No escape: Pnrr, hand in hand with the future of Italy. The data on economic growth is good and makes it possible to look with less dread at the all-time high public debt. But it could all be an illusion. Pnrr’s delays are known, and spending progress is slow: already by 2026, two-thirds of future growth is tied to the National Plan for Recovery and Resilience, and good forecasts for the economy look optimistic in light of implementation problems. Therefore, the state will likely seek more money in the markets: one of the goals of the Meloni government is to raise funds from the savings Italians have accumulated in current accounts and put more public debt in their hands. It is currently worth about 47 thousand euros.
If Italian GDP grows
European Commission’s spring forecast – Spring 2023 Economic Forecast -, they say the Italian economy will grow by 1.2 percent in 2023, which is higher than expected and than the two largest economies in Europe, France and Germany. The commission’s latest estimate is better than the previous estimate made during the winter months. For next year 2024, forecasts for Italy are still good – +1.1 percent compared to 2023 – but the growth percentage will be the lowest predicted among the 27 EU countries, along with Sweden.
For the Commission, better-than-expected growth in 2023 is due to an “increase” in Pnrr funds, but sustaining this will require a “continuous effort” over time. The close link between the implementation of the National Plan for Recovery and Resilience and a better GDP has also been confirmed by the Court of Accounts: for accounting judges, Pnrr is worth two-thirds of Italian economic growth from today to 2026.
Even the International Monetary Fund’s economists emphasized that “though positive surprises are possible in the short term, downside risks dominate growth prospects” and recommended “full and timely implementation of PNR”. That’s exactly the problem: Pnrr’s progress isn’t going as it should.
Pnrr delays are also a problem for public debt
Implementation of the National Recovery and Resilience Plan is delayed. Italy has so far received about 67 billion euros from the European Commission, but the request for payment of the third installment of 19 billion euros remained pending, so Italy had to submit the changes by 30 April. Given the delays, we are already anxiously watching the deadlines to receive the fourth tranche of 16 billion payments.
In the 2023 Economic and Financial Document, the Government has already reduced the economic growth that Pnrr will provide between today and 2026 by 1.5 percentage points. It has led to less resource commitment than was disclosed in the TCA report on the coordination of public finances.
These delays also affect public debt and the ways the Ministry of Economy and Finance wants to support it. Previously, the Treasury Department had planned the schedule of government bond issuances, in which the government financed debt, and predicted that the government would collect Pnrr 35 billion between the third and fourth installments. But that money is not there yet, and estimates confirm that the country’s economic prosperity is linked to the reforms and investments envisioned by the National Plan for Recovery and Resilience. We will have to make new debt.
Public debt in the pocket of Italians: 47 thousand euros per person for now
In February 2023, the Italian public debt reached its highest level ever: 2,772 billion, about 47 thousand euros each. However, greater economic growth in recent years has made it possible to lower the Debt-to-GDP ratio estimated in Def to 142.1 percent of GDP in 2023; this is the second highest value in the Eurozone after Greece. Looking ahead, the rate will fall, but not enough: Italy’s debt will surpass Greece in 2026, according to the latest planning documents submitted to the European Commission.
In the longer term, the rate is expected to rise again due to the aging of the Italian population. In the near future, post-covid economic growth is correcting the situation, but without the increase in GDP the rate will grow even larger and it is clear that it will be even more difficult to bring it down if we add the effects of Pnrr delays. . The government has a strategy that Prime Minister Giorgia Meloni and Economy Minister Giancarlo Giorgetti often talk about: putting the debt into Italian hands.
“We want to reduce dependency on external creditors, increase the number of Italians with debt shares and residents of Italy: the only way to sustain a high debt like ours is through economic growth, not blind austerity policies of the past. Giorgia Meloni with Il Sole 24 Ore he said in an interview:
But who is holding the Italian public debt? The map of who pays Italian government bonds has changed a lot in recent years for a variety of reasons, including economic performance and the monetary policies of the European Central Bank. In January 2023, the value of government bonds held by households and businesses rose to a record 213 billion euros, with Italian private investors’ share of the public debt in the market just over 6 percent in the previous period. 9 percent
The MEF’s elections have driven these results, thanks to the auctions of BTP Italia, which are allocated to savers and where the State borrows from its citizens. The Meloni government wants to continue on this path as there will be room. Italians’ savings increased during the pandemic and now household bank deposits are just over 2 trillion euros: a “sovereign” aid to finance government policies in an economic situation that may not be favourable. In 2023 alone, the government of Giorgia Meloni projected a debt increase of around 8 billion euros between 2023 and 2024 to finance the reduction in the tax wedge.
Even if expected downward, inflation and the increase in the interest rates of the European Central Bank will negatively affect not only the government accounts but also the savings of Italians. Then if the growth forecasts turn out to be really too optimistic as feared, the government will have to run another deficit and have to borrow again from the markets: at that point it will make no difference whether the money will come from Italy or from Italy. As long as they come abroad.
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Source: Today IT
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
