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Recovery Plan for the new generation

    • Meeting in digital format
    • 1 March 2021

          The European Union response to the pandemic’s economic consequences has been the unprecedented mobilization of 2.4 billion euro in resources. The largest slice of the pie – 672.5 billion – will be earmarked for financing the Recovery and Resilience Facility, half of which is to be disbursed in the form of subsidies and the other half in loans. The end of austerity and renewed Member State solidarity have made it possible for Italy to count on 200 billion euro in such subsidies and loans.

          The crisis the European Union is experiencing is different from that of the 2008 subprime crisis. The current situation involves a lack of demand that has led to heavy losses in European competitiveness as compared with other geopolitical blocs. Hence the need to strengthen investments with a view to recuperating that competitive edge.

          The resources at Italy’s disposal call for farsighted planning and structural reforms. The spike in the debt/GDP ratio from 134% to 160% due to the pandemic prompts urgent calls for investments and growth aimed at safeguarding the public finances. This is fundamental not only to containing the debt, a politically laborious undertaking, but also to increasing GDP by jumpstarting economic activity through investment.

          Moreover, the provision obliges Member States to allocate the funds at their disposal by the end of 2023 and to spend them by the end of 2026; a timeframe that involves the need for “leapfrogging”, i.e. an acceleration in development that skips those intermediate stages that would require more time than is available. From this standpoint, it is not possible to expect overall reform from the public administration in terms of human resources turnover and digital literacy, which means turning to external support where necessary.

          The European plan poses three essential challenges: in the vertical sense, the ecological and digital transitions; and horizontally, the challenge of social cohesion.

          The ecological transition will consume 37% of the available resources, while 20% will be earmarked for the digital transition. The two themes are fundamental to Italy, where 80% of businesses have very limited digital intensity and the rate of penetration by artificial intelligence in manufacturing and administration is one-fourth the EU average.

          The social cohesion challenge derives from the deep impact the crisis has had on society’s weakest segments, thus has exacerbating inequality. In the case of Italy, the tourism sector has been hit especially hard, as well as more generally, the southern regions of the country.  Thus, it is essential that a portion of resources be used to shore up social cohesion and mitigate the economic impact on the more vulnerable categories, lending support to new post-crisis enterprises.

          Italy must use the European recovery resources not as a financial opportunity but as impetus toward a comprehensive overhaul aimed at addressing the well-known limitations that have been holding development back for decades. An opportunity to confront chronic problems such as judicial sluggishness, the difficulties stemming from stratified central government/regional governance, the costs and lengthy timeframes of major infrastructure projects and the general near-term planning prospects that hamper competitiveness and prevent Italy from attracting global investors.

          Italy can meet these challenges by embracing deep procedural changes, by striving for concrete reform enactment and, finally, by hastening to seize the unique opportunity of particularly low interest rates during this phase.

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