer: Roberto Vacca, Head of Events at ESCP Europe Finance Society Translation: Francesco Maretto, MiM student at ESCP Europe