Trichet and Draghi: The letter

This is a letter written by the European Central Bank to the Italian Prime Minister to inform that the Governing Council thinks that Italy needs to urgently underpin the standing of its sovereign signature and its commitment to fiscal sustainability and structural reforms.

The Italian Government has decided to pursue a balanced budget in 2014 and, to this purpose, has recently introduced a fiscal package. The European Central Bank thinks that these are important steps, but non sufficient, and for this reason he suggests some measures to take into account: Italian government should increase competition, particularly in services to improve the quality of public services; should reform the collective wage bargaining system allowing firm-level agreements tailor wages and working conditions to firms specific needs and increasing their relevance with respect to other layers of negotiations.

Moreover it should review the rules regulating the hiring and dismissal of employees should be adopted in conjunction with the establishment of an unemployment insurance system, find measures to ensuring the sustainability of public finances, and consider significantly reducing the cost of public employees, by strengthening turnover rules and, if necessary, by reducing wages.

Finally he concludes encouraging the government to ensure a major overhaul of the public administration in order to improve administrative efficiency and business friendliness.