President Mario Monti, Rector Andrea Sironi – thank you for the kind introduction.

Distinguished professors, students and guests – thank you for welcoming me here today.

It is a great honor to deliver the inaugural address for this academic year at Bocconi – one of the most prestigious universities in Europe, and indeed, the world.

What I admire about Bocconi goes well beyond its academic and intellectual excellence. Bocconi truly embraces a global view in its curricula, in its culture, and in its values. The spirit of tolerance and multilateralism runs in your DNA! And in this, I hope you agree, we are very much alike!

It is also such a pleasure to be back in Milano! I am always reminded of my first visit to Santa Maria delle Grazie and of the genius of da Vinci. It is true, he left his mark in many cities during his lifetime – but it was really in Milano where his genius and talents were nurtured and began to flourish.

Da Vinci was the quintessential Renaissance Man – a multi-talented visionary well ahead of his time. He dared the future by challenging the present, and he was not shy to challenge others.

I was struck by this one quote of his, which is now a favorite of mine: “Chi poco pensa molto erra.” “He who thinks little, errs much.”

So, today, when thinking about my favorite subject, the economy, let us think a little bigger. Let us start from a blank canvas, as da Vinci, and imagine the future.

Normally we would use bright colors to paint that future, using imagination, energy, and hope. But these days, darker colors seem more in order, and this is what I would like to talk to you about. The grey clouds of entrenched low growth and high unemployment, especially among the young. How can we get the color of hope back into this picture?

I am troubled to no end by the stark contrast between the benefits and promises that education brings with it – here at Bocconi and elsewhere – and the harsh reality that many young adults face in the labor market. That they do not get the chance to apply their educated minds to the workplace, to hone their skills in the day-to-day work environment, or to gain the experience necessary to embark on successful careers. This has become a pervasive problem in Europe, and it is particularly acute in Italy.

This is not just a cross for the young to bear. Sooner or later this is a cross that society will need to bear. Persistent unemployment not only undermines economic activity, it undermines people’s self-esteem, and it tears at the fabric of society and institutions by breeding inequality and sometimes violence.

Tackling the problem of youth unemployment is therefore a shared responsibility—between government, the private sector, and society as a whole – at both the national and European levels. With this in mind, I would like to focus on three key topics that can help shape your future:

(i) First, a deeper look at the problem of youth unemployment;

(ii) Second, the remedies that can be pursued at the national level to tackle it; and

(iii) Finally, policies at the Euro Area level to complement and reinforce national policies to support growth and combat youth unemployment.

1. Youth Unemployment – Causes and Consequences

Today, unemployment among Italy’s youth stands at more than 40 percent – the highest in almost 30 years. If the unemployed could form their own region, they would be almost as big as Umbria – 700,000 people. These numbers would make Mona Lisa frown, not smile!

The IMF is publishing today a paper called “Youth Unemployment in Advanced Europe: Searching for Solutions” which looks at this very issue, not just for Italy but for other countries in Europe as well. Here are two key messages from that paper:

First, when growth is low, youth unemployment is high. On average, across advanced European countries, the impact of weak growth on youth is three times larger than that for the adult unemployed. In fact, about 70 percent of the increase in youth unemployment in vulnerable countries during the crisis can be traced back to feeble growth.

What is the implication? Reviving growth is a first order priority. Our research shows that one additional percentage point of GDP growth in Italy can lower the youth unemployment rate by 0.6 percentage points. That’s a lot of people going back to work. This would be an important step forward.

Second, institutions matter. In many countries, including Italy, youth unemployment was already quite high when the global crisis struck. The crisis simply made the situation worse.

Why is that? Because certain labor market characteristics – such as high levels of protection for workers on permanent contracts or large hiring costs – conspire against youth employment. And in countries such as Italy, they make youth unemployment even more sensitive to growth.

Let me put these two findings in perspective and give you a sense of magnitude. Between 1996 and 2001, Italy was able to reduce its total unemployment rate by 7 percentage points by growing at an average rate of almost 2 percent per year.

The problem is that our current forecasts for growth are far weaker – about 1 percent annually over the next four years. At the same time, inflation remains persistently low – usually a clear sign that resources remain underutilized.

Low growth and low inflation are a toxic mix. They create a vicious circle: if you expect low growth in the future, you will invest less, and hire less, today. Overcoming this vicious cycle is the challenge, not only for Italy, but for Europe as well.