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Tuesday, July 23, 2024 | Back issues
Courthouse News Service Courthouse News Service

Italy risks leaving billions on the table as clock ticks on gigantic recovery plan

Three years after the European Union announced a massive pandemic recovery fund, Italy is struggling to keep pace with the investment scheme. It now risks losing out on badly needed funds.

(CN) — The clock is ticking and Italy is panicking.

A political storm is brewing over Italy's struggles to meet deadlines, targets and requirements set out by the European Union in order to receive billions of euros in pandemic recovery aid that, in theory, could reawaken Italy's moribund economy and launch the creaky nation into the future.

The scale of the problem — and the risk of failure — is huge and sparking political rows over how and how much of the money should be spent. Projects are at risk or have already been lost, including plans to build many new preschools, expand the map of electric vehicle charging stations, a major enlargement of Cinecittà, Italy's famous national film studios, and much-needed repairs to old municipal water systems.

“They are having trouble spending the money,” said Martina Zaghi, a data journalist with Fondazione Openpolis, an Italian watchdog group. She tracks the recovery funds.

This week, Raffaele Fitto, the minister overseeing Italy's recovery money, ignited more furor by suggesting the country can't spend all the EU funds and needs to overhaul its plans. Fitto quickly retracted his statements to La Stampa newspaper as others inside his government and in the opposition cried foul. Still, he's busy tinkering with Italy's aspirations.

Three years ago, Brussels announced the Next Generation EU, a historic 750 billion euro (about $809 billion) stimulus fund to both kickstart pandemic-strangled economies and advance the EU's ambitions to modernize through investment in green and digital technologies and infrastructure.

It was the first time the EU as a whole agreed to accrue common debt, a step defined as a major shift toward deeper integration and even the federalization of the bloc. But it was also a hard-fought win because the EU's richer northern nations have long opposed taking on the debt of the less affluent, chief among them Italy's big but broken economy.

The fund, then, was called a one-time shot in the arm with the money getting carefully doled out in stages and split between grants and loans. A December 2026 deadline was set for the aid payments.

Italy, having been hit particularly hard by the coronavirus pandemic and its long-stagnant economy in dire need of new energy, was due to collect a lion's share of that money — about 191.5 billion euros (about $207 billion). Per capita real gross domestic product in Italy has not grown since 1999, the year it adopted the euro currency, and its public debt is one of the highest in the world.

With so much funding available, Italy's national recovery plans were multifaceted and vast.

They included new digital identity cards for citizens; digitizing public services; installing 5G fiber optic lines; building high-speed railways; special help for at-risk children; large-scale spending to improve recycling and install solar panels on buildings; investing in Italian space projects, such as new satellites; making museums, theaters and other public buildings energy efficient and accessible to the disabled; turning small towns into tourist attractions; spending billions on renewable energy projects, such as electric buses; and turning its tiny Mediterranean islands into self-sufficient beacons of green energy.

But Italy's fumbling.

Only a small portion of the funds slated for it has been spent so far, and concerns are mounting that scores of projects may never come to fruition or end up as completed but a waste of money.

Lorenzo Codogno, an Italian economist at the London School of Economics, said it is imperative for Italy to not spoil this opportunity.

“It is the first time that Italy has such a large amount of money to invest in infrastructure, in digital and climate transformation,” Codogno said. “It is a once-in-a-lifetime chance to enhance potential growth.”


But Italy is finding it difficult to meet the EU's requirements in large part because of a long-known and complex problem: Italy's ossified, slow and arcane bureaucracy.

“We have to keep in mind that a big chunk of the plan relies on the ability of local administrations to deliver and, as we know, Italy has very little ability, little capacity, to deliver at the local level,” Codogno said.

Last year, the EU released two payments, or tranches, amounting to about 42 billion euros (about $45 billion), an amount equal to about 21% of the total sum of recovery funds.

This year, a third installment of 19 billion euros ($20.4 billion) has been delayed and is under review, EU officials said this week, as reported by ANSA, an Italian state news agency. Italy also received an upfront prefinancing payment of 25 billion euros (about $27 billion) in August 2021.

Only about 10 billion euros (about $10.7 billion) in public works had been spent as of mid-March, or about 6% of some 168 billion euros (about $180 billion) set aside for state-funded projects, according to March data released by Italy's Court of Audit. Under the recovery plans, billions of euros have been handed out to private homeowners and businesses to make buildings energy efficient.

Spending, though, is expected to pick up because many projects are coming to fruition. To speed up work, Italy also has set up special nerve centers staffed by experts to help clear bureaucratic logjams and technical difficulties faced by municipalities seeking cash for local projects.

Codogno said collection of the initial tranches was relatively straightforward because the EU mostly hinged those disbursements on Italy adopting pieces of legislation.

“Now, it is becoming increasingly difficult because the requirements at the milestones and targets require Italy to actually deliver, meaning that you have to have some completions of work, you have to have some reforms implemented, which is clearly much more difficult,” Codogno said.

He doubted Italy will end up spending all the money on offer and be capable of carrying out everything on its wish list.

But falling short may end up being a good thing, Codogno added, because Italy would do well to not take loans — even if they can be paid back at very low interest rates — for ill-conceived projects. Italy's plan includes 122.6 billion euros (about $132 billion) in loans.

“You want to use the money on good projects and on investments that provide you with a decent return,” he said. “If you don't have projects that would produce a decent return, probably it would be better to not spend the money.”

Zaghi, the Openpolis researcher, said it remains unclear how well the funds are being spent because of a lack of publicly available data. The government finally shared data on projects this month, but Openpolis observed many errors in the released data.

“It is difficult to say whether money has been wasted, it is not possible to do such analyses,” she said, citing the delay in data on about 134,000 projects under consideration.

The Italian Ministry of European Affairs, which is handling the recovery plans, did not respond to a message seeking comment.

Tommaso Alberini, a spokesman at the European Commission, said the EU is aware that some member states “may experience difficulties in engaging funds due to limited administrative capacity or investment bottlenecks.”

He said the commission was “taking into account the high complexity of the Italian plan” and helping Rome implement its recovery projects by keeping “close cooperation with the Italian authorities in this respect.” He added that the commission provides “concrete technical support” through a special office.

For now in Italy, it's all hands on deck to get this massive undertaking on the right track, but even if the recovery plan is carried out, it remains uncertain how much it will help reboot the Italian economy.

“It's a big question mark whether it will be able to enhance the supply side of the economy, meaning potential growth,” Codogno said. “The jury is still out. It remains to be seen whether Italy is spending the money wisely or not.”

For example, he questioned Italy's proposal to use EU funds on professional-level soccer stadiums in Florence and Venice. In April, Brussels rejected those projects. Another iffy project, he said, is the use of EU funds for high-speed rail lines between Pescara and Rome.

“There's little activity, trade, going on between these two cities to the point that even the motorway that is in operation is not really much used,” Codogno said. “Introducing a high-speed train connection would not provide a high return” on investment.

He worried Italy may be rushing ahead “to spend as much money as possible” without evaluating what the country needs to do to spur long-term growth. He hopes Brussels allows flexibility and gives Rome time beyond strict 2026 deadlines to figure out how to best spend the money.

“There is probably a wrong idea that you just need infrastructure investment to generate sustainable economic growth,” he said. “You need to have deep structural reforms.”

Still, this recovery package has the potential to revive Italy in a manner similar to how it rose up from the ruins of World War II under the rebuilding plans of former U.S. Secretary of State Gen. George Marshall, Codogno said.

“It is effectively a Marshall Plan, but the amount [of money] is even bigger,” he said.

“After World War II, Italy was basically a rubble country. Italy had to rebuild everything,” he said. “Now, it is a completely different situation because there's nothing to rebuild. There's nothing that needs to be built up from scratch. It's simply that the country needs to improve, to make it more efficient — all the facilities and infrastructure — and that is a much more difficult job.”

For Italy to compete with the world's most advanced economies, he said it needs to “move to the technological frontier” and that won't be easy.

Italy's new government, led by far-right Italian Prime Minister Giorgia Meloni, may be up to the task, he said.

Before Meloni won in September elections, Italy's recovery plans were overseen by a technocratic government led by former European Central Bank head Mario Draghi. Many Italians felt it would have been better to keep Draghi at the helm, even though he was an unelected premier, because he was seen as a competent administrator for the gigantic money-managing task ahead.

Codogno said the Meloni government understands “this is the chance of a lifetime and if they miss that it's going to be very problematic.”

“Whether this understanding translates into commitment or action, that is another story,” he added, “because I feel there is still not enough drive to make sure that these projects hit the ground and quickly.”

Courthouse News reporter Cain Burdeau is based in the European Union.

Follow @cainburdeau
Categories / Economy, Financial, International

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