management of resources and to fuel uncertainty ; the scope for stabilization policies is limited. negative effects on the cost of the debt must be averted. it is important that the government and parliament decide, on the basis of the economic and financial planning document, measures for the next four years able to reduce current expenditure in relation to gdp, increase public investment and gradually diminish firms ’ tax burden. as requested of italy by the council of finance ministers of the european union, it is necessary to reduce the deficit below the threshold of 3 per cent by 2007. a return to higher rates of growth that are compatible with the available resources cannot be achieved without a renewed and effective commitment of economic policy to changing the structure of production. the reduction of the tax burden on businesses should facilitate the growth in size of firms, technological innovation and investment. the efforts to make the operation of public services more efficient and to create a more stable legislative framework need to be intensified. competition must be strengthened. firms must expand their scale of production, increase the professionalism of their managements, orient their specialization towards more dynamic and innovative sectors, and increase their presence in some technologically mature but high - quality segments of the international market. the financial system must assist firms in this difficult phase of transformation, directing resources towards the companies and projects with the greatest potential. the growth of pension funds will be of great importance for the financial market and for the supply of capital to the banking sector. the outlook economic activity probably reached a low in the first quarter of this year. the figure for gdp is expected to show an increase, albeit modest, for the three months from april to june. it is necessary that the still hesitant recovery gain momentum in the second half of the year. if it does, we will be able to avoid a contraction in gdp this year with respect to 2004, and to achieve growth of more than 1 per cent in 2006. the performance of gdp this year and next must be along these lines in order to give substance and credibility to the scenario projected for the public finances. as we underscored on 31 may to the general meeting of shareholders of the bank of italy, investment is finding it hard to gain momentum, consumer demand remains weak, and the outlook for exports remains uncertain even in a favourable international context. there is a need for a commitment by the government, the social partners and firms not to lose the opportunity to reverse our economy ’ s negative trend. thanks to the progress made in the last decade, banks

are in a position to finance the growth of production and investment. when the difficulties of businesses are cyclical and transitory, banks can, indeed must, contribute to safeguarding production capacity. recourse to the wage supplementation fund in industry covered a number of hours equivalent to about 26, 000 full - time employees in the first half of 2001 ; it rose rapidly in 2003 to 48, 000 employees. in the early months of this year it rose further, to 58, 000 employees. use of wage supplementation has increased especially in the machinery and textile sectors. where it is possible and appropriate, banks must work for the restructuring and reorientation of production capacity and assist the business sector in the process of consolidation aimed at augmenting the average size of firms. a major banking merger at european level has as its protagonist an italian bank that had previously completed its own restructuring and consolidation in the context of the general reorganization of banking that began in the middle of the 1990s. market transactions are under way for the acquisition of control of two important banks. once the authorization procedures are concluded, it will be the shareholders, the market, that decide the outcome of the initiatives, which envisage different paths, instruments and objectives. we are following the developments in scrupulous observance of the law and supervisory regulations, bearing in mind the general interest and reporting on the necessary procedures in the competent fora. in any event, the transactions will lead to significant further strengthening of our banking system. banks are called upon to address the problems of customer relationships more effectively and systematically. initiatives to contain the costs of services and the amount of fees are necessary and they must spread. the image banks project is fundamental for their reputations. as we recently had occasion to argue at length, the problem of the italian economy lies primarily in the competitiveness of industry. but there is also a weakness of domestic demand. according to the bank of italy ’ s surveys, investment in public works in the first half of this year was at the same level as in the first half of 2004. the rise in the number of contracts and the opening of sites have yet to show up in an increase in investments actually implemented. according to the construction firms in the sample, the outlook for the second half of the year is uncertain. the efforts at both central and local government level must be intensified, and with urgency, to step up activity, to avert a slowing of investment that could jeopardize the recovery. according