The EU without the UK: does it matter?

Distinguished guests, Ladies and gentlemen,

First of all, I would like to thank the CityUK for having given me the honour of addressing this distinguished audience with a keynote speech. It has been rather brave of them as I am totally “untested” having arrived in London only a couple of days ago.

Let me start on a personal note. Before being appointed Ambassador of Italy to the UK, I was the Diplomatic Adviser to the Italian Prime Minister. Whilst accompanying the new Prime Minister, Enrico Letta to Berlin during his first European tour, as he was saying goodbye to Chancellor Merkel, Enrico Letta said: “Bid farewell to him, he is about to leave to become the new Ambassador in London. At that she exclaimed: “a challenging job, go and try 2 to convince the British on Europe!” What a task! Still, worth trying I would say. To convince someone on a given issue you must first convince yourself that you have a good reason to do so.

I am well aware of the weaknesses of the European Union. But, for all those weaknesses, I find that the EU is still one of the greatest achievements realized so far by the European nations. However, I also believe that - if we want to restore the confidence of frustrated citizens - we have to dare to tell the truth, and admit that something in the EU is no longer working. It is time to check, and if necessary, repair the functioning of some EU mechanisms.

To make the step-change required, we need constitutional reforms and open debates, warmer discussions with the unbelievers and less obscure seminars for the enlightenment of the converted. Otherwise, as one of the founding fathers of the EU, 3 Alcide De Gasperi, warned: the European venture may seem cold and lifeless, like the Holy Roman Empire at certain moments in its decline. So, let’s not avoid blunt questions. I would like to pose one: does it matter if the United Kingdom leaves the EU? My answer is: it does matter, indeed. For a number of very good reasons, without the UK, Europe would be weaker, less stable, less rich, less competitive, less open to the world, less innovative, less democratic and less tolerant.

1. Without the UK, Europe would be weaker. In this globalised world, no European country, not even the biggest and most powerful, could succeed in protecting itself, by itself. However, there are countries that weigh more than others in Europe and on the global stage. If the EU had to lose Britain, it would become less influent. Especially in the security and defence sector, all the efforts of pooling and sharing would be doomed to failure without Britain’s contribution. 4

2. Without the UK, Europe would be less stable. Europe is a geographical space that cannot be wiped off the map. Nonetheless, the frontiers of the EU have changed following the lines of freedom and the rule of law. The enlargement of the EU has brought peace, security and prosperity to countries that could have developed into unsafe centres of instability. The EU is still attracting its external neighbours, but it would become a much weaker magnet without one of the most enthusiastic champions of enlargement, Britain. The resulting stalemate would cause more instability in our neighbourhood, the Balkans in particular.

3. Without the UK, Europe would be less rich. Not only is Great Britain one of the most prosperous economies of the world, but also the British decisively contributed to shaping a more market- orientated EU. The Single Market has been the most powerful endogenous source of growth. Between 5 1992 and 2009, the Single Market has helped to increase growth by 1.85% and created 2.75 million additional jobs all over Europe. The UK itself has taken advantage of the Single Market: thanks to it, on average, a British household receives between £1,500 and £3,500 every year. And the UK is the largest recipient of inward investment in Europe: the main access point for Asian companies into the continental market. Also the role of European companies in this country remains relevant. As far as Italian companies are concerned, nearly 700 capitalized companies, with more than 41.000 employees and a total revenue of about 17 billion pounds are based and producing in the UK, with an increase of 134% in total revenue, of 46% in FDI and of 60% in workforce between 2000 and 20091

1 source: IV Survey of Italian Direct Investments in the UK published by the Chamber of Commerce of Italy in the UK -2011 6 However, in some Member States there are signs of market integration fatigue, even of a resistance to accept the principles of market economy. The British pro-market attitude is then essential to overcome the obstacles to the completion of the Single Market. To this purpose, Italy has established with the UK a fruitful cooperation, which in 2012 took the form of a “Plan for Growth in Europe” elaborated by 12 Member States. The proposal listed 8 priorities2 and gave a key input to the European initiative on growth, launched with the Compact for growth and jobs.

To succeed we must be cohesive. Because, as Lady Thatcher said, “What we need are strengths which we can only find together. […] We must have the full benefit of a single large market”. It is no coincidence that these far-sighted words were

2 1. Reinforce governance and raising standards of implementation of Single Market, starting from the services sector; 2. step up efforts to create a truly Digital Single Market by 2015; 3. establish a genuine, efficient and effective internal market energy by 2014; 4. establishing the European Research Area; 5. deliver open global markets; 6. reduction of excessive of regulatory burden; 7. promote a well functioning labour market; 8. build a competitive financial service sector.

7 mentioned at the beginning of the report written by Mario Monti on “a new strategy for the Single Market”.

4. Without the UK, Europe would be less competitive. Italy sees Britain as a key ally in the aim to shifting the focus of the EU’s crisis management from austerity to embracing structural reforms, restoring competitiveness and generating growth and jobs, especially for the young. Italy shares with Britain the need for speeding up the liberalisation of markets, starting with services and the energy sector. As for the financial sector, the April 2013 Report of TheCityUK’s Independent Economist Group (IEG) says that:” Development of the UK financial service industry over the past two decades has been closely linked with the EU. The EU is the largest single destination for the export of financial services, generating a trade surplus of nearly £18 bn, 38% of the UK’s total trade surplus in financial services in 8 2011”. This in turn, means thousands of new jobs created not only in the UK but also in other member States where financial firms and services are deeply integrated and connected with the City of London. Moreover, London’s role as a global financial hub depends also on being a vital member of the EU. Again the IEG’s Report states that 40% of international firms in financial and related professional services asked by TheCityUK about their decision to locate in the UK, answered that a core reason for choosing London over other financial centres was their access to markets in the EU. In this respect, the merger in October 2007 between the London Stock Exchange and Borsa Italiana represents another important step towards the completion of the Single Market in this specific sector. Since then, both institutions have largely benefited from this collaboration. LSE in adding the strengths of Borsa Italiana in Italian cash equities, derivatives and efficient post-trade services and 9 Borsa Italiana having a wider and more direct access to UK and international equities market through the London Stock Exchange.

Speaking of Italy, I would like to point out that my country has consolidated its public finances and is now back to financial stability, a condition which - however - is not yet generating growth and jobs. For this reason, and in view of the June European Council, Italy intends to address three main issues: (i) the implementation of the Compact for Growth and Jobs; (ii) the problem of youth unemployment; (iii) decisive progress in the banking union and a clear roadmap on the other building blocks included in the Van Rompuy Report “Towards a genuine economic and monetary union”. We rely on the UK, especially to accelerate the implementation of the initiatives mentioned in the Compact for Growth and Jobs, including the recent increase by 10 billion euros of the capital of the European Investment

Bank. 10

5. Without the UK, Europe would be less open to the world. Also thanks to the impulse of your country, the EU has established a world-wide and well- structured trade network. From your experience as a world trader, you know that commerce boosts growth and prosperity - and so you are among the staunchest opponents of protectionism.

At the same time, as acknowledged by Minister Lidington, the EU has helped the UK negotiate trade deals with other countries, opening up more markets for British business. The Free Trade Agreement with Korea, for instance, is expected to benefit UK businesses by £500m. And Europe itself is an essential trade partner to the UK. Half of UK exports go to the EU. And 3.5 million jobs - 11% of the UK’s workforce - rely on trade with Europe. The elimination of all remaining barriers to trade inside the EU could generate an estimated 7% 11 increase in UK GDP, largely based on growth in output of services and goods.

The Italian and British joint efforts could also help the EU and the US to finally agree on the opening of the negotiations for a transatlantic free trade and investment agreement. On the other hand, as the Economist recently observed, a successful agreement with America could also demonstrate that the British do better bargaining through the EU.

Being open to the world also means standing side- by-side with developing countries. If the EU - by far the largest donor - has reappraised its approach to aid, it’s also thanks to the Italian and British calls for more action-orientated forms of solidarity, such as more market access for developing countries goods.

6. Without the UK, Europe would be less innovative. Tech entrepreneurs contribute an ever- growing share of the UK GDP: the aggregated UK 12 Internet sector accounts for more than 8% of GDP. Even here several joint projects in the scientific and technological field are being carried out by a direct collaboration between the UK and Italy. One very promising sector concerns the space research and satellite applications. Italy and the UK have complementary skills in this field, and join efforts inside the ESA space programme. Such collaborations are a fertile ground both for scientific advancements and for industrial growth within the general framework provided by the EU.

Britain has taken great advantage of free movement of people, attracting the best and the brightest. However, if the UK would pull out of the EU, I wonder whether the British companies could still easily recruit tech talents from the rest of Europe.

7. Without the UK, Europe could become less democratic and less tolerant. Everywhere in Europe we see rising intolerance and a weakening of 13 the rule of law. On the strength of its great democratic heritage, the UK is among the most well- equipped member states to play an important part in support of the rule of law which, to quote Lord Bingham, “is perhaps the nearest we can get to a universal, secular religion”.

8. Conclusions. I’ve tried to give my contribution, well aware that British public opinion does not take Europe for granted, but also believing that misrepresentation of facts and minimisation of benefits and influence should be removed from the debate about the EU.

Coming back to Chancellor Merkel’s words, before even trying to persuade other people, we have to convince ourselves about the strength of our arguments. And I’ve come to the solid conclusion that to be stronger, richer, more open to the world and more stable, Europe needs the UK. A united Europe - with the UK in - could allow every 14 Member State - included the UK - to continue sitting at the top table and punching above its weight in the global arena.

To this end, and in compliance with the subsidiarity principle, Italy is ready to work with the UK towards more convincing and effective European policies. Neither the EU nor Italy wants to lose the UK. The UK does indeed matter to us. I am confident that the EU matters to the UK too. But I’ll leave this subject to a future debate. Today, in my first public speech as the new Italian Ambassador to the UK, I’ve preferred to stick to the cautious lines of a great British sitcom: Yes, Prime Minister: “Once you start interfering in the internal squabbles of other countries, you’re on a very slippery slope. Even the Foreign Minister (in this case the Ambassador) has grasped that!” Thank you.