C. Peter McColough Series on International Economics: Challenges for the Euro and the Future of European Integration

DAVID RUBENSTEIN: Thank you very much. My name is David Rubenstein. I'm a vice chairman of the Council on Foreign Relations. And on behalf of the prime minister of Italy, Mario Monti. I would like to go through a few ground rules before we get into the questions. We have an hour of time. I will spend about 30 minutes in dialogue with the prime minister, and then we have about 30 minutes of questions from members who are here and members in Washington, and we have some national members that are tuning in as well.

The key rules that I'd like to get covered first are please, everybody turn off their cellphone, not just turned off by sound, but turn off the vibration part as well because everything that it does will interfere with our audio system.

You don't -- you don't have to do that. (Laughter.)

This is one of the series of C. Peter McColough Series on International Economics. And we have a number of these series on international economics, and this is part of that series.

This is on the record. Not very often you hear people say at the council this is off the record, but this is on the record. And what we will do is have a discussion for about 30 minutes or so, as I say, and then we'll have questions from the audience.

Let me just begin by -- with a brief introduction to somebody who really doesn't need much of an introduction, but let me just go through very briefly. The prime minister is the 54th prime minister of Italy since World War II when the Italian Republic was formed in 1946. And he's taken that position in November of 2011 at the request of the president of Italy. After Prime Minister Berlusconi resigned, Mario Monti was asked to form a government. He did so, and he now leads that government.

At the time that he took that position, he was president of Bocconi University, a position he held for a number of years. He's a graduate of Bocconi University. He also had studied economics at Yale in the United States as well. And he has served from 1994 to 2005 as a member of the European Commission, where he was very active in a variety of issues, most famously, perhaps, in antitrust. And he served in that position, the European Commission, while he was also president of Bucconi University. And he's also -- was also a member of the head of the European arm of the Trilateral Commission. So we're very pleased, Mr. Prime Minister, to have you here today.

And my first question is, you were minding your own business, you were running the university. (Laughter.) All of a sudden, the president of Italy says, can you become prime minister? What did you think? And did you have any second thoughts about having said yes? (Laughter.)

MONTI: (So ?) you gather I did say yes. (Laughter.)

RUBENSTEIN: Yeah. Yeah. Yes.

MONTI: Yes, I did say yes. That was -- that was not an offer of a job, but that was the unequivocal proposal of a challenge. I think I had to say yes because if a country where there is no lack of politicians arrives at the point when even the politicians agree that it's better to turn one not of them, then the situation must be serious enough, and that deprives you, I think -- at any rate, deprived me of any reasonable possibility of choice.

Do I regret -- (audio break) -- no, no, because one may regret things to which he might have said no, but I think the option was not there.

RUBENSTEIN: OK. So now that you are prime minister, there are elections in Italy in April. You are not a member of the Parliament in the traditional sense of having been elected. You've been appointed senator for life by the president. After the elections in April, do you have any intention of continuing to serve in the government? Will you serve as prime minister afterwards? Or are you going to finish your term as prime minister after the elections in April?

MONTI: Well, the elections are an important moment in a country's life. Let's not forget this.

And what is my position vis-a-vis the elections? When I became prime minister, I said -- and I will definitely stick to that -- that I would not run for elections. This was in particular because, being my parliamentary majority is supported by three very different parties, two of them hardly on speaking terms for several years before, it would have been destabilizing for the smooth functioning of the government if I might have -- seen as at a certain point leaning towards the one or the others in view of seeking election now. So I will not run for election to a member of Parliament.

And as you pointed out, there isn't even the need for that because I am a member of Parliament, thanks to the president of the republic, for life in the Senate. So what does that leave us with?

There will be the elections. I hope there will be a clear result with a clear possibility for whatever majority to be formed and for a government led by a political leader. I will be a senator. I will be there. It will be totally in the hands of the political forces in the country to see that they can govern.

Should there be circumstances in which they were to believe that I could serve helpfully after that period of the elections, I will be there. I will consider. I cannot preclude anything. My spirit for service was there when I was asked by the president. I do not foresee that a second occasion would be needed. I will be there.

RUBENSTEIN: But there's some press reports recently that said that you would be leaving government after the elections. And what you're saying is if the president asked you to serve again and if you thought it would be a good thing for your country, you wouldn't preclude doing so. Is that correct?

MONTI: That is correct. You say the president, but first and foremost, after the elections, normality will be that the political parties -- (audio break ?) -- by the president, will be able to suggest to the president the appointment of a prime minister who is one of them. And that would be not me. (Laughter.) Should there be a special circumstance, which I hope will not be there, and were I to be asked, I would consider -- (inaudible) -- situation, and I --

RUBENSTEIN: OK. Well, let me ask you -- (inaudible) --

MONTI: Is it simple or not?

RUBENSTEIN: Well, it's clear that if your country needs you, you are prepared to serve. Is that correct?

MONTI: That is correct.

RUBENSTEIN: OK. So I think many people in Italy probably would be happy to hear that, and we'll see what happens in the elections. But let me ask you about the euro for a moment. On the euro, do you have any doubt that Europe is better off for having had the euro created than had it not had the euro? Suppose the euro had never been put into place. Would Italy or Europe be better off today or worse off?

MONTI: Worse off. And that goes for Italy, but it also goes for Germany and for everybody else, in my view. Why? Although the euro has been associated with a number of turmoils recently, take the case of Italy. Euro -- the euro brought to Italy a single currency shared with all the others. That is very important economically, simplifying life for businesses and citizens. That's all for the good.

But that is not the most important part. The most important part is that the euro is the tip of the iceberg, and underneath, you have a whole set of rules of governance, budgetary discipline, one central bank conducting monetary policy in a spirit of independence, targeted against inflation. You have rules about budgetary stability and so on and so forth. Many of the problems that a country like Italy had experienced in the decades before derived from the fact that these simple and crucial elements of a model of a market economy which were observed, for example, in Germany, were not observed in Italy.

Therefore, the constraints -- the constraints sometimes are perceived as being the unpleasant part of the euro. And I can assure you sometimes they are unpleasant. But nevertheless, they modernize a country. They make it more disciplined and so on.

And if I can mention here a quick anecdote, there was a conference in Italy in 1992 where the keynote speaker was Mrs. Thatcher, who had resigned the previous year from the position of British prime minister. And the discussion went on the Treaty of Maastricht, to the treaty which practically gave birth to the euro and set up all these constraints. And she asked in this -- in a room like this, but why you Italians are so fond of the Maastricht Treaty? And I explained, because it forces us to do things that we knew in the first place were to be done but we didn't have the political strength to do.

And she said, oh, I see. That's interesting. But then you should not be surprised that the British people is not interested at all in the Maastricht Treaty -- (laughter) -- because they had me. (Laughter, scattered applause.)

RUBENSTEIN: Well, now --

MONTI: Now you can say -- I anticipate, if I may, your question --

RUBENSTEIN: Yeah.

MONTI: -- that's good for you Italians, but why has the euro been advantageous for Germany, which was rather disciplined to begin with? Well, because, thanks to the euro, Germany was able and is able to have a huge European market, free from the risk of competitive devaluations, which had plagued the life of the European economy for some time.

RUBENSTEIN: But today it's clear that you and the other leaders of the major members of the eurozone want to keep the euro as vibrant as possible. Do you think the euro will be damaged if Greece has to withdraw from the euro? And do you think that's a possibility?

MONTI: In the minds of some people, it is a possibility. I do not believe this will happen. I believe that were it to happen, it would be a damage to the whole system, not because the Greek economy has a huge quantitative significance -- it's 2 percent of the eurozone's GDP -- but because the idea of the irreversibility of a country being in the euro would be fiercely damaged.

RUBENSTEIN: Now, you have had some famous conversations with the chancellor of Germany about the euro. I don't know how many things you want to tell us that you've said to her behind closed doors, but your relations with the -- with the chancellor of Germany are in good shape. And do you have disagreements about how the euro should be managed going forward?

MONTI: Not much disagreement. I think one of the beauties of the management of Europe is that there have to be collective decision-making coming from the collection of countries and their heads of government. It's true that many heads of governments in Europe, apart from Germany's and France's, take a more relaxed attitude of the sort, well, let's hope that the Franco-German couple does -- thinks well, and well in the general interest. I am always been convinced that nothing in Europe can seriously happen without Berlin and Paris agreeing.

But I've also seen the limitations of having Europe just decided by these two countries. And I believe Italy has a role to play, like everybody, in principle, has. And you have not spent 10 years at the European Commission without pretending that you have some ideas about how Europe should be run.

And when I became prime minister, of course, I became prime minister in the least favorable condition that one could imagine in order to exercise advocacy and persuasion on others because others were looking at us like this because we might have -- be the decisive explosion in the eurozone, with the consequences well beyond Europe, which explains also why President Obama has been, since day one, extremely interested in the work we were doing.

But with Chancellor Merkel, I had many, many occasions to interact. I genuinely admire her. And I think it was my duty, and I tried to continue on that point, to draw her attention to the consequences, both economic but also psychological and political, in other parts of Europe, of traditional economic policymaking. And because I am a strange Italian, for some reason deeply contaminated by the taste for German discipline and order -- (laughter) -- then I am -- I don't want countries to -- after a point, to turn against that discipline and order, to turn against Germany, to turn against the euro, as is happening in some, in particular southern European, countries.

And so we work very much together, as well as with President Hollande and others, to come in the months of June to a number of landmark decisions in the European Council, on, for example, the creation of stabilization mechanisms for the sovereign debt governments, for example, on deciding on a growth compact to have a greater input from the European level into the growth policies of individual member states.

So I admire her when I simply have to persuade Italian citizens to take up aspects of the German way of thinking, and I admire her perhaps even more when I see how fairly open she is to interaction with other points of views.

RUBENSTEIN: Now, the United States is hardly one to talk about others having too much debt. We have a lot of debt ourselves. But I think your debt is about -- over 120 percent of GDP. What are you trying to do to reduce that debt as a percentage of GDP?

MONTI: First of all, we are trying to prevent its improvement by very rigorous -- its increase, sorry -- (laughter) -- by a rigorous policy on the (flow ?), on the deficit.

And by the way, Italy will have next year the -- a balanced budget in structural terms, that is, net of the cyclical component. And we will be one of the first two, hopefully, EU member states to have reached that objective by next year, which is a very demanding objective, which implies, to give you an idea, that given the huge stock of debt, we will have and we are having year after year some 5 percent of GDP primary surplus that is net interest payment. So that is -- that is the first thing.

Then we are -- we have entered a phase of privatization. Of course, a lot of government-owned industries and companies had been privatized 10 or 20 years ago; not much is left there. But I'm speaking of privatizations of real estate, of buildings, of the central and local governments and of many companies held by the municipalities.

RUBENSTEIN: Now, do you believe anybody will be joining the euro in the future, have -- any one of the other countries that are not members of the euro now that are in Europe? Or do you think the people who are using the euro, the countries using the euro, that's -- nobody else is going to join in the foreseeable future?

MONTI: The U.K., which has a derogation and therefore is not of -- is not in a state of unlawfulness in not having the euro I think is not particularly tempted to make that jump -- situation may be different for them -- not in Sweden, depending on circumstances. And the new member states of Central and European -- well, some of them, a few of them already embarked in the euro, but many of them are not yet there. Their degree of political enthusiasm for joining quickly has waned a bit, understandably, after the recent financial crisis but is still there. And by the way, they, unlike the U.K., for what it means, do have the legal obligation of joining once they will be ready.

RUBENSTEIN: Now, you have made it clear that the European leaders want to continue the euro, but can you preclude the euro going down against the dollar? In other words, your mission is not to deal with currency fluctuations, but would you think it's impossible that the euro could weaken further against the dollar? And would that be a serious problem if it went to parity against the dollar?

MONTI: Well, the euro started below parity for --

RUBENSTEIN: Years ago.

MONTI: Yes, years ago.

RUBENSTEIN: But it's not -- you're not -- it's not your goal to get it back there, I assume, so --

MONTI: No. (Laughter.) No, and certainly it's -- the handling of the euro is definitely not in the hands of a nation or government, and rightly so.

But I'll say that -- I'll say two things. One, I believe it is very remarkable that in spite of the deep fiscal and banking crisis in the eurozone that we have and that we had, the euro as a currency has not suffered. It hasn't really lost purchasing power in terms of goods and services. And in terms of the exchange rate, it has had rather normal fluctuations. And secondly, I believe a lot will depend on the dollar and on -- and on the U.S.' not minuscule debt.

RUBENSTEIN: OK. Now let me ask you about --

MONTI: By the way, I was fascinated when last year I think it was in the U.S. the attempt was made through the supercommittee to come to a bipartisan solution of the public finance problem.

RUBENSTEIN: (Inaudible.)

MONTI: Why? No, I was simply saying that you can look at my strange government as an experiment in that same direction; that is, of engineering across parties an effort mainly to put public finance under control. And at least it's too soon to say that it failed.

RUBENSTEIN: OK. Now, Silvio Berlusconi was a prime minister for a longer period of time than anybody in the post-World War II period in Italy. Can you assure people, or can you not assure people, that he will not become prime minister again? (Laughter.)

MONTI: You have big demands on -- (laughter) -- on a so-called technical prime minister.

RUBENSTEIN: OK.

MONTI: No, of course I cannot -- well, I can assure you that it would be entirely normal of President Berlusconi decided to run again. By the way, he is the one who, in a sense, discovered me in 1994. He was the then-new Italian prime minister who nominated me to become European commissioner. Five years later it was Massimo D'Alema, the center-left prime minister. And Mr. Berlusconi is still the president of the Partito della Liberta, so the largest component in the Italian Parliament and the largest of the three groups supporting this government.

So it's not that he went to some strange island, as people might conceive, and that he would come back to Italy. He is there. The degree of intensity of his political commitment is for him to decide. And -- but of course I cannot guarantee anything.

RUBENSTEIN: Let me ask you one or two more questions before we take questions from our members. One question I had is, it seems to Americans that every three months or so, the European ministers get together, they solve the euro problem, and then they go away for three months and the problem gets worse, and the come together again every three months. That's just a perception. Are you convinced that the latest series of meetings with the ministers have dealt with all these problems for the foreseeable future, or do you see that there will be a need every couple months for the ministers to come together again and try to shore up the euro?

MONTI: Rightly, you increased the frequency in the course of your question; it goes from three months into two months. (Laughter.)

RUBENSTEIN: OK. All right. OK. Well --

MONTI: No, no, no; it can be on a monthly basis.

RUBENSTEIN: OK. All right. Sorry. I'm sorry, I should have --

MONTI: So you are converging. (Laughs.)

RUBENSTEIN: OK, but just is that a false impression or it just --

MONTI: No, it's not -- it's not a false impression. It's the right impression. I see -- well, there is a problem there. Nobody should be surprised that there are serious problems of governance in a European Union of 27 or in a euro zone of 17. It would be amazing if there weren't. The problem is that in these European countries at the top level, or ECOFIN, economic and financial (councils ?) for finance ministers, there are huge efforts to come to a conclusion, which is necessarily a compromise, and there isn't yet a clearly established unitary communication policy vis-a-vis the rest of the world, vis-a-vis the market.

So that because each prime minister or each finance minister feels the duty to contribute also in the spirit of compromise to decision-making, but is very much under pressure to sell the overall decision well to its domestic constituencies, they -- I say "they" because being a technical prime minister deprives you of any significant role in these games -- they have a tendency to go out of the meetings and to announce each their own angle of the very composite truth. So -- and then when they go home and they are asked in parliamentary hearings that may diverge --

RUBENSTEIN: Right.

MONTI: -- a bit more. So the usual pattern is long meetings, early-morning decisions, (luckily ?) enough, not in smoke-filled rooms anymore, but then the announcement by the president of that gathering, then initially diverging comments by the key ministers. Then they go and the divergence increases.

So what has been normally a fairly positive reaction by the marketplace in the first few hours or days then tends to --

RUBENSTEIN: Right. Now did Mayor Bloomberg ask you to make that comment about the smoke-filled rooms, or that was -- (laughter) -- you already had a bias against smoking?

My final question would be --

MONTI: No, no, can I just --

RUBENSTEIN: Yes, yes.

MONTI: -- no, because I did so inadvertently, but I'm glad that you picked it up, because when people say -- (audio break) -- Italy, how can you pretend to impose law on Italians; Italians are not really a law-abiding society. (Laughter.) Well, in some small, marginal respect, and to a declining extent, that may be true. But please come to Italy, go to a restaurant, go to any public place, and you'll be amazed -- (audio break) -- you from New York less amazed than people from other European countries seeing the 100 percent compliance, which we are now, by the way -- and it should not in principle be more difficult extending to the tax compliance area. (Laughter, applause.)

RUBENSTEIN: Well, well, that could solve your debt problems right there. (Laughter.)

But my final question would be, before we go to the audience and the members, what was the biggest surprise about becoming prime minister in terms of the difficulty, the time constraints? What is it about being prime minister that was a surprise to you, compared to what you thought it would be?

MONTI: That's very interesting.

Well, the big surprise -- the biggest positive surprise is that, much to my amazement, I felt rather comfortable in Parliament, where I had never been, and I had to face these numerous and not disarmed -- (laughter) -- members of Parliament. So -- and for some reason, I felt at ease because I was -- probably because I was so different and so strange that there was a form of mutual respect.

And then I -- not negligibly, I could -- I was sleeping very well at night -- (laughter) -- which I had not expected, because the problems were big.

And then in terms of negatives -- negative things beyond expectation, the time it took to translate increasingly positive assessments by the European Commission or the IMF or -- (audio break) -- not always all of the rating agencies, but on occasions some of them -- the increasingly positive assessments on the quality of the policies being done, and the very, very slow recognition of this by the markets in terms of interest rate declines, which was really a centerpiece in our debates with Germany and others because until May or June of this year, the Lutheran conception was prevailing that if you have high interest rates in the marketplace, that is just the real measure of your degree of sin -- (laughter) -- of the --

RUBENSTEIN: Right.

MONTI: -- but you may know that in the German language, "Schuld," "debt," is also "guilt."

And the big step forward in the spring has been that Germans, the Finns, the Dutch have come to recognize that of course a key component of interest rates for each country are the domestic sectors, whether a good policy is conducted or not, whether the debt level is high or not, but that there was also a component linked to -- especially from America, to the skepticism about the integrity of the euro over time. And that reflected, of course, more than proportionately on those countries which had a high public debt to begin with.

RUBENSTEIN: So one last question is there are two Marios, Mario Draghi and Mario Monti. Do you ever wish that you had been asked to take his job rather than the job you were asked to take?

MONTI: No, I -- (chuckles) -- well, in my academic times, I was a student of monetary policy. So a normal trajectory might have been well for me to end up in the circle of central bankers.

By the way, when I was to leave the position of European commissioner in 2004, some in the Italian government asked me whether I might not be interested in being proposed for the job of member -- not president, member of the executive board of the ECB, whose -- because the term of Tommaso Padoa-Schioppa was close to expiring. And my immediate reaction was that I was certainly another very good Italian candidate, but above all, my instinct was to say, how boring that must be -- (laughter) -- because I had -- I was coming from years in which I had the charming job of dealing with Jack Welch on whether or not to authorize the acquisition of Honeywell or -- well, I think Microsoft was the name of another company -- (laughter) -- or with the (state aids ?) by national governments to companies in Europe. So -- and I thought it would be a bit boring to sit possibly to decide about interest rates once a month.

I'm -- I must admit that probably I underestimated the attractions of that job. (Laughter.) But if one has to go into a hazardous public service, then I think I'm happy to have been picked for the most hazardous of all.

RUBENSTEIN: OK, thank you.

All right, could you please raise your hands, stand up, tell -- give your name and identification. So right here, Ambassador Gardner (sp) -- (inaudible) -- but you can --

QUESTIONER: Mario, a recent report of the president of the European Council argues, if I'm not mistaken, that to maintain the euro, Europe must move rapidly to a fiscal union, a banking union, maybe to a political union. Do you agree with that? And if that's true, do you foresee a constitutional convention or a meeting to draft a new constitutional treaty for Europe?

RUBENSTEIN: What's the next question? That was too hard. (Laughter.)

MONTI: Can I answer?

RUBENSTEIN: What -- go ahead.

MONTI: Yes. Well, I'm taken by a bit of emotion because Ambassador Gardner (sp) was the American who discovered me in Italy ages ago and invited me to present one of his books.

No, I think we need to overcome this still difficult situation in the eurozone. I think we needed two things. One was to put in place instruments so as to stabilize -- well, the thing we discussed so far. But then we also need to be able to provide a convincing answer to those asking the question, but how can we invest in euro-denominated assets if we don't know what will happen of the euro in 10 years? Will it still be there or not? So to solve -- you see the fascination of working in the European context, which is so much complicated relative to other context.

The -- but to reply to that question, one has indeed to put the pieces together one after the other, what do we need more in terms of banking union and of really integrated financial and banking supervision, not just juxtaposition of the national ones. This is being worked out now. But we also have the need to be more precise on the fiscal union. Now there are -- there are exports' very tough mechanisms of enforcement if a country does not comply. But we are also thinking of transferring even more of fiscal sovereignty to the European level, and perhaps having the need for a EU authorization before the budget is approved by parliament.

And finally political union. Political union, everybody can see this will be the culminating and final stage. And I think to overcome ideologies and skepticisms, it's good to treat it as the final point. But much of political union is already happening now, in fact, which explains why so many politicians in European countries at the national level are increasingly frustrated because the percentage of decision-making that they feel they control shrinks and shrinks. And that's why we were lucky -- I mean, in Italy, objectively, I was lucky -- I hope also my country -- because the person who was asked to come and take care for a while knew little about Italian maneuvering but quite a bit on how Europe functions.

RUBENSTEIN: All right. Over here, question. Could you just give your name and identification, your organization?

QUESTIONER: Jeffrey Laurenti with The Century Foundation. First, I must say, President Monti, that the renewal of credibility and the reduction of drama in the Palazzo Chigi since your arrival, which you've also seen this morning, is enormously refreshing for fans of Italy.

Your budget, however, has had major reductions across the board, but it also affects foreign ministry, defense ministry, overseas development aid. And one wonders whether Italy is facing outside the European Union perhaps unintended shrinkage of its role on the global stage. I think you all are going to stick it out in Afghanistan to 2014. But as you have the Arab revolutions right across the Mediterranean where Italy has long loomed large and a stalled peace process between Israel and Palestine, one asks what are the priorities for Italian foreign policy now outside the EU, and particularly in that world so close to you, the Arab world, Muslim world right across the Mediterranean?

MONTI: Yeah.

RUBENSTEIN: You have 30 seconds for an answer.

MONTI: Yes. (Laughter.) Sure. That is a priority. We act within the European Union to raise the level of priority in European policies for that region. We have the largest contingent and the commander of UNIFIL in Lebanon. We spend a lot of time and energy from the security aspect to the -- to the development assistance aspect with Libya, Tunisia, now very much with Egypt. President Morsi visited Italy the other day as the first Western country he visited. And we invest a lot in that part of the world.

RUBENSTEIN: OK. Other question, over here? Please give your name and identification.

QUESTIONER: Jone Agar (ph) with GoldenTree. Thank you for being here with us. My question is more on the sort of banking union and, you know, your comment about, you know, a statement of deterioration of intent sometimes. In particular, you know, there's been announcements by some of the core against the idea of having the ESM make some of the banking, you know, bailouts, essentially, that have recently been inaugurated. And is your view in sort of -- sort of, you know, the same view as that, or do you have a different view as to what should happen, as the ESM has now been ratified, and in particular with Spain's bailout?

MONTI: Yeah, on that, I think we should firmly stick to what was decided in the June European Council concerning the possibility for the aid to the banks not to be channeled through the state budget in order to unwind the spiral. Then there is the issue, which is more critical, of whether or not ESM should have a banking license. That, I think, is out of the table now, although one of the beauties of the European construction is that things that are out of the table one day and one year may well come back out of intellectual evolution or out of urgency later on.

RUBENSTEIN: And we have a question in Washington.

QUESTIONER: Yes, thanks. Thanks, David. Mr. Prime Minister, I'm Chris Tuttle with CFR here in Washington. We suspect that since taking office, you've had no shortage of advice from those in the U.S. and elsewhere that would give you a chance to turn the tables as the U.S. approaches a period in which fiscal issues are going to take center stage this fall and into November-December in Washington. Do you have any advice or lessons learned for our policymakers here in the U.S. in terms of getting our house in order?

RUBENSTEIN: His question is do you have any advice about how the United States could get its own financial house in order. Since we've been asking you questions about your financial house, you'd like the turn the tables and say, what advice do you have to us about how we can do a better job?

MONTI: Yeah. First of all, I do wish you do a better job. (Laughter, applause.) Indeed, and I mean, it's fascinating to be at the G-8 and the G-20 meetings and to see so much time and so much gently intrusive attention being given to the eurozone problems, and I welcome that because I must say that in particular, the active and the, in my view, extremely wise willingness of President Obama to understand and to help us understand has played a major role.

Then, of course, that leads to the -- to the fact that U.S. fiscal imbalances are seen as to be a marginal decoration of a complex European-generated world. We know this is not the case. So quite obviously, I don't have to -- I don't have advice to give, but we mentioned the supercommittee. Why should be impossible, in a country which is as mature as the U.S., to explore not so (conflictual ?), bipartisan or whatever modalities? I think in each society and in each political system, there should be the ability of isolating a few critical issues for the future generation and generations and to treat them basically in a nonpartisan spirit. This is what we tried modestly to do in Italy, with some success.

And I don't have technical advice to give, but if ever I would give the advice of really trying hard from the -- from the political point of view -- you see, technical prime minister shouldn't pretend to understand things that they of course do not understand. (Laughter.)

RUBENSTEIN: Oh. But when you -- when you come to the U.N. Generally Assembly meetings, how many bilateral meetings can you squeeze in in these days? And can you remember in advance everybody you're supposed to see and what you said? And how complicated is it to have all these meetings and have to prepare for them? How difficult is all that?

MONTI: I'm very well-helped, but it is difficult. And then also -- I mean, for me, given my past life, it's easier to squeeze in and then to remember perfectly 10 bilaterals with 10 European heads of governments or finance ministers than with the presidents or prime ministers of countries in other parts of the world. But that is -- that is one -- you know, I'm slowly shaping up my CV, and this is a part that -- (laughter) --

RUBENSTEIN: Right.

MONTI: -- that was badly empty. (Chuckles.)

RUBENSTEIN: Yes. Yes, ma'am. Right here.

QUESTIONER: (Audio break) -- thank you for your eloquence and ("piaggeria" ?).

After everybody has stopped smoking in Italy and all the taxes are paid, where does economic growth with employment come from?

MONTI: I will give a very archaic if not -- (audio break) -- the word doesn't come to me; never mind -- (audio break) -- the answer. I think there is a widely unexploited potential for growth in Italy, which is in theory extremely simple. That is the combination of our nature, the beauty of the place we live in -- (audio break) -- that we have destroyed, but not yet completely, and the charm and richness of our cultural heritage and our cultural goods, which is unrivaled in the world, although we are not so good in marketing it.

And so I believe that in a society where (leisure ?), culture, soft things become more and more important, the soft power of Italy could become very, very relevant, which of course seems to be simple but poses huge systemic and organizational problems concerning infrastructures, concerning the approach to foreign visitors, et cetera. We are improving.

I think that my lucky successor that will have five years ahead of him or her will have hopefully the possibility to think hard on this.

But there are -- there are so many areas in which the Italian industry is strong and services are strong, that we just need to unlock their productiveness and competitiveness through reforms that we started -- previous governments started also these reforms, to some extent, like simplification of bureaucracy, like better infrastructures, like huge liberalizations to reduce the rents earned by monopolies in the big, like energy, or in the small, like the different professional categories. And this should really trigger a facilitation of entry into any closed shop industry, normally to the advantage of the young.

And if we are able to turn a part of the attention of the Italian people away from the daily shows of political conflicts to the -- to the positive things that Italy can do -- I realize this is a very pastoral answer, but -- (laughter) -- I think it can be translated into (have faith ?) --

RUBENSTEIN: But relating to that, it was reported the other day that 60 percent of young adults in Italy are living with their parents, either because -- for cultural reasons, but mostly because it's difficult to get jobs. Is that a problem in Italy, or is that not a problem?

MONTI: The problem is that it is not felt to be a problem -- (laughter) -- by -- both by children and by parents. Now, no, seriously, family is still an enormous strength of our society and an enormous safety net. And I wouldn't exchange with many other countries in this respect.

But clearly, this reduces the ambition, willingness to make new experiences and creativity and entrepreneurship and so on and so forth. And your list of the difficulties, I would add just the difficulty of finding a home, not only -- not only a job.

RUBENSTEIN: We have time for one more question. Right here. Yes, ma'am. Just identify yourself.

QUESTIONER: (Name inaudible) -- from Wellington Management.

RUBENSTEIN: Speak up.

QUESTIONER: I wanted to ask you to talk a little bit about the electoral reform that you are thinking about right now and what you hope will come out of it in terms of the future political process, if you will, and the likelihood of getting something in the next couple of months. Thank you.

MONTI: The electoral reform is something that this -- that the current government has not engaged in because more or less tacit division of roles has been set up at the beginning of our activities. Namely, we try to (save ?) the country, and the political parties try to improve the functionality of the political system. Hence, it has been in the hands of the three major political parties and others to work on electoral reform. I still believe, as -- I still believe and hope, as the really key figure in Italian life, President of the Republic Giorgio Napolitano does, that there will be, before too long, this electoral reform.

The aspect that people like the least in the current electoral law is that there is an extremely high, if not Germanic, command of the party leaders on the composition of the electoral lists that -- and that there are no -- there is no room for the indication of preferences by voters. Now, in areas of electoral reform, in my view, there is too much the trend normally to believe that if you change the system, you extract all the best from the country and all the virtues. Certainly, shifting to a system where there will be the individual preferences to be indicated would erode part of the grip of the party leaders and give more role to citizens. At the same time, it would increase the potential for deals and for lobby influences. And I think this is one of the dangers of democracies, and I would be very scared in a country where there were no limits to, for example, corporate contributions to political -- (inaudible) -- (laughter) --

RUBENSTEIN: Can't imagine what country that would allow that to happen. But -- (laughter, applause) -- before our -- the prime minister became prime minister, he was often known in Europe as "Super Mario." And I think many of you can see that as prime minister, he still deserves that title.

We -- on behalf of everybody who wants to see the best possible leaders in Europe, we want to thank you for what you're doing. And I want to thank you for coming here today.

MONTI: Thank you very much. (Applause.)

DAVID RUBENSTEIN: Thank you very much. My name is David Rubenstein. I'm a vice chairman of the Council on Foreign Relations. And on behalf of the prime minister of Italy, Mario Monti. I would like to go through a few ground rules before we get into the questions. We have an hour of time. I will spend about 30 minutes in dialogue with the prime minister, and then we have about 30 minutes of questions from members who are here and members in Washington, and we have some national members that are tuning in as well.

The key rules that I'd like to get covered first are please, everybody turn off their cellphone, not just turned off by sound, but turn off the vibration part as well because everything that it does will interfere with our audio system.

You don't -- you don't have to do that. (Laughter.)

This is one of the series of C. Peter McColough Series on International Economics. And we have a number of these series on international economics, and this is part of that series.

This is on the record. Not very often you hear people say at the council this is off the record, but this is on the record. And what we will do is have a discussion for about 30 minutes or so, as I say, and then we'll have questions from the audience.

Let me just begin by -- with a brief introduction to somebody who really doesn't need much of an introduction, but let me just go through very briefly. The prime minister is the 54th prime minister of Italy since World War II when the Italian Republic was formed in 1946. And he's taken that position in November of 2011 at the request of the president of Italy. After Prime Minister Berlusconi resigned, Mario Monti was asked to form a government. He did so, and he now leads that government.

At the time that he took that position, he was president of Bocconi University, a position he held for a number of years. He's a graduate of Bocconi University. He also had studied economics at Yale in the United States as well. And he has served from 1994 to 2005 as a member of the European Commission, where he was very active in a variety of issues, most famously, perhaps, in antitrust. And he served in that position, the European Commission, while he was also president of Bucconi University. And he's also -- was also a member of the head of the European arm of the Trilateral Commission. So we're very pleased, Mr. Prime Minister, to have you here today.

And my first question is, you were minding your own business, you were running the university. (Laughter.) All of a sudden, the president of Italy says, can you become prime minister? What did you think? And did you have any second thoughts about having said yes? (Laughter.)

MONTI: (So ?) you gather I did say yes. (Laughter.)

RUBENSTEIN: Yeah. Yeah. Yes.

MONTI: Yes, I did say yes. That was -- that was not an offer of a job, but that was the unequivocal proposal of a challenge. I think I had to say yes because if a country where there is no lack of politicians arrives at the point when even the politicians agree that it's better to turn one not of them, then the situation must be serious enough, and that deprives you, I think -- at any rate, deprived me of any reasonable possibility of choice.

Do I regret -- (audio break) -- no, no, because one may regret things to which he might have said no, but I think the option was not there.

RUBENSTEIN: OK. So now that you are prime minister, there are elections in Italy in April. You are not a member of the Parliament in the traditional sense of having been elected. You've been appointed senator for life by the president. After the elections in April, do you have any intention of continuing to serve in the government? Will you serve as prime minister afterwards? Or are you going to finish your term as prime minister after the elections in April?

MONTI: Well, the elections are an important moment in a country's life. Let's not forget this.

And what is my position vis-a-vis the elections? When I became prime minister, I said -- and I will definitely stick to that -- that I would not run for elections. This was in particular because, being my parliamentary majority is supported by three very different parties, two of them hardly on speaking terms for several years before, it would have been destabilizing for the smooth functioning of the government if I might have -- seen as at a certain point leaning towards the one or the others in view of seeking election now. So I will not run for election to a member of Parliament.

And as you pointed out, there isn't even the need for that because I am a member of Parliament, thanks to the president of the republic, for life in the Senate. So what does that leave us with?

There will be the elections. I hope there will be a clear result with a clear possibility for whatever majority to be formed and for a government led by a political leader. I will be a senator. I will be there. It will be totally in the hands of the political forces in the country to see that they can govern.

Should there be circumstances in which they were to believe that I could serve helpfully after that period of the elections, I will be there. I will consider. I cannot preclude anything. My spirit for service was there when I was asked by the president. I do not foresee that a second occasion would be needed. I will be there.

RUBENSTEIN: But there's some press reports recently that said that you would be leaving government after the elections. And what you're saying is if the president asked you to serve again and if you thought it would be a good thing for your country, you wouldn't preclude doing so. Is that correct?

MONTI: That is correct. You say the president, but first and foremost, after the elections, normality will be that the political parties -- (audio break ?) -- by the president, will be able to suggest to the president the appointment of a prime minister who is one of them. And that would be not me. (Laughter.) Should there be a special circumstance, which I hope will not be there, and were I to be asked, I would consider -- (inaudible) -- situation, and I --

RUBENSTEIN: OK. Well, let me ask you -- (inaudible) --

MONTI: Is it simple or not?

RUBENSTEIN: Well, it's clear that if your country needs you, you are prepared to serve. Is that correct?

MONTI: That is correct.

RUBENSTEIN: OK. So I think many people in Italy probably would be happy to hear that, and we'll see what happens in the elections. But let me ask you about the euro for a moment. On the euro, do you have any doubt that Europe is better off for having had the euro created than had it not had the euro? Suppose the euro had never been put into place. Would Italy or Europe be better off today or worse off?

MONTI: Worse off. And that goes for Italy, but it also goes for Germany and for everybody else, in my view. Why? Although the euro has been associated with a number of turmoils recently, take the case of Italy. Euro -- the euro brought to Italy a single currency shared with all the others. That is very important economically, simplifying life for businesses and citizens. That's all for the good.

But that is not the most important part. The most important part is that the euro is the tip of the iceberg, and underneath, you have a whole set of rules of governance, budgetary discipline, one central bank conducting monetary policy in a spirit of independence, targeted against inflation. You have rules about budgetary stability and so on and so forth. Many of the problems that a country like Italy had experienced in the decades before derived from the fact that these simple and crucial elements of a model of a market economy which were observed, for example, in Germany, were not observed in Italy.

Therefore, the constraints -- the constraints sometimes are perceived as being the unpleasant part of the euro. And I can assure you sometimes they are unpleasant. But nevertheless, they modernize a country. They make it more disciplined and so on.

And if I can mention here a quick anecdote, there was a conference in Italy in 1992 where the keynote speaker was Mrs. Thatcher, who had resigned the previous year from the position of British prime minister. And the discussion went on the Treaty of Maastricht, to the treaty which practically gave birth to the euro and set up all these constraints. And she asked in this -- in a room like this, but why you Italians are so fond of the Maastricht Treaty? And I explained, because it forces us to do things that we knew in the first place were to be done but we didn't have the political strength to do.

And she said, oh, I see. That's interesting. But then you should not be surprised that the British people is not interested at all in the Maastricht Treaty -- (laughter) -- because they had me. (Laughter, scattered applause.)

RUBENSTEIN: Well, now --

MONTI: Now you can say -- I anticipate, if I may, your question --

RUBENSTEIN: Yeah.

MONTI: -- that's good for you Italians, but why has the euro been advantageous for Germany, which was rather disciplined to begin with? Well, because, thanks to the euro, Germany was able and is able to have a huge European market, free from the risk of competitive devaluations, which had plagued the life of the European economy for some time.

RUBENSTEIN: But today it's clear that you and the other leaders of the major members of the eurozone want to keep the euro as vibrant as possible. Do you think the euro will be damaged if Greece has to withdraw from the euro? And do you think that's a possibility?

MONTI: In the minds of some people, it is a possibility. I do not believe this will happen. I believe that were it to happen, it would be a damage to the whole system, not because the Greek economy has a huge quantitative significance -- it's 2 percent of the eurozone's GDP -- but because the idea of the irreversibility of a country being in the euro would be fiercely damaged.

RUBENSTEIN: Now, you have had some famous conversations with the chancellor of Germany about the euro. I don't know how many things you want to tell us that you've said to her behind closed doors, but your relations with the -- with the chancellor of Germany are in good shape. And do you have disagreements about how the euro should be managed going forward?

MONTI: Not much disagreement. I think one of the beauties of the management of Europe is that there have to be collective decision-making coming from the collection of countries and their heads of government. It's true that many heads of governments in Europe, apart from Germany's and France's, take a more relaxed attitude of the sort, well, let's hope that the Franco-German couple does -- thinks well, and well in the general interest. I am always been convinced that nothing in Europe can seriously happen without Berlin and Paris agreeing.

But I've also seen the limitations of having Europe just decided by these two countries. And I believe Italy has a role to play, like everybody, in principle, has. And you have not spent 10 years at the European Commission without pretending that you have some ideas about how Europe should be run.

And when I became prime minister, of course, I became prime minister in the least favorable condition that one could imagine in order to exercise advocacy and persuasion on others because others were looking at us like this because we might have -- be the decisive explosion in the eurozone, with the consequences well beyond Europe, which explains also why President Obama has been, since day one, extremely interested in the work we were doing.

But with Chancellor Merkel, I had many, many occasions to interact. I genuinely admire her. And I think it was my duty, and I tried to continue on that point, to draw her attention to the consequences, both economic but also psychological and political, in other parts of Europe, of traditional economic policymaking. And because I am a strange Italian, for some reason deeply contaminated by the taste for German discipline and order -- (laughter) -- then I am -- I don't want countries to -- after a point, to turn against that discipline and order, to turn against Germany, to turn against the euro, as is happening in some, in particular southern European, countries.

And so we work very much together, as well as with President Hollande and others, to come in the months of June to a number of landmark decisions in the European Council, on, for example, the creation of stabilization mechanisms for the sovereign debt governments, for example, on deciding on a growth compact to have a greater input from the European level into the growth policies of individual member states.

So I admire her when I simply have to persuade Italian citizens to take up aspects of the German way of thinking, and I admire her perhaps even more when I see how fairly open she is to interaction with other points of views.

RUBENSTEIN: Now, the United States is hardly one to talk about others having too much debt. We have a lot of debt ourselves. But I think your debt is about -- over 120 percent of GDP. What are you trying to do to reduce that debt as a percentage of GDP?

MONTI: First of all, we are trying to prevent its improvement by very rigorous -- its increase, sorry -- (laughter) -- by a rigorous policy on the (flow ?), on the deficit.

And by the way, Italy will have next year the -- a balanced budget in structural terms, that is, net of the cyclical component. And we will be one of the first two, hopefully, EU member states to have reached that objective by next year, which is a very demanding objective, which implies, to give you an idea, that given the huge stock of debt, we will have and we are having year after year some 5 percent of GDP primary surplus that is net interest payment. So that is -- that is the first thing.

Then we are -- we have entered a phase of privatization. Of course, a lot of government-owned industries and companies had been privatized 10 or 20 years ago; not much is left there. But I'm speaking of privatizations of real estate, of buildings, of the central and local governments and of many companies held by the municipalities.

RUBENSTEIN: Now, do you believe anybody will be joining the euro in the future, have -- any one of the other countries that are not members of the euro now that are in Europe? Or do you think the people who are using the euro, the countries using the euro, that's -- nobody else is going to join in the foreseeable future?

MONTI: The U.K., which has a derogation and therefore is not of -- is not in a state of unlawfulness in not having the euro I think is not particularly tempted to make that jump -- situation may be different for them -- not in Sweden, depending on circumstances. And the new member states of Central and European -- well, some of them, a few of them already embarked in the euro, but many of them are not yet there. Their degree of political enthusiasm for joining quickly has waned a bit, understandably, after the recent financial crisis but is still there. And by the way, they, unlike the U.K., for what it means, do have the legal obligation of joining once they will be ready.

RUBENSTEIN: Now, you have made it clear that the European leaders want to continue the euro, but can you preclude the euro going down against the dollar? In other words, your mission is not to deal with currency fluctuations, but would you think it's impossible that the euro could weaken further against the dollar? And would that be a serious problem if it went to parity against the dollar?

MONTI: Well, the euro started below parity for --

RUBENSTEIN: Years ago.

MONTI: Yes, years ago.

RUBENSTEIN: But it's not -- you're not -- it's not your goal to get it back there, I assume, so --

MONTI: No. (Laughter.) No, and certainly it's -- the handling of the euro is definitely not in the hands of a nation or government, and rightly so.

But I'll say that -- I'll say two things. One, I believe it is very remarkable that in spite of the deep fiscal and banking crisis in the eurozone that we have and that we had, the euro as a currency has not suffered. It hasn't really lost purchasing power in terms of goods and services. And in terms of the exchange rate, it has had rather normal fluctuations. And secondly, I believe a lot will depend on the dollar and on -- and on the U.S.' not minuscule debt.

RUBENSTEIN: OK. Now let me ask you about --

MONTI: By the way, I was fascinated when last year I think it was in the U.S. the attempt was made through the supercommittee to come to a bipartisan solution of the public finance problem.

RUBENSTEIN: (Inaudible.)

MONTI: Why? No, I was simply saying that you can look at my strange government as an experiment in that same direction; that is, of engineering across parties an effort mainly to put public finance under control. And at least it's too soon to say that it failed.

RUBENSTEIN: OK. Now, Silvio Berlusconi was a prime minister for a longer period of time than anybody in the post-World War II period in Italy. Can you assure people, or can you not assure people, that he will not become prime minister again? (Laughter.)

MONTI: You have big demands on -- (laughter) -- on a so-called technical prime minister.

RUBENSTEIN: OK.

MONTI: No, of course I cannot -- well, I can assure you that it would be entirely normal of President Berlusconi decided to run again. By the way, he is the one who, in a sense, discovered me in 1994. He was the then-new Italian prime minister who nominated me to become European commissioner. Five years later it was Massimo D'Alema, the center-left prime minister. And Mr. Berlusconi is still the president of the Partito della Liberta, so the largest component in the Italian Parliament and the largest of the three groups supporting this government.

So it's not that he went to some strange island, as people might conceive, and that he would come back to Italy. He is there. The degree of intensity of his political commitment is for him to decide. And -- but of course I cannot guarantee anything.

RUBENSTEIN: Let me ask you one or two more questions before we take questions from our members. One question I had is, it seems to Americans that every three months or so, the European ministers get together, they solve the euro problem, and then they go away for three months and the problem gets worse, and the come together again every three months. That's just a perception. Are you convinced that the latest series of meetings with the ministers have dealt with all these problems for the foreseeable future, or do you see that there will be a need every couple months for the ministers to come together again and try to shore up the euro?

MONTI: Rightly, you increased the frequency in the course of your question; it goes from three months into two months. (Laughter.)

RUBENSTEIN: OK. All right. OK. Well --

MONTI: No, no, no; it can be on a monthly basis.

RUBENSTEIN: OK. All right. Sorry. I'm sorry, I should have --

MONTI: So you are converging. (Laughs.)

RUBENSTEIN: OK, but just is that a false impression or it just --

MONTI: No, it's not -- it's not a false impression. It's the right impression. I see -- well, there is a problem there. Nobody should be surprised that there are serious problems of governance in a European Union of 27 or in a euro zone of 17. It would be amazing if there weren't. The problem is that in these European countries at the top level, or ECOFIN, economic and financial (councils ?) for finance ministers, there are huge efforts to come to a conclusion, which is necessarily a compromise, and there isn't yet a clearly established unitary communication policy vis-a-vis the rest of the world, vis-a-vis the market.

So that because each prime minister or each finance minister feels the duty to contribute also in the spirit of compromise to decision-making, but is very much under pressure to sell the overall decision well to its domestic constituencies, they -- I say "they" because being a technical prime minister deprives you of any significant role in these games -- they have a tendency to go out of the meetings and to announce each their own angle of the very composite truth. So -- and then when they go home and they are asked in parliamentary hearings that may diverge --

RUBENSTEIN: Right.

MONTI: -- a bit more. So the usual pattern is long meetings, early-morning decisions, (luckily ?) enough, not in smoke-filled rooms anymore, but then the announcement by the president of that gathering, then initially diverging comments by the key ministers. Then they go and the divergence increases.

So what has been normally a fairly positive reaction by the marketplace in the first few hours or days then tends to --

RUBENSTEIN: Right. Now did Mayor Bloomberg ask you to make that comment about the smoke-filled rooms, or that was -- (laughter) -- you already had a bias against smoking?

My final question would be --

MONTI: No, no, can I just --

RUBENSTEIN: Yes, yes.

MONTI: -- no, because I did so inadvertently, but I'm glad that you picked it up, because when people say -- (audio break) -- Italy, how can you pretend to impose law on Italians; Italians are not really a law-abiding society. (Laughter.) Well, in some small, marginal respect, and to a declining extent, that may be true. But please come to Italy, go to a restaurant, go to any public place, and you'll be amazed -- (audio break) -- you from New York less amazed than people from other European countries seeing the 100 percent compliance, which we are now, by the way -- and it should not in principle be more difficult extending to the tax compliance area. (Laughter, applause.)

RUBENSTEIN: Well, well, that could solve your debt problems right there. (Laughter.)

But my final question would be, before we go to the audience and the members, what was the biggest surprise about becoming prime minister in terms of the difficulty, the time constraints? What is it about being prime minister that was a surprise to you, compared to what you thought it would be?

MONTI: That's very interesting.

Well, the big surprise -- the biggest positive surprise is that, much to my amazement, I felt rather comfortable in Parliament, where I had never been, and I had to face these numerous and not disarmed -- (laughter) -- members of Parliament. So -- and for some reason, I felt at ease because I was -- probably because I was so different and so strange that there was a form of mutual respect.

And then I -- not negligibly, I could -- I was sleeping very well at night -- (laughter) -- which I had not expected, because the problems were big.

And then in terms of negatives -- negative things beyond expectation, the time it took to translate increasingly positive assessments by the European Commission or the IMF or -- (audio break) -- not always all of the rating agencies, but on occasions some of them -- the increasingly positive assessments on the quality of the policies being done, and the very, very slow recognition of this by the markets in terms of interest rate declines, which was really a centerpiece in our debates with Germany and others because until May or June of this year, the Lutheran conception was prevailing that if you have high interest rates in the marketplace, that is just the real measure of your degree of sin -- (laughter) -- of the --

RUBENSTEIN: Right.

MONTI: -- but you may know that in the German language, "Schuld," "debt," is also "guilt."

And the big step forward in the spring has been that Germans, the Finns, the Dutch have come to recognize that of course a key component of interest rates for each country are the domestic sectors, whether a good policy is conducted or not, whether the debt level is high or not, but that there was also a component linked to -- especially from America, to the skepticism about the integrity of the euro over time. And that reflected, of course, more than proportionately on those countries which had a high public debt to begin with.

RUBENSTEIN: So one last question is there are two Marios, Mario Draghi and Mario Monti. Do you ever wish that you had been asked to take his job rather than the job you were asked to take?

MONTI: No, I -- (chuckles) -- well, in my academic times, I was a student of monetary policy. So a normal trajectory might have been well for me to end up in the circle of central bankers.

By the way, when I was to leave the position of European commissioner in 2004, some in the Italian government asked me whether I might not be interested in being proposed for the job of member -- not president, member of the executive board of the ECB, whose -- because the term of Tommaso Padoa-Schioppa was close to expiring. And my immediate reaction was that I was certainly another very good Italian candidate, but above all, my instinct was to say, how boring that must be -- (laughter) -- because I had -- I was coming from years in which I had the charming job of dealing with Jack Welch on whether or not to authorize the acquisition of Honeywell or -- well, I think Microsoft was the name of another company -- (laughter) -- or with the (state aids ?) by national governments to companies in Europe. So -- and I thought it would be a bit boring to sit possibly to decide about interest rates once a month.

I'm -- I must admit that probably I underestimated the attractions of that job. (Laughter.) But if one has to go into a hazardous public service, then I think I'm happy to have been picked for the most hazardous of all.

RUBENSTEIN: OK, thank you.

All right, could you please raise your hands, stand up, tell -- give your name and identification. So right here, Ambassador Gardner (sp) -- (inaudible) -- but you can --

QUESTIONER: Mario, a recent report of the president of the European Council argues, if I'm not mistaken, that to maintain the euro, Europe must move rapidly to a fiscal union, a banking union, maybe to a political union. Do you agree with that? And if that's true, do you foresee a constitutional convention or a meeting to draft a new constitutional treaty for Europe?

RUBENSTEIN: What's the next question? That was too hard. (Laughter.)

MONTI: Can I answer?

RUBENSTEIN: What -- go ahead.

MONTI: Yes. Well, I'm taken by a bit of emotion because Ambassador Gardner (sp) was the American who discovered me in Italy ages ago and invited me to present one of his books.

No, I think we need to overcome this still difficult situation in the eurozone. I think we needed two things. One was to put in place instruments so as to stabilize -- well, the thing we discussed so far. But then we also need to be able to provide a convincing answer to those asking the question, but how can we invest in euro-denominated assets if we don't know what will happen of the euro in 10 years? Will it still be there or not? So to solve -- you see the fascination of working in the European context, which is so much complicated relative to other context.

The -- but to reply to that question, one has indeed to put the pieces together one after the other, what do we need more in terms of banking union and of really integrated financial and banking supervision, not just juxtaposition of the national ones. This is being worked out now. But we also have the need to be more precise on the fiscal union. Now there are -- there are exports' very tough mechanisms of enforcement if a country does not comply. But we are also thinking of transferring even more of fiscal sovereignty to the European level, and perhaps having the need for a EU authorization before the budget is approved by parliament.

And finally political union. Political union, everybody can see this will be the culminating and final stage. And I think to overcome ideologies and skepticisms, it's good to treat it as the final point. But much of political union is already happening now, in fact, which explains why so many politicians in European countries at the national level are increasingly frustrated because the percentage of decision-making that they feel they control shrinks and shrinks. And that's why we were lucky -- I mean, in Italy, objectively, I was lucky -- I hope also my country -- because the person who was asked to come and take care for a while knew little about Italian maneuvering but quite a bit on how Europe functions.

RUBENSTEIN: All right. Over here, question. Could you just give your name and identification, your organization?

QUESTIONER: Jeffrey Laurenti with The Century Foundation. First, I must say, President Monti, that the renewal of credibility and the reduction of drama in the Palazzo Chigi since your arrival, which you've also seen this morning, is enormously refreshing for fans of Italy.

Your budget, however, has had major reductions across the board, but it also affects foreign ministry, defense ministry, overseas development aid. And one wonders whether Italy is facing outside the European Union perhaps unintended shrinkage of its role on the global stage. I think you all are going to stick it out in Afghanistan to 2014. But as you have the Arab revolutions right across the Mediterranean where Italy has long loomed large and a stalled peace process between Israel and Palestine, one asks what are the priorities for Italian foreign policy now outside the EU, and particularly in that world so close to you, the Arab world, Muslim world right across the Mediterranean?

MONTI: Yeah.

RUBENSTEIN: You have 30 seconds for an answer.

MONTI: Yes. (Laughter.) Sure. That is a priority. We act within the European Union to raise the level of priority in European policies for that region. We have the largest contingent and the commander of UNIFIL in Lebanon. We spend a lot of time and energy from the security aspect to the -- to the development assistance aspect with Libya, Tunisia, now very much with Egypt. President Morsi visited Italy the other day as the first Western country he visited. And we invest a lot in that part of the world.

RUBENSTEIN: OK. Other question, over here? Please give your name and identification.

QUESTIONER: Jone Agar (ph) with GoldenTree. Thank you for being here with us. My question is more on the sort of banking union and, you know, your comment about, you know, a statement of deterioration of intent sometimes. In particular, you know, there's been announcements by some of the core against the idea of having the ESM make some of the banking, you know, bailouts, essentially, that have recently been inaugurated. And is your view in sort of -- sort of, you know, the same view as that, or do you have a different view as to what should happen, as the ESM has now been ratified, and in particular with Spain's bailout?

MONTI: Yeah, on that, I think we should firmly stick to what was decided in the June European Council concerning the possibility for the aid to the banks not to be channeled through the state budget in order to unwind the spiral. Then there is the issue, which is more critical, of whether or not ESM should have a banking license. That, I think, is out of the table now, although one of the beauties of the European construction is that things that are out of the table one day and one year may well come back out of intellectual evolution or out of urgency later on.

RUBENSTEIN: And we have a question in Washington.

QUESTIONER: Yes, thanks. Thanks, David. Mr. Prime Minister, I'm Chris Tuttle with CFR here in Washington. We suspect that since taking office, you've had no shortage of advice from those in the U.S. and elsewhere that would give you a chance to turn the tables as the U.S. approaches a period in which fiscal issues are going to take center stage this fall and into November-December in Washington. Do you have any advice or lessons learned for our policymakers here in the U.S. in terms of getting our house in order?

RUBENSTEIN: His question is do you have any advice about how the United States could get its own financial house in order. Since we've been asking you questions about your financial house, you'd like the turn the tables and say, what advice do you have to us about how we can do a better job?

MONTI: Yeah. First of all, I do wish you do a better job. (Laughter, applause.) Indeed, and I mean, it's fascinating to be at the G-8 and the G-20 meetings and to see so much time and so much gently intrusive attention being given to the eurozone problems, and I welcome that because I must say that in particular, the active and the, in my view, extremely wise willingness of President Obama to understand and to help us understand has played a major role.

Then, of course, that leads to the -- to the fact that U.S. fiscal imbalances are seen as to be a marginal decoration of a complex European-generated world. We know this is not the case. So quite obviously, I don't have to -- I don't have advice to give, but we mentioned the supercommittee. Why should be impossible, in a country which is as mature as the U.S., to explore not so (conflictual ?), bipartisan or whatever modalities? I think in each society and in each political system, there should be the ability of isolating a few critical issues for the future generation and generations and to treat them basically in a nonpartisan spirit. This is what we tried modestly to do in Italy, with some success.

And I don't have technical advice to give, but if ever I would give the advice of really trying hard from the -- from the political point of view -- you see, technical prime minister shouldn't pretend to understand things that they of course do not understand. (Laughter.)

RUBENSTEIN: Oh. But when you -- when you come to the U.N. Generally Assembly meetings, how many bilateral meetings can you squeeze in in these days? And can you remember in advance everybody you're supposed to see and what you said? And how complicated is it to have all these meetings and have to prepare for them? How difficult is all that?

MONTI: I'm very well-helped, but it is difficult. And then also -- I mean, for me, given my past life, it's easier to squeeze in and then to remember perfectly 10 bilaterals with 10 European heads of governments or finance ministers than with the presidents or prime ministers of countries in other parts of the world. But that is -- that is one -- you know, I'm slowly shaping up my CV, and this is a part that -- (laughter) --

RUBENSTEIN: Right.

MONTI: -- that was badly empty. (Chuckles.)

RUBENSTEIN: Yes. Yes, ma'am. Right here.

QUESTIONER: (Audio break) -- thank you for your eloquence and ("piaggeria" ?).

After everybody has stopped smoking in Italy and all the taxes are paid, where does economic growth with employment come from?

MONTI: I will give a very archaic if not -- (audio break) -- the word doesn't come to me; never mind -- (audio break) -- the answer. I think there is a widely unexploited potential for growth in Italy, which is in theory extremely simple. That is the combination of our nature, the beauty of the place we live in -- (audio break) -- that we have destroyed, but not yet completely, and the charm and richness of our cultural heritage and our cultural goods, which is unrivaled in the world, although we are not so good in marketing it.

And so I believe that in a society where (leisure ?), culture, soft things become more and more important, the soft power of Italy could become very, very relevant, which of course seems to be simple but poses huge systemic and organizational problems concerning infrastructures, concerning the approach to foreign visitors, et cetera. We are improving.

I think that my lucky successor that will have five years ahead of him or her will have hopefully the possibility to think hard on this.

But there are -- there are so many areas in which the Italian industry is strong and services are strong, that we just need to unlock their productiveness and competitiveness through reforms that we started -- previous governments started also these reforms, to some extent, like simplification of bureaucracy, like better infrastructures, like huge liberalizations to reduce the rents earned by monopolies in the big, like energy, or in the small, like the different professional categories. And this should really trigger a facilitation of entry into any closed shop industry, normally to the advantage of the young.

And if we are able to turn a part of the attention of the Italian people away from the daily shows of political conflicts to the -- to the positive things that Italy can do -- I realize this is a very pastoral answer, but -- (laughter) -- I think it can be translated into (have faith ?) --

RUBENSTEIN: But relating to that, it was reported the other day that 60 percent of young adults in Italy are living with their parents, either because -- for cultural reasons, but mostly because it's difficult to get jobs. Is that a problem in Italy, or is that not a problem?

MONTI: The problem is that it is not felt to be a problem -- (laughter) -- by -- both by children and by parents. Now, no, seriously, family is still an enormous strength of our society and an enormous safety net. And I wouldn't exchange with many other countries in this respect.

But clearly, this reduces the ambition, willingness to make new experiences and creativity and entrepreneurship and so on and so forth. And your list of the difficulties, I would add just the difficulty of finding a home, not only -- not only a job.

RUBENSTEIN: We have time for one more question. Right here. Yes, ma'am. Just identify yourself.

QUESTIONER: (Name inaudible) -- from Wellington Management.

RUBENSTEIN: Speak up.

QUESTIONER: I wanted to ask you to talk a little bit about the electoral reform that you are thinking about right now and what you hope will come out of it in terms of the future political process, if you will, and the likelihood of getting something in the next couple of months. Thank you.

MONTI: The electoral reform is something that this -- that the current government has not engaged in because more or less tacit division of roles has been set up at the beginning of our activities. Namely, we try to (save ?) the country, and the political parties try to improve the functionality of the political system. Hence, it has been in the hands of the three major political parties and others to work on electoral reform. I still believe, as -- I still believe and hope, as the really key figure in Italian life, President of the Republic Giorgio Napolitano does, that there will be, before too long, this electoral reform.

The aspect that people like the least in the current electoral law is that there is an extremely high, if not Germanic, command of the party leaders on the composition of the electoral lists that -- and that there are no -- there is no room for the indication of preferences by voters. Now, in areas of electoral reform, in my view, there is too much the trend normally to believe that if you change the system, you extract all the best from the country and all the virtues. Certainly, shifting to a system where there will be the individual preferences to be indicated would erode part of the grip of the party leaders and give more role to citizens. At the same time, it would increase the potential for deals and for lobby influences. And I think this is one of the dangers of democracies, and I would be very scared in a country where there were no limits to, for example, corporate contributions to political -- (inaudible) -- (laughter) --

RUBENSTEIN: Can't imagine what country that would allow that to happen. But -- (laughter, applause) -- before our -- the prime minister became prime minister, he was often known in Europe as "Super Mario." And I think many of you can see that as prime minister, he still deserves that title.

We -- on behalf of everybody who wants to see the best possible leaders in Europe, we want to thank you for what you're doing. And I want to thank you for coming here today.

MONTI: Thank you very much. (Applause.)