Wolfgang Münchau Wolfgang Münchau

Can the EU save Italy?

Getty

There’s been a lot of hype around the green light given by the European Commission yesterday to Italy’s recovery plan. But let’s break it down: the final headline numbers are €68.9 billion in EU grants by the year 2026 and €123 billion in loans. If you take the grant component, and divide it over the six-year duration, you arrive at an average of 0.6-0.7 per cent of Italy’s 2019 GDP each year.

It is front-loaded, and it’s by no means a modest sum. What’s harder to accept however, is folding in the loan component to arrive at some giant fake headline number.

The whole point of this exercise is not to produce a classic fiscal boost, but fiscally-assisted structural reforms. Anyone who has ever dealt with structural reforms knows that they are easy to write down on paper, difficult to legislate, and extremely difficult to implement on the ground.

The reform programme Italy has committed to is absolutely massive. Corriere della Sera has calculated that there are 190 measures, 58 reforms, and 132 investments, all carefully costed and timed.

Next month, the EU Council will grant Italy an upfront tranche of pre-funding — €9 billion in grants and €15.9 billion in loans. Later in the year there will be another tranche of €11.5 billion in grants and €12.6 billion in loans. Corriere and other media organisations in Europe tend to add these numbers together. But it’s better to keep grants and loans separate. This gives a total of €20.5 billion in grants and €28.5 billion in loans. This makes the grants component about 1.1 per cent of 2019 GDP, which is a fiscally relevant number.

To get this money, Italy committed to a reform of the public administration by December, as well as the reform of the justice system, a new insolvency law, a reform of public procurement, and a new incentive system for energy efficiency.

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