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CNBC EXCLUSIVE: CNBC TRANSCRIPT: CNBC'S MARIA BARTIROMO SPEAKS WITH MARIO MONTI, PRIME MINISTER OF ITALY, TODAY ON CNBC

When: Today, Friday, February 10th at 4PM ET

Where: CNBC's "Closing Bell with Maria Bartiromo"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Italian Prime Minister Mario Monti today, Friday, February 10th, on CNBC's "Closing Bell with Maria Bartiromo." All references must be sourced to CNBC.

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MARIA BARTIROMO, host: And now we turn to the man in charge of turning Italy around, Prime Minister Mario Monti.

Mr. Prime Minister, thank you very much for joining us today.

Prime Minister MARIO MONTI: Pleasure. Thank you.

BARTIROMO: It is good to see you again. Let me start with your meeting with President Obama. What was your goal, and did you achieve it?

Prime Minister MONTI: Yes. The goal was to explain to the president what Italy's doing in terms of budgetary discipline, but also in terms of preparing the conditions for growth and also what Italy is doing at the table of the European Union to achieve more growth and a safer governance of the eurozone. And the president was very interested and very, very supportive.

BARTIROMO: Do you feel that the United States will be there in terms of support for Italy as you continue this very challenging job?

Prime Minister MONTI: I definitely have this impression, and support does not mean financial resources because we don't need them, but political support and also an effort on the part of the US to--well, the put the global economy, through the US economy, in a better condition.

BARTIROMO: Mr. Prime Minister, let me turn to the banking sector. I want to certainly drill down on many of the--many of the reforms that you've put in place. They certainly have inspired confidence in Italy and in the entire eurozone. But we'll get to that in a moment. Today, Standard & Poor's has downgraded 34 of the 37 Italian banks that Standard & Poor's rates. They're saying that Italy is vulnerable to external financing risks, and those risks have increased, given the high external public debt. Can you characterize the banking system in Italy? Do you agree with this downgrade by S&P?

Prime Minister MONTI: It's not a matter of agreeing. These decisions by the rating agencies are largely the mechanical effects of previous decisions and of objective fates. The high public debt of Italy is a well-known fact of life. What matters more is movement at the margin, namely, is a government putting its house in order or not? And the rating agencies themselves are very appreciative of what the Italian government is doing. As for the banking system, banks, of course, in highly indebted countries have a greater potential of vulnerability than in others; but, by and large, Italian banks have been less hit by the financial crisis than the banks in many other European countries and have also recently, many of them, recapitalized themselves.

BARTIROMO: You, of course, have instituted very significant reforms in Italy, including tax increases, including cuts in spending, including a liberalizing of many jobs that before this were not competitive in any way. Where are you in your austerity programs? Or is there much more to come in terms of cuts?

Prime Minister MONTI: Well, first of all, one feature of this government also, because we were created in a condition of emergency, is the rapidity of decision making. And we can count on a parliament which is well aware of the need to proceed to fast decisions. So what we have achieved already, and it is in place since January 1, is a set of measures that we'll bring the Italian budget to a balanced--that is a balanced budget by 2013, which means a couple of years earlier than for other EU member states. And that is there, all the necessary decisions are there, and that result will be achieved even under pessimistic conditions as regards growth and interest rates staying high and all that. So this is a very prudent assessment, and that is there. Also, we have put in place a package of liberalization and the opening up to competition, including additional powers to the competitional authority. And that is now in the process of being converted into law by the parliament, should be converted in a manner of weeks. The same goes for packages on speeding up infrastructures, one of the weaknesses of the Italian economy, and on simplification. Again, an excessive burden of overcomplicated regulations is traditionally one of the weaknesses of the Italian economy. So what is left? What is left is something on which one cannot proceed by decree law and one has to discuss with the social partners and the trade unions. That is the labor market reform, where, at any rate, we intend, hopefully, with an agreement with the social partners, to come to a conclusion by the end of March. And that is meant to make the labor market more flexible and more modern and less, in fact, discriminatory between those included and the outsiders, like, in particular, the young.

BARTIROMO: I'm glad you've said a lot of things, and I want to go back to those because the labor market is so important and the labor reform is so important. But you mentioned 2013. So let me stay there for a moment. How confident are you that the programs that you are instituting right now will, in fact, stick and be sustainable past 2012 once you step aside and your government leaves office? Do you believe these reforms will continue once you're gone?

Prime Minister MONTI: I am very confident about this because the reason why these reforms were often spoken about but never actually introduced in the past was their political cost, because these reforms demand sacrifices from various social and economic categories. But in this very peculiar political configuration that we have now, the political cost is borne by this government, the present government, which is nonpolitical. So the political cost is not a relevant matter for us. And once all these reforms are introduced--and they will certainly before we leave government--it--when political parties come back to being--to forming a government of their own, they will not have any incentive to undo what we did because the political cost is incurred in--when one has to introduce these reforms, but once they are there, the benefits will be seen. So we don't see--I don't see really a big risk of reversibility. Not only that, but let me quickly also say that the style, as if it were, of political debate in Italy is changing. After years of tough confrontations where the--most of the energies were devoted to destroying the adversary rather than to solving the problems of a country, now people seem to be interested in down to earth, pragmatic discussions, and I think this will not make it easy for the political parties, when they come back, to go back to old habits.

BARTIROMO: This is a very good point to make because it will be too difficult at that point.

Prime Minister MONTI: And this means that if somebody considers investing in Italy now, they should not be too worried about what comes next.

BARTIROMO: Mr. Prime Minister, this is a very delicate balance that you walk because I know that you are looking long term. You are always a long-term thinker. And you're thinking about how do you get back to growth in Italy. So how do you implement austerity and cutbacks in a landscape where you actually want to grow? What specific steps will you be putting in place to actually achieve growth in Italy in the economy?

Prime Minister MONTI: First of all, in putting in place the cuts, we have been very careful not to undermine growth too much. In particular, we needed to have not only spending cuts but also some higher taxes, but we have done this in a way that preserves very much labor income and profit from firms from increased taxation, and we shifted part of the tax burden onto property, wealth. That's not hitting the international competitive and rest of Italian productions, therefore not hitting growth. Then we rely very much on the opening up of the markets through liberalization, through more competition. And also, as all this plays out--and it is beginning to play out--the exceedingly high interest rates on Italian debt, which goes for the treasury bonds but also for the indebtedness of companies, are coming down, will continue to come down, which creates sort of a bonus for growth deriving from lower cost of capital. And, of course, finally, we will benefit if the European Union shifts to a more pronounced polity for growth--policy for growth. And this is my present commitment together with putting Italy in order.

BARTIROMO: We are going to talk more about this. We'll take a short break, and then we will come back with Prime Minister Mario Monti, talking about growth as well as talking about the ECB's most recent liquidity event for the banks, what that has done for the Italian banks. Stay with us. More from Mario Monti live today from the CLOSING BELL New York Stock Exchange set.

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BARTIROMO: Welcome back to the show, live with Italy's Prime Minister Mario Monti, and we are back right now. Mr. Prime Minister, a lot of talk about the firewall in Italy. Do you believe that the firewall is strong enough to--the firewalls in the eurozone...

Prime Minister MONTI: OK.

BARTIROMO: Pardon me. Are they strong enough? And what would you like to see this firewall look like, if not?

Prime Minister MONTI: Well, I believe firewalls are necessary. The higher they are, in terms of financial resources, the more likely it is that those financial resources will not have to be used because their mere presence will impress the markets and take a perception of risk away. So I don't say this because Italy might be in need, because I don't believe that Italy, with the tough policies we are pursuing, will be in need. But it is in the interest of a credible eurozone governance to have high enough firewalls, and also, complemented by a system of governance that is the decision making process in order to activate the firewall if, in case of need, that are quick and smooth enough. I think the governance of the eurozone has made a lot of progress. And on this, by the way, we are almost there to achieve definitive progress because the ESM, the European Stability Mechanism has not been agreed in March. There will be a review of whether firewalls are appropriate, so we are approaching a satisfactory state concerning that.

BARTIROMO: Which leads me to what's happening right now in the eurozone. I want to get your take on what the European Central Bank, of course, did at the end of 2011. And the LTR facility seems to have stabilized much for the European banks. But, you know, a lot of people are looking at this and saying, `Is this only short term?' Because clearly the yields of marginal debt in Italy, Ireland, Spain and Portugal have, in fact, come down. But the action has caused banks to take on this sovereign debt. So over the short term we're seeing real stability, but longer term, do you worry that, in fact, it's actually creating even more risk because the banks have taken on the sovereign debt?

Prime Minister MONTI: No. I believe, first of all, this move by the ECB was a smart move and it was perfectly inside the mandate of the ECB. Secondly, I believe that banks--each bank found a different balancing act between increasing its liquidity, part of it is deposited with the ECB itself and going into different assets. This is helping a bit in different degrees and different countries to refinance the real economy. And to some extent, also, has induced banks to, indeed, hold more and buy more treasury securities. To answer your question, isn't this weakening the banks at the very moment when the ECB provides them with liquidity? I don't think so because there is partly a virtual circle here. If all this brings to some decline in interest rates, then those governments which are putting in place serious and tough budgetary containment policies will benefit from the decline of interest rates and the risk associated with their securities will decline, so as to improve the risk situation of the banks which have partly contributed to this process by buying more treasury securities.

BARTIROMO: What can you tell us about the happenings this weekend between Greece and its creditors? I recognize you're in New York and you were in Washington, and you're not at those meetings, but I know that you're in touch with your colleagues. Do you expect a deal this weekend to happen for Greece?

Prime Minister MONTI: I don't have a clear expectation yet. I know that important efforts are being deployed by all those concerned. I think a deal is within reach. I think a deal is important for the U, for Greece, and for the overall stabilization of the market. And normally, with--when something is within reach and badly needed, it tends to happen.

BARTIROMO: Let me ask you about what's happening right now in terms of where you take this next in Italy. Many people worry that Greece will eventually default, and the bigger worry, of course, given the size of Italy's economy that Italy could follow Greece. If Greece were to leave the euro, would you want Italy to follow suit and leave the euro?

Prime Minister MONTI: You are going very fast. First of all, I--which is good because it stimulate minds and excites markets, but they shouldn't. First of all, it's far from sure that there will be Greek default. I believe there will not be. Secondly, default or not, I don't see Greece leaving the euro. Thirdly, the distinction between Greece and Italy is, from the point of view of the markets, is massively greater today than it might have been in September, October, or still November. So I don't think there will be any automatic reflex linking Italy to Greece. And I think you really go into high thrill fiction when you consider something that I don't want to repeat concerning Italy and the euro.

BARTIROMO: And final question, Mr. Prime Minister. Can you talk to us about this growing resentment or different economies in the north and the south of Italy? Is this one approach that you can apply to the north, is that the same approach you can apply to the south? Give us the sense of what's going on in the north vs. the south in Italy right now.

Prime Minister MONTI: The euro was meant to be the perfection, the final stage of European integration, and it is highly symbolic and highly practically relevant, and it has served its purpose very, very well. It would be a terrible paradox if the euro, which was meant to unite us further, were to become a divisive innovation. This division is, to some extent, occurring, unfortunately, in terms of mindsets, in terms of antagonizing different countries, in terms of resentment, as you say. And I think it is hugely important to have a balanced view. For example, of course a country like Greece has had huge responsibilities, and that has to be recognized. At the same time, it was not Greece which undermined the credibility of the stability pact in the first place. It was Germany and France in 2003. So no one is really immune from responsibility. We should all look forward, not backwards. And this also means that we should not proceed through stereotypes like the north is virtuous, the south is full of sins. Europe, luckily enough, is much more complex than that. There are strong points and weak points everywhere. And it's important that, I believe, this improved governance of the eurozone is almost there and the eurozone crisis is almost overcome, I believe. This will help us dispose of these stereotypes and of these resentments which are so harmful to the true--to the true objective of European integration that is to have Europeans work more productively and harmoniously together.

BARTIROMO: Mr. Prime Minister, we thank you for your time today. And congratulations on inspiring confidence in Italy. Thanks for joining us.

Prime Minister MONTI: Thank you very much.

BARTIROMO: We appreciate it.

Prime Minister MONTI: A great pleasure.

BARTIROMO: Prime Minister Mario Monti joining us for this exclusive.
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