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Italy needs to spend more, faster

PGentilonithis European Union The commissioner overseeing its 750 billion euro ($820 billion) post-pandemic recovery fund said last month that “it would be a disaster” if the fund failed because of his fellow Italians.

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indeed. Italy has so far been the biggest beneficiary of a sprawling facility, financed for the first time by debt co-underwritten by member states. It will receive 191.5 billion euros in grants and soft loans.If it doesn’t spend the money fully and efficiently, economists will need to cut (if not eliminate) their temporary increase to the annual 1-1.5 percentage points in Italian economic forecasts gross domestic product growth over the next ten years. And it would undermine the commission’s aim of using the fund to narrow the gap between Europe and Italy’s richer north and poorer south.It will also have serious implications for European Union financial integration. “If Italy doesn’t spend the money, it convinces its European partners to co-underwrite the dreams of the future European Union Debt will be an illusion,” said Eleonora Poli, director of economic analysis at the European Policy Center think tank.

However, the odds of failure start to become alarming. Brussels has refused to release Italy’s latest €19bn in funding amid doubts over the eligibility of some of the projects it plans to invest in.These include the refurbishment of Fiorentina’s Serie A A Soccer pitches and construction of a stadium complex on the outskirts of Venice. Neither fully meets the council’s requirements for a project to revitalize “degraded urban areas”. Fiorentina’s stadium is located in a comfortable middle-class area of ​​the club’s home city. Another project is on the greenfield. It includes a basketball court, and it hardly helps that the mayor of Venice is the owner of the local basketball club.

The inability of Italian officials to initiate and manage suitable projects is a more fundamental challenge. By March 13, when the plan was more than a third in its way, Italy was spending less than half of what was originally planned. Rafael Fitto, European affairs minister in Georgia Meloni’s conservative government, has since admitted that some of the projects originally envisioned in the plan cannot be completed by the end of 2026, when the last euro will be paid.

What went wrong? A major obstacle is insufficient administrative capacity. The program’s goal is to allocate a disproportionate amount of funds in Mezzogiorno in southern Italy, where officials are often least able to design suitable projects and guide them through. In addition, many investments are in the hands of local authorities. Most are small (70% of Italian cities have fewer than 5,000 inhabitants), and the administration is correspondingly insignificant. By contrast, the mayor of bustling Milan, Giuseppe Sala, says he could at least double that for his city (not that it needs to). There is a danger that if the northern regional authorities use up their quotas and the southern ones do not, the recovery plan will end up widening the gap between the two halves of Italy.

Other questions concern the companies responsible for building the infrastructure projects that make up a large part of the plan. Like the rest of Europe, they face rising raw material prices and a labor force depleted by the recession, first followed by the pandemic. But they must also grapple with a more specific Italian conundrum: obtaining temporary credit from banks for projects that have been commissioned but not yet publicly financed.

The government has tried to remove at least some of these obstacles. Most notably and controversially, it has approved legislation to speed up the spending process. From now on, officials will be able to place orders of 150,000 euros without calling for tenders. But it highlights a second risk: that well-intentioned shortcuts could exacerbate corruption and favoritism in a country where corruption and favoritism are widespread and entrenched in organized crime.

To ensure Italy makes the most of the cash on offer, Mr Fito has been trying to get the council to agree to revise its national programme.The idea is that the projects most likely to miss the Recovery Fund’s 2026 cut-off point will be funded by European UnionThe Regional Fund, which is part of the current package, will remain open for another three years.

Some in the Northern League, the most active of the three junior partners in Ms. Meloni’s coalition, have a more radical idea. On April 3, Riccardo Molinari, the coalition’s chief whip in the lower house of parliament, proposed scaling back the national recovery plan by ditching some of the low-cost borrowing (not grants, of course) and investments it was meant to finance. The official line, not just the government but the coalition, is that such a move was not even considered. But if the problem continues to mount, it may start to look like a sensible way to avoid the worst.

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