In a previous post, we have discussed how Italy is the country that most clearly exemplifies the degree of fiscal solidarity inherent to the EUR 750 bn Next Generation EU initiative. As the implementation phase will be to the success and credibility of the initiative, here we start looking into what is known so far of the Italian spending plan.
In order to benefit from the Recovery and Resilience Facility – the largest spending item under Next Generation EU – Member States are expected to submit their recovery and resilience plans outlining national investment and reform agendas, which should be based upon the country-specific recommendations of recent years and in particular in the 2019 and 2020 cycles. The Commission’s guidelines suggest that the investment and reforms should focus on seven flagship areas:
- Power up: future-proof clean technologies and renewables.
- Renovate: improvement of energy efficiency of public and private buildings.
- Recharge and Refuel: sustainable, accessible and smart transport, charging and refuelling stations and extension of public transport.
- Connect: fast rollout of rapid broadband services to all regions and households, including fibre and 5G networks.
- Modernise: digitalisation of public administration and services, including judicial and healthcare systems.
- Scale-up: increase in European industrial data cloud capacities and the development of the most powerful, cutting edge, and sustainable processors.
- Reskill and upskill: adaptation of education systems to support digital skills and educational and vocational training for all ages.
Following agreement by the European Parliament and the Council on the legislative proposal, the formal deadline for submission of the national recovery and resilience plans (NRRPs) is 30 April 2021. However, Member States are encouraged to submit their draft plans from 15 October 2020.
What we know about the Italian NRRP
The Italian government has not yet released an official draft of the NRRP, but several unofficial documents have been made public by Italian newspapers and they contain draft planning that it is nonetheless interesting to assess, while waiting for the official release. The government’s aim with the NRRP – laid out in a document dated September 15th and published by the Italian daily Corriere della Sera – is to double the average growth rate of Italian GDP (from 0.8% over the past decade to 1.6%), lift public investment to 3% of GDP, boost R&D expenditure to 2.1% of GDP, increase the total employment rate by 10 percentage points, all while improving a series of other qualitative socio-economic indicators. NRRP projects should be organised around 6 thematic clusters: digital, green, mobility, education and training, equity, health. These clusters will be embedded within a framework of ‘enabling reforms’ in areas of long-known criticality for the Italian poor growth performance, including the judicial system, the efficiency of public administration, the labour market and the taxation system.
Projects are proposed by ministries in a bottom-up manner. The risk inherent within this process is that of unleashing an overflow of relatively small and incoherent projects lacking an overarching vision. This risk is visible in an early draft list that was published in the press on September 14th, which features 390 projects for a total EUR 454 bn, i.e. more than twice the allocation that Italy is allowed under the Next Generation EU package. Of these, 130 projects were quite small, averaging less than EUR 200 mn each (Table 1). Looking at composition, 15% of all projects listed in the draft were put forward by the Ministry of Health. While it is natural for investment in national healthcare to feature high on the list of priorities, part of that investment could qualify for credit under the ESM’s Pandemic Support Credit Line – and hence liberate Next Generation EU funds that could be investment in other core areas such as labour and education (whose respective ministries account together for less than 9% of the requested funds, based on this document).
The lion’s share of projects (61, for a total cost of more than 150 bn) is accounted for by the Ministry for Economic Development (MISE). A breakdown of MISE’s proposed projects dated 27th August was also made public online and it allows mapping the projects into three areas that are broadly comparable with the already published French recovery plan (Table 2). Obviously, this can only be a partial comparison – in particular, because it is often difficult to univocally attribute projects to just one of the categories – but it can still offer interesting insight into the underlying process and vision.
MISE’s projects are clustered into three areas: green, digital, and competitiveness. This makes it difficult to gauge the employment and social impact of projects, which are instead more clearly spelled out in the French plan. This aspect is one where complementarities and synergies with projects proposed by other ministries (particularly those dealing with Labour and Education) should be sought in the final top-down selection process.
Secondly, the allocations within the green and digital clusters appeared to be very polarised in the Italian case: for example, 41% of the funds requested within the green cluster are for projects relating to the energy upgrading of buildings, and 53% of the funds requested within the digital cluster appears to be concentrated on cybersecurity and digital technology projects. The French allocations within clusters are generally more balanced over different kinds of investment: for example, within the green cluster, an almost equal weight is given to upgrading of building, green technology and green mobility. This different balancing may be due to differences in the underlying process, but it creates a risk for the economic effect of Italian plan to be very unbalanced across sectors, unless this issue is taken care of in the top-down final selection.
Overall, we still know too little about the Italian NRRP to be able to assess its impact in terms of growth and employment. As the total cost of proposed projects exceeds the Italian allocation under Next Generation EU, it is clear that the role of final top-down process selection cannot be overstated. In this respect, it is positive that the government guidelines explicitly state that ‘dinosaur’ projects “with knows implementation problems” will be penalised, while preference will be given to projects that are quickly implementable, clear about the effect on occupation, and that include public-private partnership – a key element in ensuring the private sector’s expertise can play a synergic role. Sticking to these rules, together with setting up a system of strict monitoring and accountability for the implementation phase, will be crucial for the plan to have a meaningful impact on the Italian economy.