WHEN: FIRST ON CNBC, today Wednesday, 21st January.
Following are highlights of the unofficial transcript of a CNBC exclusive interview with Italian Prime Minister, Matteo Renzi with CNBC's Julia Chatterley from Davos 2015 – World Economic Forum.
Following is a link to embeddable video clip of the interview on CNBC.com: http://www.cnbc.com/id/102353505
All references must be sourced to ' First on CNBC interview'.
Julia Chatterley (JC): Are you expecting QE from the ECB this week?
Matteo Renzi (MR): In the last year, Europe lostopportunity. Europe spoke in the past only about austerity. And every countryaround the world invests in the growth in different idea of economicdevelopment. So now for ECB, there is the possibility to give a different messagewith QE. A message focussed on the idea of European institution that is notonly Europe. But a bank that is very strong and very solid… and an economy thatin the future, on growth and not only on austerity. So it's not important forme speaking about the details, the technicalities, I respect the independenceof the ECB. But I believe this is the time in which we can invest in adifferent idea of Europe. And not only discuss about the three percent of deficit perimeters… technicalities not interested for the people.
JC: Some people have talked about it, irrespective of how independent the ECB is on the idea of risk sharing between the ECB and the National Central Banks. Ireland, the IMF has said there shouldn't be this idea of risk sharing between the ECB and the National Central Banks. Where do you stand on that issue?
MR: It's not easy discussing it, because Europe is the incredible and good answer. Maybe the most interesting institutional answer after 70 years of peace we can speak of Europe as a place of freedom because Europe refused the idea of division and war. But this is very important. The problem is that we lost the opportunity to bring together the euro as a value common value with the Central Bank with the same power of the Federal Reserve or other central banks. So everybody, we have the same currency, the euro. But European central bank in this moment is without power of the Federal Reserve so in this balance, there is the problem and maybe opportunity for Europe of the future. My personal point of view is in the future we will absolutely give a different message. We can go very quickly in direction of an institution of manned as Federal Reserve but for the moment, it is different.
JC: Do you understand why? Right now, Germany in fighting not to take on risk, is actually saying that they don't want to take on Italian risks. In the same way, an investor could then say, you know what, if Germany doesn't want to take on Italian risk, then why should we? So as much as you say one day the ECB could be like the Federal Reserve, it's still being undermined by certain countries?
MR: There are a lot of ideologies about this. First of all, because it's correct. Italy at this moment is encountering a very big public debt. 2 trillion Euro. But we are the most important country around the world for the private riches. Yes we have 2 trillion of public debt but we have 4 trillion of property and values of families. So our risk is not the same risk of all the countries with public debt and private debt. This is the first. Second, in the history, in the recent history, there is a country with the problem and encountering with the good situation. Because for example the same Germany exactly 11 years ago asked to the Italian President of the European Union possibility to not respect the perimeters of Maastricht because after the problem of division of Germany it was very important for Germany to invest in a different idea of growth and a different idea of flexibility. So the xx is different from the ideologies of today. The idea is Germany is a great country and the rest of Europe is in crisis. My personal point of view is this is not correct vision, also because if we don't invest in a different idea of Europe, the first problem will be for the Germany in subsequent years. So I believe absolutely important that Europe find a common solution in the respect of in-dependency of European Central Bank, but in a different idea of economic politics. And for this point I believe the first signal of the decision of Jean Claude Juncker to launch a plan for investment of 300 billion euro because this is the first signal of a new direction for Europe.
JC: So no one believes it's enough money. But you are saying that just the direction is important and the fact they are making that statement?
MR: I know the red tape of European politics, so I believe also change in the direction is the first step and very important. Let me be very clear, I know for my country, for Italy, it is absolutely important to make in borders the structural reforms. Because Italy is a great country, rich of history and quality but we need a strong commitment for structural reforms. So this is not a European problem, this is not dependent on Angela Merkel, David Cameron or Francois Hollande, this is our problem and we resolve this problem in our borders. In this moment my country is focused on constitutional reform, the change of electoral law to give a message of stability and a different political system. We change civil justice, fiscal system, labour market and – this is my personal point of view – a bank (sic) approach, and the first and maybe the most important, the education system. I know this is very important, my country must change if we have an idea to invest in the future. But this is the problem…European politicians must understand it is finished - the time in which we continue with the politics focused only on austerity, because with only the austerity Europe is finished.
JC: Talk to me about your reforms. You enacted some labour reforms but you eventually excluded the public sector. There were concerns about tax reforms. However much energy you put behind reforms. Isn't the truth here that vested interests in Italy is still causing you to water down those reforms?
MR: I became Prime Minister less than one year ago, February 22. So I have two years in front of me. In the first year, we prepare constitutional reform – incredible for Italy. 1/3 of Italian constitution is in change… in this moment in discussion in the parliament for change. We change the electorate system and all the things important for the public administration. Obviously, my personal point of view is those reforms. The time for those reforms were 20 years ago. If my country realised those reforms 20 years ago, now I would be a very happy man. But 20 years ago, Italy lost this opportunity. So the best time to achieve this goal is now.
JC: But you're compromising. You're having to compromise to keep the right side of political spectrum on side. So that you can enact these reforms. So there is an element of compromise. Do you believe that Italy is actually capable of reform? I don't deny your belief and your enthusiasm, but do you believe it's capable?
MR: I think that compromise is normal in political system. But when a country such as Italy decides to change article 18 – the most important article about flexibility, about the lack of flexibility, in the Italian labour – this is not a compromise. This is a revolution. (Julia interrupts: it is in the public sector though, you've had to compromise) No sorry, there, I know, for the other countries, it's not very easy. But there is in Italy, there is a tradition of division. Not only in Italy, between in public and private system. So if you have today, a company who thinks it is impossible to invest in Italy for the labour market. Now, your doubt is finished. You can invest in Italy with a very flexible labour market. For the public system, it's different. And this law is exactly in this moment, in discussion in the Senate. So in the last, I think, in the next weeks, more or less, in the next two or three months, this project… becomes law. It's not a compromise… refuse the application of system for private employer to public employer. It's the law. It's the respect of the law. I change of law of public administration because I believe absolutely necessary the change also in the public system.
JC: you mentioned the word revolution. Talk to me about the banks as well, tackling the corporate governance structure for the Italian banks – it's also a kind of revolution?
MR: In Italy, unfortunately we lost the opportunity to realize the reforms of bank system three years ago. When the crisis showed first signals, a lot of countries, Germany, UK, and Spain decided to change the banking system. Berlusconi not. Mario Monti not. Enrico Letta not. I respect this decision but I believe in a good system the first choice is about bank. I came from Florence and my city became an incredible city not for the quality of artists but for the presence of the bank system. And the presence of bank system created possibilities for the artists for the master pieces of culture, for painting and painters. So the banks are absolutely central, but Italy doesn't save banks. Don't create opportunities for banks. Don't bring money for the banks. This is very strange. Because today, the reaction is ah, the Italian system is not solid or strong in the bank system. I think this is not correct. But today, I think today, we decided in the board, government in the council of Ministers to cancel some of loans about popular banks. In Italy there is a traditional system of popular banks very closed to international markets and from today we decide exactly that the first ten banks very important banks, are forced to become traditional companies and now they are open to international and international investors. This is a very radical change in the traditional system. So Article 18 for jobs market, fiscal system for the international brand. If you are an international brand, you can apply the compliance in relation to the fiscal system in Italy and this is very important in Italy. The traditional fiscal system in Italy is very complicated and confused. So with compliance and with that relation, Italy, we change the approach. The change of popular banks. The ideas of finally you are investing in Italy you are not worried about the judge, about the fiscal but the real possibility to invest.
JC: You're not worried about corruption or vested interests, or relationships between banks and people in positions of power? Is that what you're tackling here? Because it's far bigger than the banks...It's the perception of corruption in Italy?
MR: Absolutely. There are two problems. The first is the perception of corruption and the presence of corruption. And the second is the traditional friendship between politicians, the leadership and managers in this... same time, politics, banks, economy… so they are two different questions. First, we declared war on corruption not with words but with effects. For the first time in Italy, there is an authority, anti-corruption. Created by the former government but nobody, after this decision of create the decision of authority, make a concretely their resource and organised the department. My government decided to give the first step. I call a former judge against mafia, as leader of this authority. And this authority today after eight months of activity, invest a lot of power in initiatives against corruption in Milan, in Venice, in a lot of events.
JC: You've made a lot of arrests as far as the mafia is concerned you mentioned. Are those connected MPs also going to be arrested and tried?
MR: I think if everybody believes, ah, Italy is a country with a lot of corruption. If there is a lot of corruption and we arrive to arrest, I think this is a great thing. Because of journalist we are really worried because around the world if the people know there is arrest for corruption; maybe they are worried for Italy. No, I'm really happy if there is an opportunity to block the activities of corruption. So the music is changed in Italy for corruption. And our activity, our authority anti-corruption corp Anarca, National Authority against corruption, we will write a new page. But, I think there is a second problem. The second problem is the tradition of friendship between politicians, between bankers, between the global managers of country. I think this time it's finished because my personal goal is open all country.
JC: Are you making lots of enemies?
MR: There are a lot of enemies but the problem is not the presence/difficulties of the enemies. The problem is having a clear vision of the future. And achieve this goal. So today there are a lot of companies in Italy, which changed the ownership, for the first time, Alitalia is not in the hands of politicians, or political parties. No. Alitalia is now in the hands of Etihad. An international brand, a very important brand. Abu Dhabi. The first time, there are a lot of investments in Italy from the United States. Our first market and our first friend historically. But from a lot of party… a lot of world… this is very important. From China to South America. I believe in the future of Italy. As a country. Open country. Not traditional Society of Friends. Dinner in Milan or Rome discuss in front of pasta, spaghetti box, discuss the future of the Italian economy. No. This is finished.
JC: Pepe Grillo said you are a leader without followers. When are you going to prove him wrong and call fresh elections?
MR: I think it's a very particularly Italian system for the political system; my government is not a government who come from election. Because in 2013, during the moment of general election, nobody party. (Julia interrupts: Do you see yourself as legitimate because of that?) Well, for the Italian system, it absolutely legitimate but the problem is not simply a constitutional problem because for the Italian constitution, when the president Napolitano asked me to create a government, it was a very incredible news for Italy because I'm 39 years, I was 39, I'm now 40, most youngest prime minster. The first without experience in the parliament, but with experience as mayor, I was mayor of Florence and that city was beautiful around the world. And I choose for the first time some new, for example a team of minster of women, a very young team of people.
JC: Are you saying that given the team built right now you're willing to sit this out and do the reforms and wait till it is time to call an official election rather than calling one early?
MR: Three months after I become PM in February. In May we vote for the European election and my party achieve a result 41%. Incredible for the experience in Italy. In Italy traditionally the first party arrive at 25 - 26%. My party in 2015 obtained 25%, my party one year ago - 41%. This result, the last time, in which a party in Italy obtained 41% was in 1958. It's incredible result. So this means Italians believe in this change, and it's impossible given the message that "this government is without followers", leader without followers. So the followers are not only in Twitter. The followers are the people who believe in an idea of change. I think I'm not the cause of this change. I believe I am the effect of this change. Italy needs a change. Our government for the next 3 years will be the instrument of this change.
JC: And will that be you?
MR: I think for me, this is not simply an experience. This is not simply a line in my curriculum vitae. This is an incredible opportunity not for my political experience, or my life. I think this is a moment in which a team of young people could give to Italy, the possibility to believe in the future and not only about the past. We are not a museum. We are a place in which it's possible to combine together the dreams, and the ideas. This is the reason for which my hope is incredible, already to give this hope to my generation.
JC: What President do you want to see that vision through? Have you made a choice yet?
MR: It is not correct to assume the leader of a party to decide the president because in Italy, the president of a public is a referee, not a player. I know, in the United States, in France and in other countries, their president of Republic is the leader, the boss of their country, the boss of their government. In Italy, it is different. Maybe only Germany has a constitution similar to Italy. (Julia interrupts: You can have a preference though) I don't believe my personal preference and obviously to be very clear, if I've an idea, I don't see this is not a place in which to announce my personal idea.
JC: Italy's not talking about it but investors do though. Can we rule out Mario Draghi?
MR: I think Mario Draghi is a very great man and is the leader of ECB and in the next years, he will be the leader and the president of ECB. I believe for the Italian constitution, the new president will be exactly like Napolitano. They will be able to help Italian people to love our country and if there is problems in the politics as happened in 2011 for Napolitano, the problem between Berlusconi and Monti, the president must be able to make intervention. Mario Draghi is an incredible great central banker. I respect his independence and quality.
JC: I want to ask you about Greece because however you've impacted Italy, I think you've brought hope to Italy. Do you think Alex Tsipras can do the same for Greece?
MR: I think we must respect the electoral campaign in the member states of Europe. So, in this moment there is a very difficult electorate campaign, because Samaras and Tspiras and the general candidate for the leadership of Greece. I believe for me it's correct not to speak about the future of Greece. Greek people will decide the future of Greece. Not Italian Prime Minister, German Chancellor, French President of the Republic. And for this reason, I wait for the results on Sunday, I respect - I will respect every type of result. And I think also will be very important for us to continue because Greece, for Europe, obviously today the major problem, after the crisis of debt… ah, the risk of Greece yes, we remember the discussions from years ago, but I think Greece is a culture, Greece is ideals, Greece is an opal for Europe. I believe, and I believe that also after the general in Paris – Europe is not simply a place of economic choice, is it. I think Europe is a place of culture, of ideals, of common values, and they remember the importance and traditions of Greek people. And for this reason, I believe absolutely important avoid some suggestion we can refuse Greece, we can continue without Greece.
JC: That's what the Germans are doing. That's what the German press say that the Germans are ready to leave. That's really unhelpful is it, again?
MR: I will meet Angela Merkel next Friday in Florence. We will discuss Baltics, but I doubt there will be some comment about the German press. I respect the Greek people and also German press. I respect everybody and I'm very friendly, yes. I think I read a lot of bad considerations about Italy in the German press and this is not true. I know our economy is the second manufacturer of Europe. Our quality is incredible. And I read a lot of articles about the failure, Italy's count is finished. I know my count is not finished. I know the comments in the press in Germany is incorrect sometimes.
JC: Are you injecting a bit of energy into these Brussels meetings? Do you think you are shaking it up?
MR: I think Italy needs energy in this moment. (Julia interrupts: Brussels needs energy too) yes, because. I think more correctly, Italy needs not only energy but also, self-confidence. A lot of Italians give a tale about Italy, which is very negative for example Italy as a place in which nothing is possible. I think it's exactly opposite. I believe the correct definition, correct expression of politics is exactly the slogan of Barack Obama in New Hampshire, the expression YES WE CAN. I believe the idea of a country has a place of contention, change is very powerful, and is very good. My country in this moment is not only, not simply my energy of government. But the idea that everything is possible. Now if a man, 40 years old, is the Prime Minister in Italy with a very strong decision of making not simply evolution of our system but a revolution of our system. This is the signal in which everything is possible. I hope this could be not simply a project, a remit, but become reality. And this is my commitment and my business.
JC: I want to ask you very briefly, you mentioned Paris and solidarity demonstrations there. Obviously, France is a very multi-cultural society but Italy also increasingly so. How do you retackle this? Is it about greater security? Is it about a fresh look on the immigration policies? How do we address this?
MR: It is very difficult to explain a position about France when we think about this incredible terrible tragedy, but the people who killed the journalists from Charlie Hebdo and then the Jewish shop were born in France. They have grown up in France. They have lived in France for a lot of years so it is not simply a problem of immigration. I read some articles, Marie Le Pen, We must close the Schengen. But if these people come from France, if you close Schengen, what is the solution? First of all, I think, after this incredible tragedy, I believe in great news, that's solidarity and the commotion of the country of France… and every country of Europe. If you attack Paris, you attack Europe. You attack my civilisation. You attack my idea of community. This is the point after the event of January 11. And I believe the first reaction, I participate in the march, this event. And I believe exactly about this… for the first time, maybe, we can see an idea of European Union not only in the economic field. Obviously, now the problem is used in different ways that information of intelligence. First thing, it is absolutely important to create European Intelligence. I believe absolutely important to share every consideration and news from every police and security system. We must absolutely have the same approach against foreign fighters. And we must absolutely consider not only the problem of the Islamic State – very dramatic. I read this morning terrible news… children are killed only because they participated in a match of soccer. This is incredible for everybody. But I think they are not the problem of the Islamic State. We have the problem of Libya. It's crucial. And I stressed this point in every discussion with my colleagues of G7 and of the European Union. We must fight against terrorism and we must absolutely work together with the countries we fought against the terrorism in the Islamic world and lead example.
JC: But you made the point that it is a home-grown issue. If you look at the situation right now, the unemployment situation, there are a lot of disenfranchised individuals who have lost hope and perhaps in some cases, they then turned to Islamic extremism so yes we are under attack but we also need to address some of those fundamental issues that we are still not addressing in Europe like the unemployment crisis. Would you agree?
MR: I agree with idea the lack of hope of a lost generation. I believe the correlation between unemployment and terrorism is not correct. The killer of some journalist in the Islamic state – maybe I think this is now official. Arab people come from the UK. The country with the lowest level of unemployment in Europe. So – they are no correlation and relation between lack of hope and unemployment. In Italy, we have a lot unemployed, but we don't have a lot of fighters. Because depends on a lot of considerations but I agree with you with this quote. When I underscore the importance of necessity of an idea for the new generation. For this reason, I believe Europe as a place of culture, of values, of ideas, of dreams of possibilities. Because if we invest in the idea in Europe as place of quality of life, and investment in culture, we will have a future. If we are simply a community of economic interests, we are finished. So I agree with you. This is a time where the new generation needs a dream. We must come back to capacity to dreaming. But this is only reason for which a politician fights everyday – to give a new generation the possibility to believe in some values. And I think this is not definitively linked about unemployment – obviously for my country, unemployment is the first enemy. But the lack of hope is the enemy, is the bad problem in Europe.
JC: Is that what you hope your legacy will be then? To allow people to dream, those dreams to come true?
MR: I think we are very lucky guys because we live an incredible country. We live an incredible continent we have a lot of legacy from our past. Every day if we open the eyes, we can see some marvellous suggestions of the past masterpieces. But every day is believe that only one time for our continent for Italy is the past. I refuse that idea. I don't believe that the only time for Italy is the past. I am absolutely sure the future could be a place in which Italy could play an incredible. And for this reason, I fight against the enemies in my country. But the first enemy is the lack of confidence. And I think Italy in this moment is a moment in radical and for this reason, I absolutely, absolutely committed to create a new idea for my country. And I hope for a new generation, a new possibility of hope.
- end -