«With these European rules we will also have to review investments»- Corriere.it

Giancarlo Giorgetti he’s not surprised. He has known since he accepted the job that, as economy minister, he would rule a change of season. Gone are the years on the brink of deflation and those of the pandemic, which had led the European Central Bank to support Italy’s debt. It is hoped that the shocks – Covid itself, the energy crisis – that had led to the suspension of the European budgetary rules are also in the past. That phase had been tough, sure. But now Giorgetti will have to navigate in normal times – without external support – with an economy and especially a public debt that are anything but normal. The Italian system was fragile and remains so: even now that the European budgetary rules are about to return.

The reaction

For this reason, the minister’s reaction to the Commission’s proposal is in three stages. There is certainly some disappointment because the investments of the National Recovery Plan (Pnrr) are not exempt, nor is their weight mitigated, in the evaluation of the public accounts. Giorgetti’s comment on the Commission’s proposal was immediate: “It’s a step forward – he said immediately – but we had asked for the exclusion of investment expenses, including those typical of the National Recovery and Resilience Plan on digital and green transition, from the calculation of the target expenditure on which compliance with the parameters is measured. We acknowledge that this is not the case.”

The flow of information from Brussels

But then, with the flow of information from Brussels and the examination of the documents, the minister also began to show irritation and above all a massive dose of realism. The latter is linked to the fact that the inevitable compromise between the positions of different capitals will not soften the new constraints. The minister says: “The new Stability Pact imposes a rigorous review of (public, ed.) spending, of all spending, including investments.” The reason lies in the rules proposed by Brussels and, at least these, well received in Berlin: on the basis of them, public spending will be able to grow in percentage terms in the years to come, essentially, less than the growth of the entire economy in past years; and since Italy has hardly grown in the last decade, spending should remain very compressed and cuts on other items would be needed if investments were to be made. Giorgetti observes: «The spending review should also concern the investments of the Pnrr that have an impact on the objectives». In other words, those based on European loans (for about 120 billion euros) that enter the public debt.

Don’t give up on European loans

However, for the minister, this does not mean giving up European loans. Rather Giorgetti no longer wants cases of the category of the stadium in Florence, that is, with a low multiplier of future growth. “It is a matter of reconsidering the programmes, going over them through a sieve and possibly reallocating resources towards those that are really capable of increasing the country’s productive potential”. Virtuous examples? «The RePowerEU programmes», the energy transition and independence plans that the government will present in a few weeks in Brussels. But then there is also irritation in the minister, but not for the content of the official documents. It is for the voices from Brussels that, if this proposal passes, accredit a precise path for Italy: net budget corrections from 0.85% of the gross product per year (16 billion euros at 2022 values) to stay in the rules with four-year recovery programs; or corrections of 0.45% (8.5 billion) to stay within the rules with programs perhaps over seven years, which however imply a precise path of reforms and investments. The logic of Brussels is that the tightening of 0.85% of GDP per year would be what Italy needs to recover to the point where the debt begins to fall on its own, without new sacrifices. Those interventions would drive the primary budget surplus – the one before interest payments – so high as to cut debt relative to GDP every year.

The risk of not reaching an agreement

Giorgetti is not convinced. He privately wondered who smuggled these numbers out of Brussels, which are not in the documents. And basically he finds it not very serious that a jumble of figures has already started, before the Brussels proposals are discussed among the European governments that must approve them. It’s no small detail, because getting everyone to agree won’t be easy. Nor is it excluded that we go towards 2024, in the middle of the campaign for the European elections, without an agreement. But Giorgetti says he is calm about this: «The Economic and Financial Document is suitable for complying with the budgetary criteria (transitional, ed.) already indicated by the Commission», he concludes.