UK and Italy: partners for European growth

Minister for Europe David Lidington spoke at the LUISS Guido Carli, Rome, on how the UK and Italy can work together to promote growth and prosperity in the European Union.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
The Rt Hon David Lidington CBE

Rettore Egidi, Signore e Signori, buona sera

I am delighted to be here and to have the opportunity to speak at such an illustrious venue this evening. LUISS Guido Carli is a renowned university that plays an important role in Italian society, preparing its students for positions of leadership in both the public and private sectors. This university has a reputation for academic excellence in the fields of economics, law and political science which is well deserved.

Of course LUISS has also a very direct link into Italian industry. The university is inextricably linked to Confindustria; demonstrated by the fact that the two organisations have frequently shared the same President. And such connections, combined with the academic excellence achieved at LUISS, gives students at this institution the potential to shape the future of Italy and of Europe.

So I could not wish for a better venue to speak, as Britain’s Minister for Europe, about our vision for Europe’s future.

But firstly, I would like to thank the Rector, Massimo Egidi, for his support for this event today, and his very warm welcome.

And I am honoured to share the stage with my fellow speakers. I do not think you are going to need any introduction from me, about Emma Marcegaglia, who has led Confindustria since 2008, I think I am right, and has spoken frequently, and with determination and clarity about the challenges and opportunities facing Italy and Europe. She has always championed the interests of Italian industry and its employers. But you may not be aware that Emma was presented last December with the Keynes / Sraffa award by the British and Italian Chambers’ of Commerce in recognition of her tireless work in bringing businesses from our two countries together.

So although it’s now midsummer and the award was before Christmas I am delighted to add my congratulations to the many I know she may have already received. And I am delighted also that we have heard from Daniele Franco. As Director of the Research Department at the Bank of Italy, Daniele must take substantial credit for the richly deserved reputation that the Bank enjoys. It produces independent, apolitical research and analysis of the highest quality. It is held in the highest esteem internationally, as it has been demonstrated by the recent appointment of its Governor Mario Draghi to the position of President of the European Central Bank.

UK and Italy; partners bilaterally and in Europe

Now as a keen amateur historian, I am especially pleased to be in Rome during the 150th anniversary of the birth of the Italian nation. And I know that our Foreign Secretary, William Hague, was honoured to be in Rome earlier this month to join in those anniversary celebrations with President Napolitano. And we look forward to welcoming the president to the UK again next week when he comes to accept a honouree degree from the University of Oxford. And of course it was the UK who, in 1861, were the first country to formally recognise the new Italian state- so it’s not too much of stretch to claim Britain as modern Italy’s oldest friend.

And of course the influence of Italy over British life continues. Your ambassador in London, threw a party and reception at his Residence to mark the 150th anniversary of Italian Unity and when I went to that remarkable event, I could see that influence demonstrated: we had everybody, from maestro Antonio Pappano, who directs the Royal Opera at Covent Garden, through to Fabio Cappello and I will tell you that my teenage sons were far more impressed that I had met Fabio Cappello for that I had met maestro Pappano, but I think that that demonstrates the continuing friendship and the continuing influence of Italy upon all aspects of British cultural life today. And the relationship between our countries remains as strong as ever, as we work to provide security and deliver prosperity for both our own countries and our neighbours. Indeed, Italy has played a crucial role in Europe’s response to the Arab Spring and is a key member of the coalition working to support the Libyan people’s aspirations for a better future. We are truly enormously grateful for the logistical and operational support that Italy has provided to the UK, and especially to our military forces, throughout the campaign.

Trade is also a well-established and productive element of our bilateral relationship. In 2009, two-way trade between our countries amounted to some £30bn. Italy is the UK’s 8th biggest export market for both goods and services while the UK was the 9th biggest export market for Italian goods, and the 5th biggest market for Italian services. These are impressive figures - but there is scope for further improvement. I know that our UK Trade and Investment team based in Milan are working hard to make that happen.

But today, although I could talk a great deal on our bilateral relationship, I want to focus, instead, upon our work together within the European Union.

Now, of course it is impossible for any visitor to come to Rome without taking the opportunity to visit at least some of the art and architecture for which this city is cherished around the world. The history of Rome stretches back over millennia, but its buildings have also borne witness to more recent moments of great historic significance. This afternoon I was fortunate enough to be allowed for an hour by our ambassador away from my formal programme to visit go to the Capitoline Museums. And a highlight for me was to visit the “Palazzo dei Conservatori”, and in particular, to stand in the “Sala degli Orazi e dei Curiazi” where, in 1957, the so-called “Inner Six” signed the Treaty of Rome. The Treaty which marked the start of the European Economic Community, the precursor of today’s European Union.

And since that day in 1957, Italy has been at the heart of the European project, working with the other Member States to develop and implement the freedoms that we now might take for granted. But the Single Market and the “four freedoms”, the free movement of goods, people, services and money need to be defended. This is why we must work to strengthen the European Union, and why Britain is determined to be an active and engaged member of Europe.

Today Italian voices continue to make key contributions to the debate over the future of Europe. To name just two: first, Professor Mario Monti, responding to a request from the European Commission President Jose Manuel Barroso, produced a “New Strategy for the Single Market” last year. This helped to set the direction of the reform debate. And second, Antonio Tajani, Commissioner for Industry and Entrepreneurship, recently published reform proposals on the Single Market Act and a review of the Small Business Act. This is crucially important work - getting these changes right can unleash the potential of our businesses throughout the European Union.

And I want to argue this evening that today’s Europe - despite the serious economic challenges that we face - remains above all a region of opportunity. And this is particularly the case for countries like Italy or like the UK, whose economies rely heavily on export success and on an ambitious approach to investing in emerging global markets.

For both our countries, the opportunity lies not in a European Union that is standing still, or looking inward, but from being part of a dynamic European Union that is bold, innovative, outward-facing and active in exercising its transformational power, particularly over neighbouring countries and regions.

And it’s that dynamic aspect of the European Union that I want to discuss. In particular, I want to set out Britain’s strong commitment to an ambitious agenda for EU Growth: an agenda summarized in the pamphlet published by our PM David Cameron and entitled: scegliamo di crescere (let’s choose growth).

EU growth agenda

The economic focus in Europe has, rightly, been on the Euro zone crisis for more than a year now. And UK has supported the steps Eurozone countries have taken to get their house in order. But as President Barroso himself has said, “tough fiscal action and a plan for growth are not alternative strategies. They are different parts of a comprehensive strategy.”

And the euro-pact acknowledges this. Strong growth and competitiveness in the European economy are vital for Euro zone recovery. But the recent economic crisis was a severe warning for Europe as a whole, not just for those countries that are in the Euro zone. It is in all our interests to unleash Europe’s potential for economic growth- not just to tackle the threat of recession but to meet the challenge of globalisation. As the emerging economies of the world’s south and east continue to grow, Europe needs to revive its traditions of enterprise and innovation in order to compete, in order to ensure that prosperity and employment are seen as part of a natural order for our children and our grandchildren too.

We must not forget that Europe today has many assets - a highly skilled and able workforce; the world’s largest consumer market; an open, trading culture and a proud record of invention. Many of the world’s leading companies are European; and Italian firms are rightly celebrated around the world for design excellence for example in the fashion and automotive sectors.

Having said all that, the bland truth is that the European economy remains in a fragile position. Italy, like other countries in Europe, is on the road to recovery, though with growth only at around 1% in 2010 and 2011, the recovery is still weak. In the UK, where the new government has to cope with the burden of levels of debt, of historical levels, the recovery is, as our Finance Minister has said, choppy. And it is going to be difficult process. Indeed, the International Monetary Fund forecasts that Europe will grow more slowly than most other advanced economies in the world over the next five years. This is simply not good enough when you consider that in over half of the countries within the European Union; approximately 1 in 5 young people are unemployed . And we have seen some of the accumulated frustration and resentment at that statistical truth coming out in the streets in Athens and in Madrid in recent weeks.

So the need for change is urgent. And we all have responsibility in terms of our national policy and many of the things Daniele was saying about for example about the need to improve standards in our schools and education systems, are things that our British Minister would very strongly echo. But at European level, our countries need to work in partnership to help Europe prosper, in ways that benefit our citizens and businesses alike.

UK government has clear ideas for how we can secure sustainable long term growth in Europe. They are based around four principles:

  • To reduce the regulatory burdens on businesses;

  • To complete the single market;

  • To boost trade;

  • and to drive innovation.

We have made the case for this approach in the “Let’s Choose Growth” pamphlet that I hope some of you have with you today. But the UK is not the only country supporting this approach. These principles for generating growth were agreed in a joint letter sent to EU Commission President Barroso and Council President van Rompuy by David Cameron and 8 fellow European Prime Ministers.

And I believe that we need to seize this moment, to build on the momentum and make it a collective priority to deliver results for these four principles. And I want to offer some brief thoughts about how together we can go about achieving this goal.

Reduce the costs of doing business

First, it should be self-evident that we need to reduce the costs of doing business in Europe, and especially to recognise the contribution that small and medium sized businesses make to our economies is absolutely vital for our future growth, prosperity and employment. Europe’s 20 million SMEs employ over two thirds of the private sector workforce and contribute over half of total value created by EU businesses. As you know, the economic significance of SMEs is greater in Italy than anywhere else in the European Union. There are more than 4 million SMEs in Italy alone.

So where do we start? Well, in business, scale matters. It is concerning to see that for every €1 that a big business spends on compliance with regulation, a medium-sized enterprise will spend up to €4, and a small business up to €10. For small businesses, the tiny family firm cannot afford to hire a whole department of people with lawyers and others, checking on regulation and making sure they are being implemented. So cutting unnecessary bureaucracy will help the businesses that matter the most and who employ the most: the SMEs.

Some action is already being taken: Italy, UK and Belgium jointly welcomed the Small Business Act review in February 2011. We committed ourselves to working together to promote the interests of small and medium sized enterprises and Italy has been the first country to appoint a national SME envoy.

At the recent Competitiveness Council in Brussels, Member States agreed on a revised accounting directive which will exempt millions of small businesses from producing company accounts - a suffocating burden for micro businesses. And I know that the Italian government has doubts about the extent to which this will help SMEs, but we believe it is a good example of the kind of steps that, collectively, we can take.

But there is a lot more we can do to free businesses from unnecessary regulation and allow enterprise to drive growth. The UK is calling for a reduction in the overall burden placed on businesses by EU regulation; and a commitment by everybody in the EU Member States and institutions alike that new burdens on business are offset by equivalent savings elsewhere.

Complete the Single Market

This brings me onto the second principle that would not only reduce the cost of doing business across Europe but in its own right has the potential to unlock growth: namely completing the Single Market.

The Single Market is Europe’s greatest economic achievement and it gives us a competitive advantage in a global economy, providing European businesses with access to over 500 million customers and generating €12 trillion of economic activity.

But it remains incomplete. We need to work together to invest in and connect European infrastructures in energy, services and digital technology. And we are not on our own in saying this. Mario Draghi, in his annual address to shareholders just last month, called for greater competition and faster progress on services liberalisation in Italy to help boost growth.

To achieve this, the next step for Member States must be to commit to the full implementation of the Services Directive. Full implementation could increase EU GDP by almost 3%, which translates to €340 billion. There is wide ranging support for the Services Directive, but it is now is the time we believe to turn it into demonstrable action.

There are similar gains we made on the digital economy. At the moment, online trade between countries represents only 12% of total online trade in Europe. And clearly we must do more to boost this. Creating a fully functioning digital single market by 2020 could add €500billion to the European economy.

Become the Engine of World Trade

But as well as connecting markets within Europe, we must continue to open up markets globally. This is the third principle: that we need to boost European trade with the rest of the world.

Greater access to global markets will help European businesses to recover from the economic crisis. In order to exploit these growing opportunities, we must make every effort up to achieve a positive outcome to the Doha Round this year, and make tangible progress on EU bilateral trade agreements - particularly the EU-India and EU-Mercosur free trade agreements. By some estimates, concluding all the ongoing trade deals that are now under negotiation would add €60 billion to Europe’s GDP . Those are figures from the European Commission.

We all know about the benefits of free trade to European business. But trade can also act as an incentive to both economic and political reform. Over the past few months, Europe has seen momentous change in our own neighbourhood, as millions of citizens across the Middle East and North Africa have risen up to demand their universal rights. Europe is now presented with an opportunity to help ensure the future stability and prosperity of the new democracies in Egypt and Tunisia, and hopefully beyond those countries, through the power of free trade.

It is important that, at this weeks, European Council, and in the weeks to come, the EU focuses on the wealth and stability that access to the European market would bring to the North Africa and Middle East region. Analysis suggests that the EU could gain €3 billion from a full free trade area with Libya alone - and the benefits of a free trade area with the entire region are estimated at over €24 billion. The perceived threat to European agriculture is minimum compared with the economic and political benefits of freer trade with the Euro-med countries, which would help them to deliver political legitimacy and therefore political stability, and greater prosperity, more jobs for their people.

But, worryingly, protectionist sentiment is rising in many countries in Europe and all too often it is dressed up in neutral language, such as “reciprocity”. Now, as many people here will know, the UK strongly opposes the misuse of reciprocity in trade. We fully support efforts to persuade other countries to open up their markets, but do not believe that it is some automatic rule we should keep ours closed until they do. The plain truth is that we will only suffer from closed markets: which weaken competitive forces, drive up costs to businesses and to consumers and reduce value for money for both taxpayers and consumers.

Make Europe no.1 for innovation

Of course it is all very well to open markets, but what we also need is innovation to ensure that we, for our parts, are producing the goods and services that the world actually wants to buy. And this is the fourth goal that we must strive for: making Europe a global centre of ideas and of enterprise.

The relationship between innovation and economic growth is well known. In my country, 64 % of average labour productivity growth between 2000 and 2008 was due to investment in innovation. And it is the same story across the continent because we have world class education in Europe producing young people bursting with business ideas. But we don’t do enough to support them. For every Euro invested in venture capital within the European Union, five Euros are being invested in venture capital in the USA.

So we need to promote EU research and investment funds, and make them simple and flexible to use, so that entrepreneurial ideas can be turned into products that will find enthusiastic buyers, and turn in a recent profit for the inventor and producer. And we should work collectively to develop a European patent that reduces the costs associated with exploiting innovation. With steps like this we can then capitalise on the wealth of creativity and experience that exists in Europe.

So, these four simple principles add up to a clear plan; a vision for how we can stimulate growth in Europe and build a prosperous future for both British and Italian citizens. We need this plan to succeed, not only to recover from the economic turbulence of the last few years, but also to put Europe in a position where we can compete confidently in the global economy for years to come.

I believe that Britain and Italy can help to lead that success. By working together in the European Union to drive forward the changes I have outlined today. As governments we will both remain committed to SMEs, working in their interests to reduce costs of doing business; we will keep working to expand and strengthen the Single Market, enabling wider sectors of our economies to reap its benefits; and we will work to defend free trade around the world, guarding against protectionism and striving to complete Doha Round.

But while governments can set conditions for economic growth, it is ultimately business that create wealth, that create jobs and that will bring prosperity to Europe. So we need to listen to what the private sector needs, and respond with energy and clarity so that together we can deliver our shared goals. Thank you very much for listening.

Published 22 June 2011