Panetta and the problem of productivity, Italian and European

Fabio Panetta 's concerns are not so much Trump's tariffs but our productivity . The word is not only the most pronounced in this year's Concluding Remarks (thirteen times), but it is also the common thread of his mandate. In November 2023, he dedicated his first speech as governor of the Bank of Italy to the topic: "Our economy has suffered from stagnation in labor productivity for over two decades, compared to an annual increase of 1 percent in the rest of the eurozone." Back then, Panetta's focus was on Italy's backwardness compared to Europe. Today, he shifts the focus to Europe's delay compared to the United States and China. In a certain sense, Italy is the vanguard of Europe's decline. "In our country, the problems of growth and innovation that are plaguing Europe today emerged first, and in an accentuated way," Panetta said towards the end of his speech.

“The European economy shows clear structural weaknesses. Stagnant productivity and a delay in innovation limit its growth potential.” The governor’s diagnosis is based on eloquent numbers: “Over the past thirty years, labor productivity in the European Union has grown by 40 percent, over 25 percentage points less than the United States. Since 2019, the gap has widened: in Europe, productivity has increased by 2 percent, compared to 10 in the United States, where it was driven mainly by high-tech sectors.” The delay is the consequence of poor innovation. “In relation to GDP, European companies invest half as much in research and development as US companies. Most of these investments come from companies that have been active for decades in intermediate-tech sectors, such as the automotive sector; the contribution of young and innovative companies, which often choose to transfer their activities abroad, is weak.” This fatigue of the production model, concentrated in mature sectors and not very dynamic in innovative sectors, especially in a context of geopolitical and commercial tensions, makes Europe much more vulnerable. How do we get out of it?

Panetta takes up the studies and proposals already developed at European level to improve competitiveness and strengthen the single market, from the Draghi report to the Letta report , but to this package of reforms he adds the “European Pact for Productivity” : a program of common investments to relaunch growth and strengthen European strategic autonomy in critical sectors. The idea is to combine the reduction of barriers to the market of goods and services and the creation of the single market for capital, necessary to mobilize private investments in innovative sectors, with a plan of public investments to finance the so-called “European common goods”, such as energy security and defense. “To eliminate at the root the fragmentation of the capital market along national lines, it is crucial to introduce a European public bond, with a dual objective: to finance the public component of investments and to provide a common, solid and credible reference for the entire financial system”.

This is the European productivity compact that Panetta had already proposed at the end of December 2024 : “An integrated capital market, with a common European bond at its core, would reduce financing costs for businesses , activating additional investments of 150 billion euros per year and raising, once fully operational, GDP by 1.5 percent. The effect on GDP could be up to three times greater if new investments were earmarked for high-tech projects”. In essence, it is a question of replicating the model of reforms plus investments at the base of the Next Generation Eu, but with more ambitious objectives.

In the current European political framework, with far-right parties on the rise in Germany and elsewhere, it is a difficult project to implement: the idea of ​​a common debt is always seen as smoke in the eyes in the other Nordic countries, especially if the proposal comes from Rome. But it is also true that the global context has changed. On the one hand, the strategic need for the European Union to increase investments in security to build a common defense is more pressing ; on the other hand, in the world, more and more space has been created for a European safe asset due to the greater uncertainty about US Treasuries and the credibility of the dollar itself, undermined by Trump's protectionist policies ("The very role of the dollar as the linchpin of the international monetary system is being called into question", Panetta recalled today). So a European risk-free security would now serve to finance common investments, develop a European capital market and give greater international weight to the euro. It would therefore have a very different meaning from the simple "mutualization of debts", which has always aroused mistrust in Europe.

But for the “Pact for Productivity” to have any hope of seeing the light, it is important that Italy is consistent with the idea of ​​creating a single capital market. And instead, the Meloni government is the one in Europe that vetoed the reform of the ESM , which represents a piece of the Banking Union, and that imposes the golden power on national bank mergers, with an intervention much harsher than the obstacles that Germany places on the cross-border operations of Italian banks. Panetta indicates a solution, but it will hardly work if Italy is part of the problem.

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