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A “small” European solidarity gift

Italy has been one of the most harshly affected European countries after the escalation of the coronavirus pandemic. The virus has inflicted billions of losses both to state organizations and private business likewise. According to several national estimates, Italy will see a loss of GDP equal to almost 10% throughout the whole and still ongoing pandemic. The causes are obviously due to the blocking of internal social and productive activities and an even higher dependence of Italy’s economy on services compared to other Western European countries.

Consequently, the Italian government has assembled to discuss one of the most relevant topics on the agenda, namely the proper allocation of the European Recovery Fund. This European Fund has been provided to Italy in order to combat the ongoing economic crisis. Although the primary beneficiaries of the aforementioned fund will be Italy and Spain with a general recovery fund of €84.8 billion and €71.2 billion, countries such as Germany and France can expect €50.66 billion and €47.2 billion in grants, respectively. In comparison, Hungary and the Czech Republic will receive grants for a sum of €6.09 billion and €5.69 billion. The EU Recovery Fund is considered to be the most massive “stimulus” pack, provided to several countries at once, in the history of the EU. In fact, a total of €1.8 trillion in both loans and grants will be supplied via the usage of Europe’s long-term budget and of the Next Generation EU fund, which is a €750 billion temporary recovery instrument that will allow the Commission to raise funds on the capital market. This will provide support and help sustain some of the post-COVID-19 European countries.

As of November 10th, 2020, the European Parliament has reached a new agreement with the EU countries and the Council to reinforce specific programs under the long-term budget for 2021-2027. The modified agreement includes the reinforcement of priority programs via an additional €15 billion sustainment pack compared to the July 21st agreement, in order to assure that the EU budget will still play a major role for the countries’ recovery. The aforementioned agreement has clearly set the path towards budget flexibility, which needs to be attained in order to guarantee the ability to tackle unforeseen risks and uncertainties that may or may not be related to the current pandemic situation.

Despite the fact that the funding will not be provided until the first semester of 2021, the Italian government has already prepared a draft document containing some of the main priorities, which has already received the parliament’s approval. One of the main points that have been approved by the state representatives is the lowering of taxes for the middle class, which would stimulate and even double the national economic growth. The proposed tax reform document specifies a comprehensive restructuring of direct and indirect taxation as a means of creating more transparent and fair taxes for citizens. This would significantly reduce the tax burden on the middle class and families with children, as it was Italy’s intent to accelerate the transition of the economic system towards greater environmental sustainability.

Although the document has already been approved by the parliament and further improvements are expected in the upcoming week, the European Union has approached Italy with concerns about this tax reform. The EU has requested that the fund should by no means be regarded as a stimulus to reduce taxes. Likewise, the Vice-president of the European Commission, Valdis Dombrovskis, and even the Italian Commissioner for the Economy – Paolo Gentiloni himself, declared that the Italian government needs to keep the tax levels constant until the economic situation in the country is stabilized. In addition to this, during a webinar Organised by “Il Messagero” (an Italian newspaper), Mr. Gentiloni claimed that the European Union funds should be handled cautiously; hence appropriate investments need to be made. The Italian Commissioner also added some information regarding the payment itself, stating that the expected 300 billion euros in loanable funds and grants will be paid on a regular biennial basis with a 10% initial payment. The remaining 270 billion euros will be provided to the Italian government once specific goals have been attained.

These specific goals imposed by the EU have been listed in a 38-page long document and have been regarded separately from the currently coronavirus-struck sectors that required financial sustainment. This is due to Italy’s intent to enhance economic growth despite the ongoing pandemic, as the country experienced the harshness of converging towards a forced lockdown. The guidelines are consistent with the National Resilience and Relaunch Plan presented by the Prime Minister and discussed in depth during the several long-term consultations. The aforementioned targets have been categorized into six missions, among which are: modernization and digitalization, social cohesion, introduction of green policies aimed at decarbonization, health system development, improvement of education and research systems, and transport infrastructure amelioration.

Additionally, the Italian government proposed a set of long-term quantitative objectives aimed at boosting the Italian economy. One of the aforementioned objectives included doubling national economic growth, increasing it from its current 0.8% to 1.6%, thus aligning it with the European standard. Furthermore, the Italian government proposed to increase public investments up to 3% of the national GDP, thus ensuring the sustainability and resilience of public finance. These aforementioned objectives would be consistent with the goals set out by the European Commission in formulating the proposal for the regulation of the Next Generation EU plan.

The draft plan has already been presented by the Italian government and approved by the parliament. Although the paper’s submission was initially scheduled for October 15th, the deadline has been postponed until further notice. The final version of the National Resilience and Relaunch plan will be presented in January. Fully reflecting Italy’s current morale, the Minister for European Affairs Vincenzo Amendola declared: “We will not waste a historic opportunity to relaunch our country.” Mr. Amendola’s statement was made shortly after the Interministerial Committee for European Affairs (CIAE) colloquial, which finally approved the main Resilience guidelines. Regardless of the motivational words pronounced by Mr. Amendola, it is worth noting that the process of absorbing such large funds has always been one of the fable points of the Italian government. Not a long time ago, Italy’s Prime Minister, Giuseppe Conte, repeatedly assailed Matteo Salvini (deputy prime minister and interior minister) due to the latter continuously disrupting the budget approval process, making it highly unlikely that this year’s budget would be passed on time.

Such a country, which is itself being torn apart by major interior forces, may find it hard to allocate the funds granted by the European Union. As it has been shown earlier by their precedents, it is quite unlikely that such funds may be handled well by an administration so distinct and opposed to each other. Consequently, it is quite obvious that the Italian government needs to put all of its confrontational drama into the background and re-unite Italy once again for the sake of a brighter future.


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