This text is a formal letter written by Jean Claude Trichet and Mario Draghi to the Italian Prime Minister.

 

The first paragraph of this letter contains background facts to introduce the topic and the reasons of writing. According to the senders, who report the conclusion drawn by the Governing Council of the European Central Bank, an action of the Italian authorities to restore the confidence of investors is essential.

 

In addition further background information about the Government summit of 21 July 2011 that affirmed the determination of all euro countries to honour fully their sovereign signature is provided. Therefore according to the Governing Council Italy needs to urgently underpin the standing of its sovereign signature and its fiscal sustainability and also structural reforms.
In the lines that follow it is stated that the decision of the Italian Government to pursue a balanced budget in 2014 is not enough even if it is an important step.

 

After the previous analysis senders propose (in an explanatory paragraph) a list of three essential measures that have to be taken.
1) To increase competition:
    a) Liberalization of public services.
    b) To reform the collective wage bargaining system.
    c) To review the rules regulating the hiring and dismissal of employees in conjunction with an unemployment insurance system and the reallocation of resources towards the more competitive firms and sectors.
2) To take immediate and bold measures to ensuring the sustainability of public finances through:
    a) Additional corrective fiscal measures to achieve a better than planned fiscal deficit in 2011, a net borrowing of 1,0% in 2012 and a balanced budget in 2013 through expenditure cuts and if it is possible intervening in the pension system, aligning retirement age of women in the private sector to that established for public employees and reducing the cost of public employees.
    b) A deficit clause.
    c) Borrowing that should be placed under tight control.
All these measures have to be taken as soon as possible by decree-laws because of the severity of the current financial market situation and then they have to be ratified in Parliament before the end of September 2011.
3) To immediately take measures to ensure a major overhaul of the public administration in order to improve administrative efficiency and business friendliness:
    a) Systematic use of indicators (especially in the health, education and judiciary systems).
    b) Abolition or consolidation of some intermediary administrative layers.
    c) Exploitation of economies of scale in local public services.

 

The conclusion of the letter is aimed at reassuring the reader that the ECB trusts in Italy because they are sure the appropriate actions will be taken by the Government.