Here are the real conditions for having the Recovery Fund
The analysis by Tommaso Monacelli, full professor of Economics at Bocconi University in Milan, Fellow of IGIER Bocconi and of the CEPR in London, on Lavoce.info
With the European Commission's Recovery Plan, gigantic resources will rain down on Italy, many of which are non-repayable and without particular conditionality: this is the belief that seems to prevail in the superficial Italian debate.
As the Commission clearly points out, the Recovery Plan is actually full of conditionalities. It is erroneously referred to as the "Fund" (hence the journalistic expression "Recovery Fund"). But it is very different from the traditional EU structural funds. To simplify, EU funds pay the costs, for example, those to build a motorway in Puglia. The Recovery Plan, on the other hand, operates within a “facility”. This means that the government, alongside the work, must also establish economic objectives that that work can generate; knowing that the final disbursement of resources takes place only if the objectives are also achieved. For example, the Italian government cannot simply ask to finance the construction of a motorway in Puglia. But it must also set itself the goal, with that motorway, of increasing the economic induced between Foggia and Lecce (employment, new businesses, added value of the area). Only if this objective is achieved will it be possible to obtain reimbursement of the motorway costs.
The Recovery Plan has an aggravated conditionality, closely linked to the achievement of the economic objectives of each project. A crucial difference with respect to the setting and management of traditional European funds, in order to avoid as much as possible the construction of bridges to nowhere, often an Italian specialty.
But there are two further points. First, only 10 percent of the Recovery Plan funds will be disbursed quickly (in any case by the end of 2021), to start the implementation of the first projects. The remaining 90 per cent will be conditioned on the achievement of the economic objectives established at the outset (between the government and the EU Commission). Second, the time horizon for the objectives to be achieved is six years, therefore relatively short. This imposes strong pressure on the government for rapid and efficient implementation of interventions. Certainly positive pressure, but it is not clear whether our administrations will be able to manage it.
Given this, it really brings a smile to the hostility to the ESM credit line that has rapidly spread across the country. The ESM does not at all present the aggravated conditionality element of the Recovery Plan. In reality, it has only one, light and extremely virtuous: the resources (up to 35 billion) must be used in the healthcare sector.
A PUSH FOR REFORMS
Conditionality is a very important element of the Recovery Plan. Especially for a country like Italy, which is scandalously unable to spend money from the EU structural funds. To understand, in the period 2014-2020 Italy obtained 44.8 billion in structural funds and spent no more than 38 per cent (only Croatia did worse than us). Correctly, to alleviate the problem, with the Recovery Plan the Commission places at the center the request for so-called system reforms, instrumental to spending resources, and to spend them well.
Of all the reforms, one appears to be crucial: that of the public administration. Our PA employs many older workers with outdated skills. Very few graduates. Very few experts in data science, statistics, finance. To make the best use of the Recovery Plan funds, you need data analysis skills, engineering programming, statistical and economic competence.
In our country there is a widespread belief that, at least in part, the Recovery Fund is a kind of "free meal". For Italy, the Plan provides for approximately 209 billion, of which 127.4 in loans and 81.4 in subsidies. It is an important share, which places a huge responsibility on us.
However, the subsidy part is not a non-repayable gift, as we often hear. At the beginning of the process, the EU Commission gets into debt for 750 billion (the overall Recovery Plan cake), collecting resources from American pension funds, Norwegian families, Japanese investors. The EU collects resources on the market, therefore, and not from member countries. Part of the resources are transferred as transfers to Italy, Spain and other countries. But certainly not a "grant". Because the Commission will sooner or later have to pay back those initial 750 billion to international investors. And it will obviously be the various member countries, including Italy, to do so through the EU budget.
The government has recently circulated the National Recovery and Resilience Plan (Pnrr) with the Italian proposals for the Recovery Fund. With many methodological criticalities. One example suffices: the fundamental chapter on education and research foresees 19.2 billion, of which 10.1 for education and 9.1 for research. The interventions on education include, among other things, the reform of careers and recruitment mechanisms for teachers in schools. Reforms certainly desirable, but which are essentially at no cost. Much better would be to allocate that money to basic research, the real great absentee of the Italian PNRR.
The Recovery Plan can be a historic occasion for the country. It is central that public opinion understands that strong conditionality is an important mechanism that binds hands to our policy and strengthens the credibility of the whole project. Central reforms such as those of justice and the PA are decisive chapters for the efficiency of spending. In reality, these are almost zero cost reforms for which the resources of the Recovery Plan would not be strictly necessary. But the conditionality of the plan and the limited time horizon could be decisive factors in binding the policy to finally implement them.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/recovery-fund-vere-condizioni/ on Sun, 03 Jan 2021 07:00:28 +0000.