‘Paradise’ lost? Italy’s recovery fund failure jeopardizes EU plans

By Giada Zampano

ROME (AA) – Italy was the biggest beneficiary of Europe’s unprecedented €800 billion ($876 billion) post-pandemic recovery plan, but now it risks becoming the reason for its failure, analysts have warned.

After a long string of delays – and also due to the complex structure of the National Recovery and Resilience Fund (PNRR) and its ambitious objectives – the far-right government led by Prime Minister Giorgia Meloni is struggling to meet its targets and complete the key reforms needed to obtain the funds.

According to official data from the Italian government and independent observers, only a tiny portion of the recovery funds has been spent so far, spurring concerns in Europe that many of the projects will have to be modified or might never materialize.

Under the NextGenerationEU plan, Italy was entitled to €68.9 billion in grants and €122.6 billion in cheap loans, for a grand total of €191.5 billion – more than any other country in Europe.

Rome has so far received a pre-financing package and two installments totaling €67 billion, but the government is already struggling to access a third tranche of €19 billion – now expected by the end of June – and faces even more serious hurdles for the next ones.

“While the collection of the initial tranches was relatively straightforward, getting additional funds is becoming increasingly difficult, because the agreed milestones require Rome to deliver projects and implement reforms,” Wolfango Piccoli, co-president of research firm Teneo, told Anadolu.

According to recent data, Rome has spent €25.7 billion so far, just 13.4% of the total allocated.

“The gap between planned and effective spending became particularly acute in 2023,” Piccoli noted, adding that the government’s future moves seem to be mired in confusion.

- Doubts and delays

A decree approved in February by Meloni’s Cabinet aimed to tighten its grip over the recovery plan, which was set up by the previous government of Mario Draghi, the former European Central Bank head who was prime minister from February 2021 to October 2022.

Meloni created a special unit within her office under European Affairs Minister Raffaele Fitto, one of her closest allies.

The shake-up, however, took some time and Fitto’s update of the plan is further delaying the submission of possible revisions, putting into question whether the money will be spent by the 2026 deadline.

Fitto was the first to raise concerns about the plan’s implementation in late March, warning that Rome was at risk of missing out on part of the funds.

He blamed bureaucratic hurdles, spiking costs, and poor management by local municipalities responsible for many of the smaller projects.

Local administrations, however, recently hit back, saying they are trying to meet deadlines despite a shortage of qualified staff.

Italy’s regions, provinces, municipalities, and other local entities have a crucial role in the planned investments, managing a total of around €66 billion.

More recently, however, Fitto downplayed the risks of failure, but stressed that Italy may have to revise or reschedule some of the most complex projects, which would entail a new round of negotiations with the EU Commission.

- Too big to fail

Rome is expected to give Brussels an update of its spending plans by the end of August. The EU has already expressed concerns over the delays, asking the Italian government to act swiftly to address the problems and detail the required revisions.

Paolo Gentiloni, a former Italian prime minister who is now the EU commissioner for the economy, was particularly pointed in his assessment.

“This is an historic plan that translates into concrete investments, and will improve Italy’s competitiveness … therefore it cannot fail,” Gentiloni said.

“If it doesn’t work in Italy, it doesn’t work in Europe.”

He said the commission is open to possible tweaks and pledged “maximum flexibility” over proposed changes, but stressed that those need to be done “quickly and well.”

“The problem is not the third installment, which will arrive by the end of June, but the future challenges Italy faces,” he warned.

The Meloni government’s strategy has recently focused on trying to divert part of the allocated money to other areas, including the REPowerEU initiative to help EU members deal with the energy crisis.

Italy could also try to redirect some investments to the Cohesion Fund, postponing the deadline to 2029, but that may not be sufficient.

- Blame game

In addition to delays on the spending front, Rome is clearly struggling to meet a wide range of policy pledges, including a long-awaited reform to the competition law and cuts to the country’s labyrinthine red tape.

Instead, several members of the Meloni government have already started a blame game, accusing the previous Draghi Cabinet, high inflation rates and the war in Ukraine to justify Italy’s current predicament.

Government officials have also criticized the original plan for being overambitious, saying it was unrealistic to believe that Italy could spend that amount of money by 2026, when it retains one of the worst records for using EU funds in decades.

Tensions have also spiraled with Meloni’s litigious coalition partners on how to manage the massive investments.

Infrastructure Minister Matteo Salvini, the leader of the far-right The League who is pushing for the controversial and expensive Messina bridge project, has stopped short of directly attacking Meloni, but could become a thorn in her side in coming months.

“The recovery plan is becoming the real stress test for this government,” Piccoli said, noting that the coming weeks could see a more fractured coalition and a more complicated dynamic between Rome and Brussels.

- Growth at risk

Economists also stressed that a failure in the recovery plan’s implementation could dent Italy’s already fragile growth, warning that the government should avoid “drama” about the size and scope of the changes needed.

“This plan is absolutely indispensable for both Italy and Europe, as the future of EU policies also depends on its success,” Gianfranco Viesti, an economics professor at the University of Bari, told Anadolu.

“We must distinguish between marginal aspects and key ones,” he added.

“If we’re talking about giving up 5% of the funds, that shouldn’t be a drama … But I am afraid the Meloni government, which so far doesn’t shine for clarity and transparency, may be planning much wider changes. That would be unfeasible.”

Viesti said he was “struck” by the recent shift in the public narrative over the recovery plan, once depicted as “paradise on Earth” and now described as “impossible to realize.”

“That wasn’t true at the time and isn’t true now. The message of the government should be completely different,” he added.