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Following are excerpts from a CNBC interview on Squawk Box Europe, with Julia Chatterley and Italian Prime Minister, Matteo Renzi.
JC: Prime Minister, thank you for speaking to us. Let's start with the banks. You've said the stress tests are a big success for Italy. Why?
MR: I think the stress test show Italian banks as not the problem of European system. This is the real new. If you think about the last 12 months, every day we received a lot of news, the problem of our European system are Italian banks and our position was no, it's not true. Finally the results of stress tests show the reality we have the best bank around Europe as Intesa Sanpaolo and we have four of five banks in a good situation. We have all the problem - This problem is Monte dei Paschi di Siena ... and everyone know, they knew that, situation. We worked very strongly with the private solution, with the market solution, to give a perspective and an opportunity in the next months to these very great banks without the problem of NPL non-performing loans. So I'm satisfied for the result. I think we need a different strategy for the future as European institution because it's clear the message now it's time to create a new direction in the economy in Europe. This is my view.
JC: Monte dei Paschi as you mentioned, Monte dei Paschi has got its private solution but we've had recapitalizations in the past. Why should investors believe that this is the final time?
MR: Because for the first time we cut off the problem of non-performing loans. Let me be very clear Julia, we know Italian economy suffered a lot from the problem in the last five years, maybe 10 years. In the first 50 years after World War 2, Italy was the biggest economy in the growth in Europe but after the Maastricht parameters and the European Union, Italy became the problem of the European institution, particularly in the last period for responsibility of Italian politicians who didn't achieve the goal of reforms, Italy became the worst place in terms of growth and unemployment. So in the last period, Italian banks without public support for a decision, for me a mistake, but for the decision of my predecessor, without public support Italian banks, so grew up obviously [inaudible] the level of non-performing loans. It's normal if you have 10 years of crisis, three years of recession, it's normal for the European, for the Italian banks have a lot of NPLs. Now for the first time,Monte dei Paschi is without NPL because the operation called Atlante claim every NPL in the bank. So this is the final …
JC: But they are just a fraction of the non-performing loans that you have more broadly in the banking sector. So are you saying that this could be a model for the rest of the banking sector because these aren't the only non-performing loans, they are just a fraction of them?
MR: I think there is the best way to solve the problem of NPL is the growth. And this is my priority, my dream and my nightmare, every day I think about it. Growth, growth, growth. I became Prime Minister after two years of recession and the first result is not jobs at co-operative banks, constitutional reform, electoral law the first priority and the first result for me is to see Italy come back to growth. But with this model of Atlante we can show clearly to international investors, to the markets, the situation of NPLs is not the situation - is not focused on the narrative the last month. In other words.
JC: It's not big enough - The concern is that it's not big enough for the problem.
MR: Personally I (am) really concerned for the future of European institution, but not for Italian NPL but for the situation of other banks in all countries, for the financial instruments of other banks. So I am not…
JC: You're looking towards Germany there?
MR: Also, also Germany banks we – Our economy is very, very close friend of the German economy, particularly in the northeast. Unfortunately, we have two Italy, not one Italy. There is the Italy of North is absolutely near to the German economy and with performance badder [inaudible] than Germany in lots of issues. And we have a problem in the south. This is our priority to give legality to give transparency, to give a very correct process against corruption and against the problems and inefficiency of public administration. So yes I worried for the other banks, but Italian NPL are more or less in this moment 80 billion in GDP which is 20 times more. So OK. We have a problem we must reduce, we have to reduce the time line of justice. This is the priority for Italian government and we achieved the result for the future. We must work also for the present for the backlog but this is not a terrible problem. Private savings in Italy, I agree with the consideration of Carlo Messina the CEO of Intesa Sanpaolo, I think the public savings and the private, the private savings, I'm sorry - the private savings in Italy are really a private savings of Triple A - high quality, incredible performance, because Italian savings are good.
JC: Do you guarantee that no retail investor no Italian investor in bank bonds will ever be bailed-in? Because that's your fight with Brussels now.
MR: I fought for these and also for…..avoid the risk of institutional investors because I think it's time to open the doors of Italy to market and give the guarantee for the retail people but also for the international investors.
JC: So no bail in? There will be no bail in?
MR: Personally I don't, I don't agree with the new legislation in Europe but obviously I respect that. I don't agree because I believe that the priority in this moment is give confidence to the citizens and if we continue with the [inaudible] of bail in, this is a problem for the sentiment of confidence of European citizens. So for me, this is a mistake, but I respect the law. I don't agree with the law of austerity in Europe but I am the president of council of minister and prime minister will reduce the level of deficit in an incredible way, in respect to my predecessors so I respect the law. I'm not agreeing but I respect it. My view is if we really, if we want to be present in international markets as our competitors in America and in Asia we need a new sentiment of confidence by European citizens. So. I don't know what happened but I know for me Italy is totally fighting for avoid bail in because also soft bail in could be a disaster for the credibility and for the confidence. This is the reason for which I fought for a market solution and there is also one, one thing more and this is my priority, is cancel the power of politician in the banks. Let me be very clear.
In Italy for a lot of period, for a lot of times for a lot of years politicians arrive everywhere. Politicians decide a career in the universities, decide the roll of banks, decide everything. Personally, I believe in a different model of democracy. Very similar to the Anglo-Saxon model in which we are the government. We attend to the law too to respect the procedure of democracy, but banks are in the hands of markets not in the hands of politicians, particularly the local politicians and this is the reason for which I changed, that we changed the legislation about co-operative banks.
JC: So bearing in mind what you have said, that you are fighting against the European regulations now on bailing, do you think investors need to have more confidence in Italian banks and that Italian banks are undervalued?
MR: My view is that Italian banks are good. There are some problems, yes, the first is Monte de Paschi, we know but Monte de Paschi is also a great brand, the most ancient bank around Europe, 1472 I think I don't remember. It is from Sienna, I am from Florence we have a little rivalry [inaudible] but also myself as Florentine...
JC: You just said that shouldn't be happening...
MR: …Yes but if you think about Tuscany also in the time of globalisation, the relations between the little city near the neighbour city [inaudible] are terrible. Jokes apart, I must recognize Monte de Paschi di Sienna is a great brand and if now without NPL , with a clear strategy, I think these banks could be a very good bank for the future. Obviously, I think all the banks, particularly one very important bank, need a recapitalisation for the future but this is the market, we will decide in the next weeks and the next months. I think Italy is a very great place for the international investors because we changed job markets and legislation about the jobs after 40 years of polemics. I know the problem because I had for one year, 1 million of people in the streets against me, unions against me but I think this is a good thing for the people. I called jobs act copying from Obama administration, and now I am really happy because after the day one of my government here in Palazzo Chigi to today, we have 600 000 new jobs, it is an incredible evolution, 75 percent new jobs, stable new jobs, this is very very important. So new legislation in the jobs. Very important for me institutional reform reduce the level of simplification, the level of institution. So simplification, more efficiency just to make you an example, Italy was the place with the most, a high number of police institutions not policemen, police institutions, 5. We reduced, we arrived to 4. We reduced the number of politicians, we fight for to reduce the red tape of bureaucracy so Italy today is ready to welcome international investors, and I think Italian banks could play a role in the new strategy of Europe. It is important bring back the role of politicians and give the message very clear: this is market time, not politicians time.
JC: Let's talk then about constitutional reform and your referendum later on this year. Can you win?
MR: I'm sure we win but not because this is my victory, because if this referendum becomes a referendum about my future.
JC: You have made it a referendum about your future though
MR: I use expression very strong about my future after the referendum. Because you know we have also recent experience in the UK. It's not easy. Lose the referendum and come back the day after as nothing happened it's not correct. But at the same time. The priority in this moment is discover what is this referendum. This referendum is about two different model. One is the mode… model of today. Italy is the place with the high number of senators and member of parliament, 945 members of parliament. In United States are the half. I understand the very importance of Italy. But the double of member member of parliament than the United States I think is too much. It's about the power of regions. It's about the vote of confidence. Italy is only one country. Between the Western countries with the double vote of confidence and these means a lot of things just to make one example, my government is the government number 63 in 70 years, 63 because with this model with double vote of confidence it's too easy to change a majority to give instability so this referendum is about the future of country and I'm sure Italian people, if the people read the question in the, in the ballot in the electoral place will vote for change.
JC: Why are they so undecided. You've got 40 percent of people undecided and equally split at the moment. People saying yes and people saying no. How do you turn that around. How do you convince people?
MR: Our asset will be reality. The most important thing for us will be simply show the question, because if today the people also the polls is about what do you think about Renzi's referendum. Our strategy in the next weeks will be this is not Renzi's referendum. This is a referendum. Do you want a 1,000 member of parliament, 1,000 politicians or we want to reduce the level of politicians in Italy. I'm supportive for the politics but not for too much politicians. The second point - do you want stability. Exactly as all the countries around the world. Or you continue with the change focus simply on the ideas of politicians in Rome. So If you think banks, public administration, jobs act, constitutional reforms are different types of different pictures of a framework, the same framework is give simplicity to Italy, reduce the level of politicians in this country, give more efficiency to this country and this is important not for me not, for myself. It's important for the future because my view is that Italy is the most important country in Europe in terms of genius creativity, quality of life relation between culture tourism and education. So Italy could play a role in the next 10 years, 20 years if finally reduce the level of difficulties of politicians.
JC: Will you still resign if you lose?
MR: I will win.
JC: But if you lose?
MR: I will win. But I think people need to understand what instability will follow. Not just the fact that you're still going to have this quick turnover of governments if you don't manage this reform. But also, there's a risk if you look at the polls, that we're in a situation where perhaps the Five Star Movement are allowed to lead this country. The people need to understand what voting no here means – we learnt that in the UK.
I think the priority is invest in this campaign electoral campaign not in the fear of possible victory of other but invest in the narrative of what happen if finally Italy chooses simplicity. So if we start with the electorate campaign focused on the OK, there is the risk of populists, there is the risk of a Five Star Movement or [inaudible], I think we made a mistake. Don't think to elephant gives us as message [inaudible] the American leaders of electoral campaign. I believe in very clear message. I think Italian people are very serious and I believe in my country, I believe in my citizen. I know what does deserve for because these reform came from lots of years of discussions. What is the difference? The difference of 43 years, my predecessors speaking, spoke, about this reform and nobody achieved the results. Now we achieved this result and now we will go to electoral people and we give the message. Do you want change and finally choose the future, or do you want to continue with this model or destroy the perspective of growth of the last years in Italy. This is the discussion. This is the Derby. This is the corner and I am really confident because I believe in Italy and obviously, I will respect every decision of my people but maybe when the polls will discuss about - will show the result of the real question of the referendum. I think the result will be very clear for us.
JC: Why do you think you and your party have lost support and the Five Star Movement in particular has gained. What's going on in Italy? Because as you said you have tried to tackle reform. Do you think people expect too much of you?
MC: My view is that this after the last electoral local elections a lot of politicians, journalists, people said OK, this is the victory of Five Star Movement. Why. Because Five Star Movement won two very important cities, Rome and Turin, and obviously, let me be very clear about it. I'm totally ready to support her at the institutional level every effort of the new mayors Mayor ??, Mayor ?? in Turin because I think there is the priorities of very good cooperation at lower institutional level but at the same time let me be frank with you. I don't think this local election could become a survey for the national politics because if you look at the results, we won in the more or less 60-65 percent of cities. We won in the majority in terms of a number of institution in the last two years. But there are there are differences between the local cities. Also if you look in the same place in Italy, the same region, very very neighbouring city you can see a very different result in a city a great victory of my party the Democratic Party (Democratic …in Italian) in other a victory of Five Star Movement in other the victory of rights. Because the Berlusconi's party won lots of cities. Not…This is in the north, in the south, in the center. So my opinion is that local elections are local elections. Italian people now is in front of a new thing for the politics. For the first time, a government achieved in two years lots of reforms. I don't discuss if this reform is good. I think so or not good. But it's a new thing for Italian politics because usually if you think about the elections around in this country, every election, every party repeat the same thing. We will change electoral law, we will change constitution, we will change jobs market, we will change public administration. Now there is a government really change that. I think in the good and the current direction my opposition think the opposite. But there is a great change. Finally politicians show to Italian people we have, we are in a different world. This very important in my opinion, we will see the next election will happen but…
JC: The argument Five Star Movement make in particular though is that is one area where you don't differ from your predecessors. In fact, they make a comparison between you and Berlusconi and I know you've had plenty of those for different reasons. But on corruption, because they say you're no different. And that kind of filters down to the Italian people. Why aren't you different?
MR: But the difference is obvious. This is in the in the reality every day. If you think about the new laws against corruption, we increase the sanctions against corruption. We created an authority called anti-corruption authority and I called a former judge against the Mafia and [inaudible] to give the leadership in this project in this authority. Thanks to the efforts of our [inaudible] and the authority against the corruption we achieved results as (like) Expo. When I arrived here in this room the first message of my friends "Please dont touch organization of Expo. It's full of corruption." My reaction was I called Cantone. We work very strongly we fought. We will fight against the corruption and we will organize a great Expo. Five Star Movement's politics was "no no no it's impossible to organize Expo". We won this battle. The reality is it's very easy when you stay in the opposition to say "ah there is the same thing there is the same thing but a reality show in the past, Italy lost the opportunity to fight really against corruption. Now, our decision is incredible, strongly determined against corruption. Personally, I believe will be very interesting to see the results of Five Star Movement in the city administration, because also if I'm not happy because my party loses the election in Rome, there is now is a great opportunity to see what really Five Star Movement could do just to make one example. I think if you stay only in the Parliament to say "no no no no", you can arrive to bring a vote of protest. But then when you are responsible for government I think this is the real challenge. And personally, I am totally supportive to the mayors of every color, every political party, because I think there are a lot of divisions between we and all the parties. But there is this sentiment of belong to Italian country with the priority. So I'm really confident for the future of my country. And let me be very clear also on my party, because the Democrat Party in this moment in Europe is the only party in the socialist field that really gave a very strong message of radical change.
JC: You've thrown the gauntlet down to the Five Star Movement here in Rome as well. Let's move on, because I want to talk about the Brexit vote to some degree. And this also had an impact on the banks, because people were looking at Italy then as potentially the next domino to fall in Europe. Do you feel like there's been a change among EU leaders, whether it's Angela Merkel, whether it's Francois Hollande, to try and help you specifically to tackle the Euro skepticism in Italy. Do you feel like they're going to be more amenable to reform?
MR: I think this is not correct. I think together, Angela, Francois and myself, we will work together to reduce the skepticism in Europe. Let me be very clear. I think there is not a problem in Italy. There is a problem in Italy, as in France, as in Germany, as in Netherlands- the next election will be March 2017 in Netherland. There are a lot of problems around Europe, if Europe don't consider Brexit an incredible wake up. Brexit is bad news but is also at the same time a good opportunity. Your question is how; I think with a Europe able to discuss not only about finance but about human values, about the future of students, about the future of manufacturing 4.0, about a very incredible presence of fight against digital divide and a program for broadband because the world is in a different age around the world.
The world today is not the world of ten years ago. And if Europe continues to discuss only about technocrats, rules, technicians rules, Europe is finished. So the question is not about how Angela and François could help me, but how everyone could help their respective countries to consider Europe as a great place for the future of democracy ideals. Exactly here in Rome, 59 years ago, the founding fathers signed an agreement to give birth to European institutions. March 25 1957. So, our priority is that, arrive to the new appointment in March 2017, sixty years after, with a process and a project, with concrete ideas in which there is a social Europe, not only a banking union, in which there is a student place for European citizens and not only a place for technocrats, in which finally Europe come back to be a dream because Europe was a miracle. After five centuries, the first period of peace for 70 years. But this miracle could happen again.
In August 22nd I will host Angela and Francois in a very specific island, in a very particular place, gorgeous place - Ventotene island. The place in which Altiero Spinelli wrote the document about a United States for Europe and we will discuss preparing Bratislava Summit, preparing the Council of October and preparing the very important meeting in Rome in 2017. I'm totally sure if we choose a different Europe in which there is not only austerity but investment. If you think about the result of Barack Obama's government from 2008 to 2016 and European government 2008 to 2016 you can see with the public investment and with the private support, really United States of America reduce the level of unemployment to the half of the first month of 2008. Why in Europe not? Because the religion of austerity was the religion of a lot of European leaders. I think with every effort we can change this direction. We have in a lot of things, differences between Merkel, Hollande and other leaders. But I think the priority is really: change the relation between Europe and the citizens. If we don't change, Europe will be always the responsible in eyes of citizens. Also if this is not true, if there is a Europe, a social Europe, Europe will be the parachute for the people. If we continue only with the financial Europe, the risk will be Europe become the responsible for every problem in this continent.
JC: You mentioned the U.S, I want to move on. What do you make of Donald Trump?
MR: I don't know who is the Republican man in the United States who said that 'I'm ready to work with the next president, whoever she will be'. Jokes apart, as Italian Prime Minister, I will work with every president of the United States. I will host him, or rather her, in Taormina for G7 in May 2017 for a very important event. I am ready to discuss with the new president and I hope we can have the same level of confidence, friendship and great cooperation we had with President Barack Obama, who really changed deeply the history and also the future of the United States of America, because Obama changed history, but in my view change also the future of United States. Honestly, I prefer the victory as Democrat. I hope Hillary Clinton could become the first woman and if you think about the last eight years ago, everyone knew there is not black man and woman president of United States. In 2008 they elected a black man, if this time elect a woman, we solved the problem and we are really, really, really happy. Jokes apart, I respect the great democracy of the United States of America.
JC: I just want to ask quickly about his comments regarding Russia – he said that he'd potentially allow Russia to claim Crimea as theirs and he would accept that. How does that make you feel?
MR: I, I, I think that personally I'm, I'm working very strongly in my parliament to give a message, because my parliament is in the majority very friend of traditional relation between Russia and Italy, to explain the importance, to respect international coalition and also to respect by Russia, the sovereignty and the borders in Ukraine. And at the same time, I work very strongly in the international consensus, international meeting, to explain the importance of don't close the door to Putin. During G7, during the European Council, I'm maybe the most strong to explain the necessity to maintain a climate of dialogue. This is the traditional role of Italy; give a message to build a bridge, not a wall. This is the very important position of Italy: We stay with the international coalition. We stay with United States of America and we ask to Russian authorities to implement the Minsk protocol for Ukraine. And we ask also to President Poroshenko to continue in the direction of implementing reforms, very important. We offer also a model, a south euro model, to give a correct mix between independence and integration in a part of east Ukraine. At the same time, I think we need involve Russia in the fight against terrorism, against Daesh, in every, every theater of war in Syria. Obviously, I know the importance of Russian authorities to give freedom to Palmyra, and Palmyra is also a symbol, not only a city, but also in the other international theatres. Now I know there were, I think we will discuss in the European Council of October about the necessity to have a good relation between Europe and the most important neighbor of Europe. And at the same time, I think will be very clear the message: Russia have to respect the protocol of Minsk. Minsk protocol have to be implemented. And as Italians, we work in this direction. For myself, when I spoke in my parliament, the people think I too much friend of enemy of Russia, when I spoke in the European Council, I considered the opposite. I think it's important to have a good position respecting the relation with the international coalition because this is our family and we stay with our family, and at the same time don't close the door to dialogue with Russia because it will be very stupid thing, close the possibility to cooperate, particularly in the fight against terrorism and Daesh.
JC: And do you think Donald Trump perhaps has a few things to learn on the foreign policy front?
MR: My view is that we cannot enter into a political discussion in the United States of America. But If you think about the situation and the role, the leadership,and the position of the United States, I think it's obviously for me and for a lot of us to prefer Hillary Clinton as commander in chief, because with her there is a woman able to know every dossier, able to have an history and a future with other partners and for this reason – I'm not able to vote in United States of America, but I think it's clear in this case, what could be my vote. Now it's time to respect the great democracy of the United States. I follow a great speech of President Obama in Philadelphia, incredible words. I very appreciated also the speech of Michelle Obama. But this is America, a place in which Obama's family wake up in a house built by slaves. This was the statement of Michelle Obama and now great democracy of the United States showed President Obama in the White House. Obama explained very clearly his position about the future of America, the great dream of America and I believe this is the America in which we believe, the America who is the leader of the free world. So I very appreciated the consideration of the President of the United States of America.
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