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When the European Commission approves Italy’s recovery plan on Tuesday and President Ursula von der Leyen symbolically presents it to Prime Minister Mario Draghi in Rome, she will hand him a double-edged sword.
Italy will be by far the largest recipient of funds from the EU’s € 750 billion Recovery and Resilience Facility. Draghi’s success in deploying € 209 billion in grants and loans to boost Italy’s economy will be key to convincing skeptical European countries that solidarity – in the form of jointly backed debt – is in. the interest of all.
If Draghi is successful, he will put his country on a much stronger economic footing. If he doesn’t, the consequences are enormous, not only for Italy but for Draghi’s hopes of a European fiscal union.
The task is of epic proportions: to reform a country that resists change; revive an economy that has stagnated for decades; and repairing a dysfunctional labor market and justice system.
If Draghi does not succeed, “the opportunity to agree on any form of fiscal union would very likely dissolve, and the Union would again face the threat of crises similar to the one at the end of 2011”, Andrea Capussela, visiting professor at the London School of Economics, said in a paper published last month.
Draghi has some reason to be optimistic.
His technical-political cabinet enjoys one of the largest majorities Italy has ever known, leaving out only the far-right Brothers of Italy. Appointed by Italian President Sergio Mattarella to form a unity government, Draghi is not encumbered with thoughts of re-election, giving him considerable freedom to push for difficult reforms.
The plan due for approval on Tuesday commits the country to a number of structural reforms, including modernizing Italy’s Kafkaesque bureaucracy, shortening court proceedings, updating its competition rules and rewriting its patchwork of law. tax. The government estimates that these reforms, along with significant investments in the decarbonization and digitization of entire economic sectors, will add 3.6 percentage points to GDP growth in 2026, when the program ends.
While it’s great on paper, Draghi will have to come up against the intractable reality of Italy to make it happen. And he has less than two years to keep his promises – elections are slated for spring 2023.
Structural problems such as Italy’s depressed productivity and stubbornly high unemployment are likely to need more time to resolve.
Almost one in four young Italians does not have a job, education or training, according to the Jacques Delors Institute, and 80 percent of adults receive no vocational training, according to the OECD – the second lowest rate after Turkey. Italy also has the second lower rate of university graduates in the EU and Italian students below average performance in standardized education tests, OECD data show.
Italy is “decades behind” in education, training and active labor market policies to help job seekers find jobs, says Andrea Garnero, economist at the OECD now on leave of research. “In all honesty, it is not so obvious that we will be able to catch up in a very short time,” he added.
What is needed is not necessarily detailed in Draghi’s plan, which commits “considerable resources, sets valid goals but does not explain how to get there, or how that changes what has not worked so far institutionally, organizationally and culturally,” Garnero said.
Time is problematic for another reason: EU money must be spent before 2026, or else be returned. Historically, Italy has one of the lowest absorption rates of structural funds in the EU, using a bit more 30 percent of what was allocated to him during the last budget cycle.
This is due to “the low administrative capacity, and that has not changed,” said Eulalia Rubio, researcher at the Jacques Delors Institute, adding: “It is even worse in a certain sense because you have a lot more of funds to spend in less time. “
This rush to spend in turn opens the door to another class of problems: corruption.
“The fact that there are very large resources concentrated in a short period of time and to be spent quickly by respecting all the stages necessarily generates an interest on the part of the organized crime to try to infiltrate the public markets”, declared Giuseppe Busia, boss of Italy. independent anti-corruption authority.
Draghi’s time window could be cut short if he decides to run for President Mattarella, whom he covets, or if political parties lack power to force a snap election, a fate his predecessor Giuseppe Conte has. suffered.
According to the POLITICO poll, if elections were held now, voters would hand the country over to a right-wing coalition, and League leader Matteo Salvini is fighting to be crowned prime minister by merging his party – currently neck and neck with the brothers of Giorgia Meloni from Italy – with Forza Italia by Silvio Berlusconi.
Under a right-wing government, tax reform – which Draghi said should be more gradual – would likely be scrapped; and whoever succeeds him could completely disown the reform plan, potentially stopping the flow of money from Brussels.
The task is arduous, but the price is great. If Draghi manages to put Italy on the path of reform and ensure strong and sustained growth, while avoiding being politically foiled or getting bogged down in scandals related to the misuse of the money of the ‘EU, other European leaders are expected to be more willing to discuss common debt, which he advocates.
“We have to achieve fiscal union, ”Draghi said in March, while acknowledging that it would be“ a very long road and also a very, very difficult one ”.
The next few years will determine whether this path is a dead end.
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