The Italian Approach to the Recovery Fund

This article provides an overview of the European Recovery Fund, with a closer look at Italy. Following a brief analysis of the main financial aspects, it will dive into Italian strategies by exploring possibilities and threats.

What is the Recovery Fund?

Following the COVID-19 pandemic, despite the resistance of Poland and Hungary, the European Commission allocated 750 billion euros to help European countries to cope with the deep undergoing economic crisis. According to Sole24ore, 390 billion of these 750 billion euros will be non-repayable funds while 360 billion will be loaned. National European governments must prepare a long-term, well defined, and detailed strategy that comply with all the restrictions put in place by the European Union.

Each national recovery plan should be submitted by April 2021.

How big is the budget for Italy?

Altogether, Italy will receive around 209 billion euros, one of the highest figures per single European country, of which 80 billion will be given as free subsidies and the rest as bounded loans. Originally, Commission President Ursula Von Der Leyen recommended sending the first project drafts at least by October 2020, Italy, however, did not send any as of December 2020.

What does the EU advise us to do?

According to a European Council recommendation, Italy is strongly advised to invest these strategic resources to undertake structural nationwide reforms, specifically:

1. reform the tax system to reduce the tax burden
2. reduce the retirement system costs (among the highest in Europe)
3. improve public employment services
4. reduce the employment gap between men and women
5. implement investments in school and university
6. increase investments in digital and technical skills training
7. improve quality and sustainability of the country’s infrastructures
8. increase the efficiency of the Public Administration and Governance
9. reduce justice trials times

Objectively speaking, these were already long-lasting unresolved issues. Despite a widespread presence of such problems in the public debate, little has been done due to a lack of political will and shortsightedness. Therefore, it could be concluded that Covid-19 obliged Italy to “face the music once and for all”. Consequently, the country representatives should approach this unique chance with smartness and foresightedness to avoid old mistakes.

Italian guidelines

Following the European recommendations, on September 15, 2020, the ministerial Committee for European Affairs published the guidelines of the “National Recovery and Resilience Plan” (in short N.R.R.P.).

The long-term objectives of this plan are:

• Double the growth rate reaching the EU average (1.6%), which has remained substantially unchanged since 2008
• Increase the employment rate by at least 10%
• Raise welfare, equity, and sustainability indicators
• Reduce economic inequalities
• Implement effective policies to increase the birth rate
• Reduce early school leaving and youth inactivity
• Increase the share of graduates
• Strengthen the country’s security to face natural disasters and pandemics
• Ensure a sustainable public finance

The N.R.R.P missions pursue the following objectives:

• Digitization and innovation
• Green revolution and ecological transition
• Raise the Italian foreign competitiveness
• Infrastructures for mobility
• Education and training
• Equity, social and territorial inclusion
• Health

In short, this plan aims to improve the Italian resilience and financial recovery, reduce the pandemic’s economic and social impact, support the green transition, and finally, raise the growth and employment potential.

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What are the risks?

Firstly, financial resources could be squandered for irrelevant projects which might not be aligned with the European directives and the real Italian needs. According to an article published by Linkiesta, Prime Minister Conte’s Government parliamentary supporters have already proposed 557 funding projects, certainly too many. It is therefore strongly recommended to meticulously follow European directives to adopt a good strategy. Related to this, eventual unprepared politicians could likely cause irreparable damage, thus, it would be appropriate to plan on the long run and not exclusively for likely electoral manoeuvres. In brief, there should be a collective shared responsibility to pursue a long-term vision and perspective. However, the current strong political instability and the presence of a non-elected government make it harder to achieve a solid planning that is agreed upon and shared by the entire political class.

Secondly, as pointed out in a previous article, a dysfunctional institutional and administrative system could possibly delay funding’s retrieval which may not immediately flow in the national economy. It is well-known that the Italian Public Administration is one of the oldest, most inefficient and expensive in Europe. For the above-mentioned reasons, in my view, the constraints put in place by the EU to safeguard the proper democratic and institutional process are justified. Moreover, the greatest fear is the likely public debt increase that may occur due to bad or erroneous investments. As a matter of fact, the government should avoid further recovery plans to save national companies that are no longer financially recoverable (example: Alitalia).

Thirdly, there is a widespread mistrust towards national institutions. According to Sole24ore, the pandemic made loan requests increase by 4.8% and precautionary savings by 8%. Altogether, it is estimated that a total of 1,682 billion euros have been deposited in Italian current accounts, a clear sign of mistrusts towards the country’s system. Recently, some M5S exponents have discussed the withdrawal of such savings directly from the high income’s citizens bank accounts. If this were the case, it would be a terrible signal to the world’s global economy and the European Union itself, as it would mean that Italy is no longer able to cope with the economic crisis.

What are the real needs of the country?

Italy should invest to create new infrastructural networks to avoid discomfort, victims, and sudden collapses of public infrastructures (latest example: Ponte Morandi in Genoa). To this end, another investment priority is the land requalification to prevent hydrogeological damages. It is also essential to invest in research and universities to increase the number of graduates. At the same time, however, graduates should be given concrete opportunities to enter the job market, thereby avoiding the “brain drain” to foreign countries. On the job offer side, many entrepreneurs stress a skills gap in young people, however, small, and medium-sized firms were the first to cut costs in vocational training. According to recent research by La Sapienza University of Rome, business investment in training activities is well below the European average and in the next few years, an even greater shortage of technical, scientific, and digital personnel is foreseen.

Finally, a radical Public Administration employees’ turnover should be done to undertake a concrete de-bureaucratization to make the “Italian System” more efficient and responsive.

In conclusion, as elaborated above, the Recovery Fund is a great opportunity to solve the old country’s problems, and to relaunch Italy on the European and international scene.

Can Italy make it?  Yes, but only if we all cooperate, aiming at a greater common good rather than individual interests.