New Italian Prime Minister has had a good first month

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FOR six months, the Italians have been floating from triumph to triumph. It all started in May when an Italian band, Maneskin, won the Eurovision Song Contest. In July their men’s soccer team became European champions and in August at the Olympics their male sprinters amazed the sports world by winning the 100-meter and the 4×100-meter relay. In October, an Italian scientist, Giorgio Parisi, shared the Nobel Prize in physics.

Italy, for its part, has had the unprecedented experience of being governed by an internationally respected Prime Minister, Mario Draghi, with a huge parliamentary majority which allows it to quickly transform its bills into law. Supported by an effective vaccination campaign, the economy is recovering sharply. On October 28, Mr Draghi, former president of the European Central Bank, forecast economic growth this year of “probably well above 6%”, although few expect Italy’s GDP to return to its level. from before the pandemic to 2022, well behind America and Britain, among others. But Standard & Poor’s, a rating agency, has revised its outlook for Italian debt from stable to positive and Italians can expect a period in which their government will be able – indeed under obligation – to. spend generously for the first since the days of the post-war U.S.-funded Marshall Plan.

Italy is the biggest beneficiary in absolute terms of the EU’s post-pandemic recovery plan. From the recovery and resilience facility alone, it should receive 191.5 billion euros ($ 221.8 billion) in grants and loans. Such an influx of liquidity can only have an impact on an economy which, even before covid-19, had barely grown this century: in real terms, Italy’s GDP in 2019 was only 4% higher than its 2000 level. In terms of power purchases, GDP per capita was 1% lower, against increases of 16% in France and 24% in Germany. Oxford Economics estimates that over the next three to four years, the EU’s stimulus package will add an average of 0.5% per year to Italy’s GDP growth, a considerable increase for an economy which, even in the best of years before the pandemic, increased by less than 2%.

Enzo Moavero, professor at LUISS University in Rome who has served as a non-party minister in three recent governments, warns that “the real challenge will be to generate long-term sustainable growth equal to or above the European average – and it will not happen. produce only as a result of effective reforms that lead to profound structural change. “

The EU stimulus package is designed to solve this problem. It makes the allocation of funds conditional on specific reforms and investments aimed at improving the growth prospects of its member states. Italy has so far received an initial amount of 25 billion euros without any conditions. But he will have to meet an impressive number of 51 requirements by the end of the year to qualify for the next installment. There are already signs that he might struggle to reach the goal. A September 23 report to cabinet found that at this point, only 13 of 51 goals had been met.

Italy’s reform program is not the problem; it’s ahead of schedule. In May, a package was approved which simplified a wide range of bureaucratic procedures. And an overhaul of the criminal justice system is about to be implemented. A new reform, focused on civil justice, is in preparation. Officials say legislation to promote competition is also forthcoming.

The problem is the investment. The main instigator appears to be the Ministry of Tourism, which, at the time of the report, had not yet implemented any of the six investments for which it is responsible; and the ecological transition department, which had only set up one.

Beyond the end of this year, two doubts arise. The first concerns the fate of legislation once it has been handed over for implementation at the subnational level. “In Italy, the intention of politicians is too often lost in translation,” explains Paolo Graziano, who teaches political science at the University of Padua. There is a shortage of necessary project management skills among officials tasked with implementing complex programs, a gap that the Draghi government says it has started to fill. But another reason, explains Fabrizio Tassinari of the European University Institute in Florence, is that “secondary legislation becomes hostage to particular interests, from local authorities to trade unions”.

Another doubt relates to Mr. Draghi himself. He is known to want the presidency, which becomes vacant in February, and if chosen, he would have to step down as prime minister. And even if he does not become head of state, he is unlikely to stay in government after legislative elections due by spring 2023, and may well come sooner.

On October 18, candidates for mayor of the Democratic Party (PD) were elected in Rome and Turin, wiping out the center-left of Italy’s biggest cities. But the PD and its allies are weaker in the provinces. Polls continue to suggest that the next Italian government will be a coalition dominated by two parties that have long criticized the European Commission: the Brotherhood of Italy (FdI) party, which has ties to neofascism, and the Northern League of ‘far right. .

Those close to Mr. Draghi argue that his departure should not lead to a radical break-up. His government has put in place bureaucratic mechanisms to direct and control the flow of the salvage money that will hopefully outlive it. And future governments will be equally constrained by the deadlines imposed by the commission and will be reluctant to lose the flow of money from Brussels by not respecting them.

May be. But the League, which is part of the coalition behind Mr. Draghi, and the IDF, which is not, are both committed to policies and interests that are at odds with the reformist orientation of the plan. stimulus. The League has already managed to parry it in an important area. A major weakness of the Italian economy is that while taxes on labor are too high, those on property are too low. Mr Draghi’s government decided to adjust the balance by changing the criteria used in the land register in a way that would have increased real estate income. But he came up against determined opposition from the leader of the League, Matteo Salvini. Therefore, the changes will not come into effect until 2026; and, even then, they will not be used to calculate the tax payable.

“I’m more optimistic now than a year ago,” says Nicola Nobile of Oxford Economics. “But I still consider a permanent improvement in Italy’s economic outlook to be a bullish scenario rather than a baseline scenario.”


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