countries a growing economic nationalistic sentiment. so the single market has been less and less a wished for development and more and more a resisted development. but even the noun, the market has been somewhat in crisis because many in europe following the financial crisis have been putting in question intellectually and politically the notion whether the market economy was after all the best vehicle to generate growth and employment. so not an easy time for a single market. let alone for a global european economic policy which wanted to bet on a stronger single market. but now i think we are really at the moment where we have to work in that direction if we want to make growth a reality in europe.

and as i hinted already six years ago in this room, the paradoxes that there are many countries within the euro zone, therefore, which live the life of the monetary union which, however, do not really do very seriously their job as regards to economic union. because in many continental countries, large continental economies which are key to the euro zone, we find less compliance with the rules of the single market of competition, of market openness than we find on the averaging countries like the uk, denmark, sweden, poland. and these are all countries which do not belong to the euro zone but which are more

compliant and more, indeed, intellectually in line with market principles. this can perhaps explain why my government in italy is investing a lot in, of course, making use of the fact of having been readmitted to the meetings with the heads of governments of journal any and france. and to play with them in order to provide passion to the eu processes. but we invest, i would say, more than either of these two in the relationship with the uk, with poland that is with countries which although not belonging to the euro zone or not yet belonging to the euro zone can put pressure on us for us all to

become a bit more of an economically integrated real entity anticipate real single market. and i think it's really a pitty not because we propose the think but i think because it would be hurtful if prime min stister one occasion of the european council on the 9th of december where he finally decided not to stay onboard of the fiscal compact agreement. he did not go down the road that we had suggested for britain, namely, do ask for a prize in order to stay onboard, a treaty which is politically painful for you to ratify at home. but please ask for an acceptable prize like a stronger commitment on the part of the euro zone

countries to accept which would have been in the interest of the uk and the other noneuro countries a big movement forward with specific deadlines concerning the single market for energy for services, et cetera. but please don't ask for conditions that we could only reject because they will be regressive relative to the process of integration like exactly what he asked for, namely, name ly, the rule on an future decisions on financial regulation which we could not accept and was not accepted. but this is just an observation on the link between the policy corporation lines that can be established within the eu and the different degree of adherence to the key elements of

this composite set of countries, the fiscal discipline, growth, single market, et cetera. let me come to a conclusion by saying that if a country wants to be coherent, if it pushes at the eu level in order to see a concrete policy with deadlines which we hope we will get to in order to stimulate growth through more single markets among other things, then that country has to be coherent domestically and not only will have to comply with a budgetary rules, but will have to be even more insisting on structure reforms domestically so that it can have a market which can cope with a challenges of being in a more and more real single

market. these are the two lines budgetary consolidation and more structure reforms that our government is committed to in italy. i kept the objective that my predecessor had set an agreement with the ecb and the european commission. and that was done last summer in a moment of extreme financial emergency for italy only this, you believe, can expect the fact that the italian government accepted to balance the budget by 2013 which means a couple of years before the other member states. and after a very quick reflection, we decided to stick with that commitment. although, some macro economists could contend that was the opt

mall cause. but i think from a political point of view in europe, we would have lost any authority and ability to influence developments if we had presented ourselves first with the demand for more leniency. so we put together quickly a package adopted by the decree law and then quickly converted into law by the parliament to achieve this balanced budget by 2013 which will imply, by the way, a 5.5% of gdp primary surplus, so net of interest payments which will be the highest in the euro area. and we have introduced by decree law something unheard of in italian but also in other member states, most of them history of structure reforms through the

decree law a form of the pension system going into a fully contribution based system and with the increase of the retirement age to 67 for men and women by 2017. this was done by decree law with only three hours of general strike which means that -- no, no, no. i say this not to denote the weakness of the labor unions. they're not weak. but i want to stress the maturity of the italian public opinion including the labor unions which accepted a major -- i mean president sarkozy couldn't believe we had without people in the streets for weeks done that structure reform. and then we proceeded in the

month of january to a package again by decree law in order -- and this would be the politically perhaps most difficult but we will see in the next few weeks. i think we will bring home the conversion into law by the parliament with many more changes to the package. to really introduce much more competition and opening up in the -- in areas ranging from the liberal professions to the -- to a topic that one gentleman at one of these tables has been following very closely with a high degree of responsible awareness mixed with concern

about the unbundling between the gas generation and the gas distribution systems. so all things going in the direction of more and more competition and openness which i believe could only be done through a very strange government like the present one which as many of you will know does not enjoy a structured majority of a coalition of parties. but enjoys or has so far enjoyed the constant support in parliament of parties which hardly speak to each other coming as they do from a high belligerent past. they support this effort only if whatever we do budgetary consolidation or structure

reform is bold enough and preferably costly enough because, number one, these are the things that they have -- they could not have been putting in place. and secondly, if a party from the right has to support a reform squeezing out some errands from the legal professions which are in their constituencies, they will accept these only if we do a pension reform, for example, in a area which is more a constituency of the left with equal boldness. so there is a virtual mechanism of distributing pains in a homogenous way which makes -- which insures that we maximize the number of people who are

unhappy. for the time being, these were necessary things. and for reasons which i cannot really understand. the general trust of the government policy seems to be supported by a very high percentage of the public opinion. it's not that they resist being governed. they had a pent up demand for governance. it was the political system that perhaps was a bit hesitant normally to supply that governance that decision making that after all the people were already and maybe willing to see

in place. i don't want to give anyone the impression we forget the labor reforms. this is the third big pillar. budgetary consolidation, liberation and competition and labor reform. there we cannot even we cannot -- and do not intend to proceed by decree law. so there are negotiations going on. they will be concluded by the end of march. and they will -- they are being oriented in the direction of reducing this is something the imf, the eu, the oecd recommended to italy, reducing the segmentation of the labor market, reducing the uneven treatment between the insiders

and the outsiders who cannot get in, mainly, the young. and also changing the nature of some social protection mechanisms so as to reduce a bit the distance between italy and some nordic countries in having more flex security, namely, a closer kpatibility between labor market made more flexible and modernized system of social protection centered on the individual worker but not on the individual job as was the case for so many decades. now, this, ladies and gentlemen, cannot be a -- of course it cannot be an unbiassed report

that i am submitting to you because i'm certainly very, very biassed although i as well as my ministers -- no, i will say that i am like my ministers but we have with us here the foreign minister. no, we should have had the foreign minister but he had a meeting at this time with the secretary of state. certain of the ministers are by no means here but at any rate, most of us are. but we are putting together this strange experiment and we cannot say, of course, how the final results will be. but we do feel that without the exaggerations with which fred

bac baxter started these interductsry words without exaggerations but we feel there is a link between the degree in which italy succeeds in shifting from being a problem to being an element of the solution. i think we're rather advanced in that. but the degree to which this experiment will prove successful in italy and the degree to which italy will be able to exercise influence on the overall course of eu policy making towards a compact for growth in a fiscally compacted europe. and i feel, we feel that there is a great similarity of feeling and policy perspective between the u.s. and the eu in this

respect. and this is an additional huge reason of interest and commitment on our part in being in washington today. and i hope that although i've been exceedingly long, fred, there will be some time for us to be able to benefit from your and the other guests critical remarks and suggestions. thank you very much. >> thank you. we're all very strongly supporting you, encouraging the success of what you said and we're very heartened to hear

your report. tell us about your growth strategy both for italy or europe. what is a reasonable expectation for resuming economic growth if italy. once the fiscal con sal dags takes place, the reforms begin to take effect. what could we look for as a growth target for italy over the coming medium term, and can you give us any estimates of the extent to which the reforms you are now putting in place might generate that growth, any quantitative estimates or even

guesses on what kind of payoff from your policies? and then at the european level in your fascinating interview that was in the "wall street journal" yesterday, you talked, as you did some today, about the need for europe as a whole to adopt structural reform including germany. elaborate a little bit thereto, what specifics do you have in mind? what are the priorities? and what could be the payoff in terms of resumption of european growth within the next two or three years? >> yes. the prospect for growth in it y italy, first of all, growth in italy will be necessary not only

for the sake of growth and the reduction of unemployment in themselves, but also in order a make the improved budgetary situation sustainable. i think it's very interesting since about one year, even the rating agencies aren't putting much more emphasis on growth as a necessary condition for the budgetary sustainability. of course we are not putting in place a strategy for growth from the demand side, but what do i mean. certainly we are not

compensating the deteriorating estimates for real economic growth in italy. that's where in 2012 by additional demand stimuli, clearly we are not doing this. but i believe if the markets see the improvements in the policy outlook for italy and in the sustainability of the budget, they will deliver a benefit to italy in the form of lower interest rates. we have been plagued by very high interest rate on medium and long-term treasury bonds, the spread between the 10-year

treasury bonds and german bonds reached 574 basis points on november 7th, the moment in which the political scenario changed in italy and since has come down to 344 of this morning, which deserves two remarks. one the coming down the short-term interest rates has been much more remarkable, much bigger. this leads many people to believe there are some political uncertainties that are keeping up the longer-term interest rates linked to what might happen after the elections in italy. but there i would like to be a bit reassuring.

one element which goes in this direction, many would have seen it, is the interview mr. berlusconi gave to the financial times last week supporting more openly than ever before the current government and committing to support in the medium term. everything can change but this provides italy with a perspective of civility in that particular specter where most people were seeing a potential source of instability. at any rate interest rates are coming down, more the short-term than longer-term. i believe if the greece potential explosive gets out of the way this process of declining interest rates will accelerate and, hence, i think

we carve out through what we did on the budget a bit support of growth through low interest rates on the treasuries but also indirectly on bank loans to companies. and then there is the more supply side. we saw the work done by on forms, one of their fields of specialty but they did a specific work on the sort of liberalization measures italy has been introducing. they come to -- they and other studies of the bank of italy come to the conclusion this opening up of markets could all together generate a 10, 11% increase in productivity, half

of which could be there in the first three years alone. also relatively in the short-term. of course the global and european policy becomes more growth generating. hence, our efforts vis-a-vis the european level. i come here to your second part about forms beyond italy, at the level including germany. well, i think there is a lot to be done in terms of country by country, responsibility of the various governments, but also in part. the leverage of the european commission. for example, the fact that the european commission has now opened infringement procedures that is putting legal and

political stimulus on countries to comply with services directive, liberalizing the services area. and they issued most recently two infringement procedures symbolically enough. one vis-a-vis germany, the other vis-a-vis greece says even in germany there is hope for greater domestic liberalization. and something i normally try to convey to our anglo saxon friends there's not much hope to persuade germany to play the growth game through the frame of mind. i think they are more likely to respond positively if one calls them to fully go in the direction of their invection, social market economy of the 50s

and 60s open up markets. and i believe that if germany fully went to the opening up of its domestic services sector, that will stimulate its own growth as well as through increased exports of services from other eu member states to germany, the whole of european growth. but lastly, there are some policies at the level, not domestic structure forms members states but at the level which have in my view to change in order to reflect this growth orientation now that we are no longer an undisciplined continent but actually virtuous in the world in terms of ge particular much

more resources devoted, many more resources devoted to the eu budget and to infrastructures for example. although i happen to be also a finance minister, i will not buy the argument put forward by my colleagues, the finance ministers saying the eu puts a lot of pressures on us to maintain the budgets. certainly we are not ready to have in the future a greater eu budget. but i think this makes no sense. it is a matter of economies of scale and provision of public goods some of which can only be provided at the level of the eu. it can be applied but a change

of mentality we are looking towards. the important the whole of the eu policy becomes more growth oriented. this will in the end also generate some demand expansion across europe which purely supply side reforms will not in themselves generate growth. >> let me ask you again to elaborate on a couple of comments you just made about the evolution of europe. you are now prime minister of italy but for a long time you've been one of the architects of europe. you've been on many commissions, written many reports about the future of europe, not to mention ten years implementing europe as a commissioner. as europe works its way through