The European Central Bank's Letter. Analysis and contents

The extract is a formal letter. The senders are Jean-Claude Trichet and Mario Draghi, members of the European Central Bank. The addressee of the letter is the Italian Prime Minister.

Since the letter provides some solutions for the Italian economic crisis, the letter is written in an argumentative style.

After the salutation, the first paragraph is introductory. It furnishes some background pieces of information and expresses the thesis of the essayists: after discussing, the Governing Council of the European Central Bank considers that pressing action by the Italian authorities is essential to restore the confidence of investors.

The writers add a quotation from the Euro area Heads of State of 21July 201 asserting that all euro countries must reaffirm their determination to honour their commitments to sustainable fiscal conditions and structural reforms brought by the UE. This is what Italy has to do.

After that, the essayists introduces a new statement: the fiscal package introduced by the Italian Government is not a sufficient solution to its problems.

Subsequently, Trichet and Draghi point out the most important measures to be taken:

1-     Significant measures to enhance potential growth: the men add that key challenges are to increase competition (particularly in services) and fiscal systems better suited to support firms' competitiveness:

a.     A reform strategy including the full liberalization of local public services and of professional services (provision of local services through large scale privatization).

b.     A further reform of the collective wage bargaining system allowing free-agreements to tailor wages and working conditions to firms' specific needs and increasing their relevance with respect to other layers of negotiations

c.     A thorough review of the rules regulating the hiring and dismissal of employees should be adopted in conjunction with the establishment of an unemployment insurance system and a set of active labor market policies

2-     Immediate and bold measures to ensuring the sustainability of public finances:

a.     Additional-corrective fiscal measures. It is essential to frontload the measures adopted in the July 2011 package by one year to achieve a fiscal deficit by expenditure cuts. It is possible intervene in the pension system (strengthening the eligibility criteria for seniority pensions) and in the cost of public employees (reducing wages).

b.      An automatic-deficit reducing clause, by which any slippages from deficit targets will be compensated through horizontal cuts on discretionary expenditures.

c.     Placing borrowing under tight control.

After points 1 and 2, the essayists add a clarification and a further advice to the Government: points 1 and 2 should be applied immediately with decree-laws, and also a constitutional reform tightening fiscal rules would be appropriate.

3-     Measures to ensure a major overhaul of the public administration in order to improve administrative efficiency and business friendliness. Performance indicators should be systematically used in public entities, intermediary administrative layers need a strong committement and actions aimed at exploiting economies of scale in local public services should be strengthened.

Trichet and Draghi conclude their letter with their hope that the Government will take the appropriate actions.