French-German stewardship is history, Europe needs broader leadership base – Italy's EU minister

With Brexit slowly becoming a reality and Euroskeptic movements gaining momentum among the bloc’s population, Brussels is searching for a solution to keep the union intact. And with immigration and monetary issues plaguing the EU, Italy is one member who needs more attention than others. Hit hardest by the migrant crisis, it remains EU’s entrance point for refugees. And with a potential banking crisis on its hands, it could also be next in line for an EU bailout program. Does Brussels have the answers? We ask Italy’s minister for European affairs, Sandro Gozi.

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Sophie Shevardnadze: Italy’s minister for European Affairs, Sandro Gozi, welcome to the show, great to have you with us. Now, The Euro experiment has failed - at least that’s what Nobel economist Joseph Stiglitz says. Are its days numbered? 

Sandro Gozi: No, I disagree. I don't think that euro is an experiment, euro is a reality, and I do not think it has failed. Certainly, the Eurozone and the governance of the Eurozone must be shaped up better, but we have to continue towards this direction, not going backwards.

SS: No, you were talking about reform, right? Every time I’ve heard you talk and dive into it, you talked about reform. Every Eurozone state has its own interests at heart, so why is anybody going to listen to what Rome is saying right now?

SG: It is true that the debate on the eurozone and the debate on how to reform the eurozone has been postponed too many times. But, I do believe that this year, in the second half of this year, the time will be right to open the debate. It will be after the French elections, it will be after the German elections. I do believe that everybody agrees that we must complete and we must better shape the economic and monetary union, there’s also a  commitment which was taken in Rome, when the big leaders of the 27 member-states met and signed the Rome Declaration on 25th of March. They clearly said that we must completely the economic and monetary union, which translated in much simpler words, means we must open a debate on how euro is run.

SS: Why wait for the French and German elections? Don’t you think it’s a little bizarre that the issue of eurozone reform hasn’t been brought up right now? Or hasn’t been brought up as of yet? Maybe people don’t have courage  to stand up to Germany? Where Italy did get the courage to talk about this now?

SS: We found the courage to talk since the day one of Renzi’s government. So we have been talking about this for at least since mid-February, beginning of March 2014, and we have obtained some improvement, we have obtained an investment plan, at the European level, the so-called Juncker plan, we have obtained a more intelligent or at least less stupid implementation of the stability and growth rules towards Italy. So, some important steps have been taken. To reform the eurozone you need the commitment of other partners. So far, it has always been postponed. Now, as it is a fundamental issue, which is going to be debated, also, in the German elections, it has been debated during the French election - we do believe there will be a new political phase and in this political phase, issue number one must be the reform of the eurozone, so we think that the time has come, at least, at the end of this year.

SS: The head of America’s National Trade council Peter Navarro called the euro ‘an implicit Deutsche Mark’ - so does it give Germany unfair advantage over others at this point?

SG: I do believe that the single currency and a single market has been a benefit for everybody. Certainly, the harshening of the rules during the crisis, since the financial crisis, haven’t been favorable to some countries, has been more favorable towards other countries. I do believe that, certainly, Germany has benefited from a very strict implementation of the Stability and Growth Pact rules, has benefited also from austerity policies. I do believe that we must, on the page we have started, there’s a new role played by the European Central Bank, with quantity leasing, with the new monetary stance of the ECB, and we must persuade our German friends to invest more domestically and to rebalance a trade surplus which is unsustainable, which also has been pointed out by the European Commission in the last report on Germany - these are open issues and we must discuss these issues.

SS: You said it depends from country to country and what effect euro had on it. I’ve read this financial report in NY Times on Italy, a very thorough report, and the numbers seemed quite sad - I mean, is it worth keeping the euro in Italy, if in 15 years of having it as a currency it has failed to improve Italy’s economy? Growth has been literally zero, and the economy’s competitiveness as an exporter has deteriorated…

SG: I do not take the argument that you’re putting on the table. I don’t think that euro has been a failure, I do not think that many problems that we have in Italy are derived from euro, and I do believe that if you take a cost-benefit analysis, well, the cost will be much higher than the benefit if Italy decided to leave the euro. The point is not to leave a stable currency, the point, on the Italian side, to not waste time, and Italy has wasted too much time since the beginning of 2000. We must speed up the internal reforms which are needed for Italian economy, notwithstanding our membership with the Eurozone. We have started with the Renzi government, we are continuing with our Gentiloni government, to pass these structural reforms which are absolutely necessary to consolidate growth, on the one side. On the other side the point is not to dismantle what we have been built, like the eurozone, the point is to put euro and the eurozone much more at the service of real economy, to introduce the new policy mix, to shift from a set of rules, partially inadequate and obsolete, to a new policy mix which puts investment and growth at the center of the European action and not only in the center of national action. This is what we want, and this is what we think is needed not only for Italy, but for the Eurozone as a whole.

SS: Italy’s two largest opposition parties - the Five Star Movement and Northern League are both anti Euro and are saying they would bring the lira back if they win the next election. Now, I don’t know if that's going to happen, but judging by the polls, they do have a chance, a real one. So, why does so many people support getting rid of Euro? I mean, according to Eurobarometer poll, 47% who say it’s a “bad thing” - it’s like almost half of the country, they think it’s a bad thing - why do you think that happened?

SG: First of all, pay attention to the polls, because, yes, some people say that euro hasn’t favorable to Italy, but then when you ask if they want to leave the euro, if they want to leave the EU, the answer of the majority of the Italian people is “no, we don’t want to leave the eurozone, we don’t want to leave the EU”. So, take with a pinch of salt this kind of polls, first of all. Second, ask Matteo Salvini or          Beppe Grillo why they want to destroy the Italian economy! I cannot answer for them. It is clear that all of the extremist movements, and Matteo Salvini are Beppe Grillo are two examples of the extremist movements, always offer simple solutions to real problems, which require other kinds of solutions. So, they say: “Well, there’s unemployment in Italy, let’s get out of the eurozone! We have a problem with immigration - let’s get out of the Schengen area!”. It is clear that these two solutions go against the interests of Italian economy, which requires a stable currency, requires to be in a stable eurozone, but require, also, another kind of policy mix, economic policies, at European and at the national level. I do not see how the Italian economy could survive in leaving the eurozone and in going back to an era of a very high inflation, strong devaluation which is competitive only in the short run, which can bring some benefit for some Italian exports in the short run, but would be a disaster in the medium and the long run for the Italian economy. By the way, if there’s something which is working in Italy today, it is Italian export. Italy is exporting a lot already, and those Italian firms which are well-off, are well-off because they export. So, even with the euro, we don’t need to have a competitive devaluation going back to the Italian lira to improve our exports. So I do not see any solid argument to leave the eurozone, I see many important political reasons to stay in the eurozone and to shape it better.

SS: So you’re saying that if push comes to shove, right, and either of the parties comes to power, hypothetically speaking, and we have a referendum in your country, then people, Italians, will not support the exit from the eurozone, is that what you’re saying?

SG: I say that these crazy ideas you’re talking about - and not because it's your idea, because it is a weird idea by these bands of populists which are those of the Northern League and the Five-Star Movement - would destroy the Italian private savings, because if you call for the referendum on the euro, at the day two of this campaign, with false polls which are slightly favorable to the “Yes” to the exit of the euro, we would have massive financial speculations against Italian private savings. So, what we have to do is to prevent people like Matteo Salvini or Beppe Grillo from taking the power, and this certainly depends on us, this certainly depends on how convincing we’ll be with the Italian people. Then, if you ask me, how we would like an Italian government with Five-Star Movement in power - I can simply suggest to you to take example of the Roman government, the government of the Italian capital, which is in a total disaster, and which is in the hands of the Five Star Movement. If, from Moscow, you might have an interesting look at the Five-Star movement or the Northern League, I can understand that, because they are reality, but don’t think that it is in our interests, or in the interests of Europe, or in the interests of our bilateral relations to have a destabilized country like Italy would be if the Five-Star Movement or the Northern League would take power in our country.

SS: Now, 114 Italian banks out of 500 are in deep trouble - that’s according to Italian newspaper Il Sole. Italy could start bailing out the banks with public funds, but that goes against the EU bailing out rules - should the government just go ahead without Brussels’ approval or should Italy wait until the EU comes up with some kind of a solution?

SG: Certainly, at the European level we do believe that there are some aspects of the existing directives of the banking sector which deserve to be revised because they have been implemented in different ways in different countries - that means, that, obviously, not all of the existing rules are very efficient and we do believe, that, on one side we have to intervene, and we have to do our part on national level. On the other side, they must be also reviewed - I know that the European Commission is working on that at European level with directive concerning the banking structuring within the EU.

SS: The head of the Eurogroup, talking about the bailouts, in general, he said that Southern EU countries, quote, ‘blew their money on drinks and women’... is that what happened to Italy as well?

SG: The least we can say of the statement of Jeroen Dijsselbloem - that was very unfortunate. It is clear that he proved that he’s not adequate for his post and I hope that there will be a change very soon. Certainly, this is not what happens in Italy or in any other country. But what here, what you are referring to, it is a very unfortunate declaration which doesn’t have anything to see with the economic reality of a country like Italy, but only with a stupid declaration which you will never expect from someone who chairs and important body like the Eurogroup.

SS: But he does chair that body. Can the Eurozone even move forward if that’s how the richer northern states understand southern problems? I mean, it’s not like people in the North don’t drink and sleep with women, or something, you know?

SG: Honestly, I wouldn’t waste your time and my time on talking about booze and women, because I do not think that this is the point. Everybody criticized Jeroen Dijsselbloem the chair of the Eurogroup for that. It is clear that during the crisis what some measures have produced is mutual distrust. What we have to do now is to rebuild the mutual confidence between southern countries and northern countries, between debtor countries and creditor countries - there have been too many artificial divisions, or divisions produced by stupid statements or stereotypes, like the one you’re referring to, and the time has come to turn the page. I do believe that we must and we can enter into a new phase because it is in the interests of everybody, and certainly, this time stereotypes don’t help, but really, they are so stupid that I do not think that we should take them very seriously.

SS: Alright, then let's’ talk about more serious things - The latest solution to the EU’s problems has been a ‘two-speed Europe’, which is in essence proposing two different systems for Europe - one for those who want more integration and another for those who don’t. Won’t this pretty much break the union down instead of save it?

SG: It is clear that in the union of 27 member-states, and the union which is going to grow, because I do believe that after 2019 new countries from the western balkans will join the EU… in this kind of union it is an illusion to think that we will proceed altogether at the same rhythm with the same intensity towards the same direction. It is clear that there will some countries which will be satisfied with the single market and something more, and there are other countries which will decide to deepen their integration to reach new common objectives - that is, more efficient security and defence policies of the EU, or a truly Social union, or a much stronger policies to run immigration and to counter the threat of terrorism.

SS: Sure, I got your point, but would this multi-speed Europe mean that states more integrated will be ones deciding things? Will the decision-making be in the hands of Germany and France, while the rest play catch-up?

SG: No, the French-German couple belongs to history. I mean, it is clear, that it is necessary that there’s an agreement between Berlin and Paris, but it is absolutely not sufficient anymore. I think this is very clear in the two capitals, because it is clear that you have to create a critical mass which goes way beyond France and Germany. Secondly, it is not that the more integrated countries will decide for the others. It is others who will decide whether to be in the more integrated group of countries, because the condition to create this group of countries which will go faster - the only condition will the political will. So, the door must be open to everybody willing to join. Those who won’t be in the group it is because they have decided not to be in the group, and if you decide not to be in the group, it is clear that you decide not to decide. You decide to stay out.

SS: How do you make sure that the less integrated members don’t boycott the decisions made by those at the top - out of spite, or out of fear of being marginalised?

SG: Politically and legally it is very difficult for them to do so. legally, because at the end of the day, according to the treaties, a group of countries can move out if it wants so.Once some projects will be launched by, say, 9-10 countries, you will see, there will be a majority of countries which is be willing to join and there will be a very tiny minority of countries which will decide to stay out. I’m sure about this, and after all, this has been the way Europe was founded and Europe has advanced - because if in 1957 the six European democracies which decided to found the EU had to wait for the other democraties, nothing would’ve happened. If in 2001 the 12 countries which introduced the euro had to wait for all the others, the euro wouldn’t be here today. So this has always been the way of promoting the big projects in Europe and I’m confident that it might work also in the future.

SS: First it was the Eurozone crisis, then the migrant crisis, now you have said saying Brexit is the latest crisis which Europe is facing. But Britain has always kept its distance in EU matters, it’s stalled some important common decisions, does its exit have the potential to reinforce the EU? 

SG: For some projects and some initiatives, probably, now it is going to be much easier to go towards a certain direction. For example, the policy we were talking about before, the defence and security policy - with UK out of the EU, I do believe that is going to be easier, or, at least, less difficult to develop a truly European defence policy, and this certainly could be a positive effect of the UK departure. What I want to say is that I would’ve prefered the Brits to stay in Union, but it is also true that the Brits have never been fully within the Union. They have always had one step in and one step out. Now, they decided to take two steps out of the Union, and I do believe, that certain projects, certainly some projects with a high political potential could be easier without the Brits moving out.

SS: I want to talk about the latest news: In Turkey  - a country that’s long been in the line to become an EU member - President Erdogan just won a referendum which has granted him sweeping new powers. Erdogan is saying he’s strengthening Turkish  democracy, but Austrian, German ministers have already said this closes the door on Turkey’s EU membership - is this going to be the final straw?

SG: I do believe that Erdogan was hoping for a landslide success in this referendum. He ended up with a split country, with 51% in favor of his reform, 49% against his reform, the three major Turkish cities against the reform in the majority. The most backward region of Turkey in favor of the reform - so, I mean, it is clear that it is a very difficult situation. I think we have a problem, we have a major political problem. I do believe that we must pursue a dialogue with Turkey because after all, there’s 49% of Turkish people who voted “no”, we have to pursue our dialogue with Turkey because it is an important partner, it is an important neighbor - it is a member of NATO, because it is a member of the Council of Europe. But it is clear that during the campaign the contents of this reform represent a major political problem as is the attitude of President Erdogan towards us, European, represents a major political problem, and his provocations are totally useless and only complicate our bilateral relations.

SS: But the question is, for the EU, is it worth losing a potential partner in the Middle East, the only country that could really help the Union deal with the migrant crisis?

SG: Yeah. I told you, we have to have a dialogue with Turkey, but having a dialogue doesn’t mean to hide the outstanding political problems that are there in our bilateral relations. Certainly, the migration agreement is an important agreement. It is working, there are some aspects which should be improved, but it is working, and we wish to continue to implement it. But this cannot hide other facts, which are major political problems. It is clear, as I said, that Turkey is an important neighboring country, it is in the geopolitical, strategic position, it is member of important organisations - so we must pursue a dialogue with Turkey, but having a dialogue with a country doesn’t mean not to be frank and honest with that government, and I repeat - the attacks, the provocations, repeated attacks and provocations of Erdogan towards the EU have been totally incomprehensible. They might’ve helped him during the campaign, and I hope that it is over now. I hope they will cease now, I hope they will stop now, because they are not helping our bilateral relations, and in my opinion, they are not helping the Turkish government either.

SS: Alright, mr. Gozi, thank you very much for this interview, we were talking to Sandro Gozi, Italian European affairs minister, talking about Italy’s future in the EU. That’s it for this edition of SophieCo, I will see you next time.