Because Italy is not doing well with Pnrr

The third installment is still pending. As the government accelerates the fourth process, which ends on 30 June, it has reached a formal agreement with the European Commission to change some targets. No one, not even Giorgia Meloni’s government, denies that Italy has difficulties in maintaining the pace of implementation of Pnrr, the economic recovery plan initiated by the EU after the Covid-19 outbreak. But minister Raffaele Fitto, who has been keeping the dossier and negotiations with Brussels at the forefront, says he is optimistic. While announcing changes in projects related to the new payment tranche, he reduced the extent of delays, arguing that there would be no cut in expected resources and that our Pnrr is progressing faster than other EU countries. He promised that we would be “the first country to ask for a fourth”, provided there are no problems with the EU. But how are things really?

Comparison with other Pnrr

Paralleling the plans of other European countries is complex. The various Pnrrs have different dimensions regarding both the absolute amount of funds and national GDP. In absolute terms, Italy has the most complex plan to manage: 377 investment projects (so-called “milestones”) and 150 reforms (targets or targets) and 191.5 billion euros in EU support (among direct aid and loans) to be implemented by 2026. Right behind us is Spain: 247 projects and 169 reforms (which should rise to 265 and 194 respectively, with the initial unwanted loans coming in). Relatively, ie compared to GDP, only Greece and Romania have more administrative effort than ours.

These are the countries Fitto quotes roughly to compare with the Italian example: “Currently, three countries, Spain, Italy and Greece, have asked for the third installment to be paid, and none of them have asked for the fourth installment to be paid. If we’re late, what about the others?” “If the first part of the minister’s statement is correct, the latter perhaps does not lead to the answer that Fitto implied. Indeed, it is true that Italy demands the same installments as Spain and Greece, but it also depends on the different installments of payment agreed by each government.” Rome predicted 10 installments over five years, Madrid 8. The comparison is not positive for us, even if we look at the rate of projects and reforms implemented so far: Spain reached 29% of commitments, while we were stuck at 18%. Greece and Romania lagged behind Italy but that cannot be a reason for comfort.

Slow in payments

Then there is the issue of payment. Spain has so far received more than half of the total envisaged subsidies (ie non-refundable money). Italy is at 38%. Receiving new resources is certainly a chance for the public coffers and Madrid has been able to count on more non-refundable EU aid to date. It must be said that the Spanish government chose a strategy different from ours: if Mario Draghi’s manager demanded the entire amount of subsidies and loans stipulated in the Next Generation EU agreement with Brussels, Pedro Sanchez’s was initially limited. just agreeing on subsidies, then claiming the due portion of the loans later, last February. In retrospect, Sanchez’s choice turned out to be perhaps more appropriate in managing investment flows more easily, given the weight of the Ukraine crisis and the energy crisis on public finances.

As we mentioned earlier, Italy still awaits the payment of the third installment, which has been blocked due to a series of observations by the European Commission on how the funds for projects in this tranche are spent. This delay was effective in the fourth installment, which must be claimed by June 30. It is true, as Fitto reminds, that deadlines are not mandatory and Italy does not risk any funding cuts for the time being. But as we’ve seen this year, one delay leads to another, and the accumulation of delays can have an impact on both the government’s cash needs and Pnrr’s overall success.

For example, Italy could have paid the fourth installment as early as 2023, but it is very likely that the payment will be postponed to next year. To unblock this slice, the request for a change in the plan sent by the government to Brussels will now have to be considered by the Commission. If the ratification comes in, the file will go to the Council of Member States, which will have four weeks to make a decision. Here too, if everything goes as expected, Italy will be able to formally request payment. But the payment will not necessarily be automatic: everything will depend on whether our country demonstrates that it has fully honored its commitments. That’s where the third installment of Pnrr stopped.