Im sarah montague. The European Union in greater trouble than ever before. Its notjust because of brexit, even founding members countries like italy are unhappy about the direction its headed. The Italian Economy has always struggled within the straightjacket of the euro. And its wanted its fellow members to help share the burden of the half a million migrants who have turned up on its shores over the past three years. My guest here at the Italian Embassy in london is italys europe minister, sandro gozi. He is a passionate european. How does he think the eu should change if it to survive and win over the next generation of europeans . Sandro gozi, welcome to hardtalk. You have said that the beginning of European Disintegration has started with brexit. Is the eu disintegrating . If it remains the status quo, certainly. It must get out of the status quo. It must show there is a political reaction to the series of crises that has hit the union. Among these, the major one is certainly the brexit decision. But there was a financial crisis and migratory crisis so we need to show that the eu is ready to react and after all, that the declaration we adopted in rome on 25 march this year is already the First Political reaction of the 27 leaders after brexit. But now, we must implement the political commitment. Part of that reaction, is it showing that leaving the eu does not pay . I. E some punitive element for the uk. Well, no, i dont think we need to further punish the brits. I think its already a decision which is going to be very risky for uk. We dont have to approach the negotiation with a country which remains a friend with any punitive intention. Certainly, the negotiation is going to be very complicated and certainly, there is less loose talks about leaving the eu after brexit. The paradox, on the contrary, we were afraid that it would have a Domino Effect after brexit decision. Nexit, ital exit, so on. In public opinion, there is a stronger reluctance in talking about leaving the union after brexit because of this uncertainty. What is next . What shall we do now . What shall the brits do now . It was clear after the 23rd Ofjune Last year, its helping to make People Better think twice about leaving the union. Now, the tide is not toward leaving the union. We have to surf the tide in order to reform the union. What about all those people planning to vote for Marine Le Pen who is likely to get through to the run off of the second round of the french elections coming up . Another very difficult question. I hope, i strongly hope that Marine Le Pen will lose the election. You said if she wins, its the end of the European Union. I do believe that, if she wins. The attitude and programme of Marine Le Pen is clearly to get out of the eurozone and to get out of the European Union. And to get out of nato, if i understand well what she said. This certainly would be a major blast to the union. I cannot imagine a European Union without france. Ok, so, it can survive without the uk but not france. Yes. What about italy . Of course, italy, most polls would suggest that italians are happy with the European Union but they are not happy with the euro. The italians are still satisfied with the european choice. I would say this is more rational than emotional in the sense that people are aware that the european choice is still a good choice for italy. People are not satisfied with the function of the eurozone but this is not only a problem with public opinion. We are unsatisfied with the function of the eurozone, the Italian Government, because feel that the austerity approach, the economic approach, the existing rules which are implemented in the eurozone, are not the best rule to tackle the current economic challenge we have in europe and italy. We need a new investment policy. We need to boost internal and domestic demand. We need to boost growth and we need to shift from a set of obsolete and partially inadequate rules, to a real, new policy mix in terms of Economic Investment and new social measures. This is what we want to do. But before we look at what you are proposing as the solution, in terms of the scale of the problem, we talk about brexit and france, The Economist said, quoting officials in brussels, if you ask officials in brussels or berlin which country keeps them up at night, the answer is always the same italy. Well, i would suggest they take some pill to sleep better, honestly. I wouldnt waste my night thinking about italy. Italy is a country that finally has come back to recovery after yea rs of recession. When the renzi government took office, they were 2. 7 , today we got a growth of plus i . Its not enough. Its projected to be the slowest this year, barely grown in three years. The reason why is that italy has wasted time in not passing the reforms. This is what we have been doing in the last 3 years. There is still much work to be done. The second is that italy is the country that suffered the most from the decrease of public and private investment in the last 15 years but notably since the crisis of 2008 and this is why we do believe that it is not enough, the fiscal consolidation. We want to keep our public debt and deficit under control. And we should expect, public debt more than 132 of gross domestic. It is a heavy legacy of the past, i was still at Primary School when the irresponsible Italian Government were producing that public debt. But no progress for getting rid of it. We have reduced the deficit but we cannot reduced the deficit at the rhythm that might hamper economic growth. This is a problem that is very old. There has been very little growth in the Italian Economy. You have a huge problem, yes, of public debt, and of your banks which are in serious trouble. 290 billion pounds of bad loans, a fifth of the loans that italian banks hold are bad and that works out to about a third of bad loans in the eu. Part of the reason that Everybody Else is looking to italy, thinking, theres a very big problem with the italian banks. What you said confirmed one thing and brings me to emphasise another. It confirmed that if there is a problem of bad loans in italy, because in other Banking Systems around europe you still have a problem with derivatives, for example. In italy, you dont have a problem with derivatives, you have a problem with bad loans. Why . Because the growth has been too low. But also because you didnt deal, italy didnt deal with the problems in the banks when other countries did and now the door has closed. That is totally correct. I think that was a very serious mistake which was done by the previous government, before 2013 when it was enough to do what other governments have done, to inject fresh money to. So what needs to be done now . The longer you leave it, the bigger the problem becomes. Honestly, the reason it is a systemic problem. There is no systemic problem with italys banks. We are talking about six banks of which one only is national which is monte dei paschi di siena. The other are very local, territorial banks. I rule out the existence of a systemic problem with the italian banks. Certainly, there are specific issues concerning some banks. So no need for the eu to modify its rules because you know that matteo renzi, your party leader and former prime minister, he asked the eu to suspend State Aid Rules to allow a recapitalisation, and Angela Merkel basically said no. Well, she wasnt supposed to say yes or no because it is not the German Government who decides this. She made the point, we wrote the rules for the credit system, we cant change them after two years. From what youre saying, there isnt a need to . We should evaluate and as i say, it is whether these rules on banking recovery, have been really implemented in the rest of the union. If you look, the only case where they have been really fully implemented has been in the case of cyprus. In the other cases, there hasnt been a full implementation of this rule. If everybody is trying to adapt, to adjust, common rules to the specific situation, probably it is because the common rules are not so efficient. So what are you saying . Are you saying to ignore the rules . Im saying we are playing by The Rules On Public Debt and deficit, but. But Nobody Else Is Playing by the rules. Well, on public debt and deficit, france and germany didnt play by the rules. We are. We are saying that as long as the rules are there, we must respect them but that doesnt prevent us to raise a problem with the existing rules and there is a problem with existing rules on the fiscal compact, some rules in the banking sector, there are problems. Because those rules are not fit any more for the needs of the Eurozone Economy and banks. I want to stay with the particular problem that italy presents to the eu at the moment because the Financial TimesEuropean Economic columnist Wolfgang Munchau says, if italy wants to stay in the euro, it needs to send a clear warning to germany and the other Northern European countries that the eurozone is set on a path of Self Destruction unless there is a change of parameters. And he makes the point that you could be in a situation that italys withdrawal from the euro would imply the biggest default of history because of the size of the Italian Economy. I hardly can imagine a eurozone without italy. On that, i share with what Wolfgang Munchau wrote but i also believe it is clear that the eurozone must be completed, and this is not my words, its the words of the European Union. In a series of declarations of the european council, we have several times in the last month, lastly with the rome declaration on 25th of march, we say we must complete it and better shape it. You may not have the time. There has to be an election in italy before the end of early 2018 and who is topping the polls . Let me say this. Topping the polls at the moment is the five Star Movement who want a referendum on italys membership of the euro. Well, it is total folly. Can you imagine a month of a Referendum Campaign on whether italy should remain or get out of the eurozone . This means and shows that they are totally unfit to rule the country and they are showing they are totally unfit to rule the capital of italy, rome, where the disaster of the five star mayor is going on every day, unfortunately for us but also for all the foreigners who happen to come to our capital at the moment. It is clear that this must be avoided. That depends on us. It depends on how effective we are with the government and how convincing and persuasive we would be in the general election. I wouldnt dramatise the Opinion Polls which one day says one thing and another day another. At the moment, its too soon. Instead of bringing the debate to this. I mean, no way. It is clear we would be in a stalemate. We are better to open a debate to strengthen the eurozone. It is not only an italian problem. It is particularly an italian problem because italy is the Third Economy of the eurozone but the fact that the eurozone rules are not adequate to tackle todays challenge is a something that. The difficulty with those rules is they have worked with Everybody Else. The situation with italy is a recent one, and it isnt an ancient one. Since italyjoined the euro in 1989, real income per head has gone down. It is lower than it was then. I am not sure it didnt work for everybody. I think that they have been have worked well for one country, one big country, at the centre of europe. For all the other countries, they havent been proved to be effective. Otherwise you wouldnt have a problem of unemployment, you wouldnt have the rise of populism, you wouldnt have an issue of economic problems in europe. So the rules of today have only worked for germany . They have been very favourable to germany. Now, they are changing. We must push, further push this change, because it is clear that we need to have a more balanced approach. Why havent they changed until now, if it is only in the interests of one country . Probably because nobody has the courage and the strength to run this issue. We thought that it was high time. Also for the reason you mentioned to open a debate on how the eurozone functions, and how the eurozone should function, and we think that there are many reforms to introduce. And what you said about the i mean, the difficulties in italy since 1999, i agree, and this has been the golden thread of our action since 2013. We have said we have wasted too much time, and we must carry out reforms not because we are a member of the European Union, not because we are a member of the eurozone. We must carry out reform because it is in our own national interest, because it is in the interest of the italian people. And even if, tomorrow, we decided to trigger article 50, and to get out of the union, we would, however, need to implement these reforms. Well, lets turn to Something Else where i know that italy feels that it has carried an unfair share of the burden, which is the number of people arriving on europes shores. There have been 500,000 over the last three years, and there has been an increasing number in 2016. And some have suggested, a senior eu official has suggested, that actually it is the very mission to pick people out of the water that has led to more coming over. Do you think that is true . I think that italy has been alone in saving the european dignity, for too much time, in the mediterranean. Because, until 2016, italy was the only one that was searching and rescuing human beings in the mediterranean. And i think that we should put the life of women, children, families who flee from the islamic state, isis, before, first and foremost. Now, finally, the mediterranean has become an issue of common interest, and it has been thanks to our action. Now, finally, we consider libya not an ancient legacy of italian history, but a common problem, a European International problem. And it is clear that we must do more together, as the European Union, and in the future i hope it will be 0k to tackle the root causes of the migratory flows, to work with the country of origin, to stabilise libya. Because it is clear that the central route through the mediterranean is a problem for all of us, and we should be much more effective and more united in managing this problem. But i have to say that, if i have to compare the situation of mid april 2015, when 700 people died in the mediterranean, and they had to convene the first extraordinary european summit on migration, and the european summit on 3 february this year, a lot of things have improved. But there are still many things to be done together, notably in working in a new Partnership Relation with the country of origin. Because you want more countries to take some of those that italy is taking in. It has not yet granted asylum, because you have actually granted asylum to a tiny number. We have to work more, together, in relation to europe. We have to share the burden, because in the union, and in the continent, and in the schengen area, we have something which is extraordinary. We have freedom. We have freedom to move, freedom to circulate. We dont have internal frontiers in the schengen area. If we want to keep this, something which is the biggest outcome of the European Union, for our citizens, we certainly must work on the external border, and we must revise rules on asylum, which were conceived during the balkan war. How can we imagine that rules which were conceived two decades ago, in another century, for another crisis, can be effective when there is a new state, going around the world, which is composed of 50 million asylum seekers, according to un statistics. Your government is now building detention centres, something that under matteo renzi it refused to do, on humanitarian grounds. No, it never refused to do on humanitarian grounds. They have built 16. Yes, because we also say that we must work and be more effective, as italians and europeans, also on return policies. And we have said it is not only. We have been negotiating for months with the European Commission on the so called hotspot. It identified the potential asylum seekers, but we have also said this is only a part of the issue. The other side of the problem. A representative of the northern league, the right wing northern league, said, were the league and i are not made out to be racists, inventing fears, when we were calling for these centres, and suddenly, as he says, i thought everything was under control, and there was a change of policy. If it was right then, why has it changed . He pretends not to understand. He understands perfectly, but he pretends not to understand. We need to do much more on the return policy. So it was a mistake not to do it . We must be more effective on the return policy, because we want the policy to become an eu issue. You coined the phrase the erasmus generation, which was the idea of politicians like yourself who were pro european, outward looking. It is in a past tense that you use it towards me. Which brings me to my question, because many people will say it was