I explain the real mistakes of Conte and Draghi on the Pnrr
The Pnrr between history and news. The deepening of Giuseppe Liturri
First came the Northern League group leader in the Chamber, Riccardo Molinari who, with his "better not to spend the money than to spend it badly", opened the debate on the actual usefulness of the many projects of the Pnrr. Then even two unsuspected from the columns of the Republic joined. We are talking about professors Tito Boeri and Roberto Perotti, from whom we have heard repeating, almost word for word, what we have been writing in these columns since those days in the spring/summer of 2020 which preceded and followed the European Council in July, from which the premier Giuseppe Conte returned with the (now sadly) famous rain of billions. Also this "free", like the superbonus . The two economists argued that “it is not true that Italy would make a bad impression by giving up borrowed funds: acknowledging reality is one of the hallmarks of true statesmen. No country, not even the best administered, could usefully and efficiently manage such a flood of money in such a short time".
On Wednesday, Fabio Dragoni provided us with numerous examples which confirm the dubious usefulness and efficiency of numerous interventions envisaged by the Pnrr. In other times, if such interventions had been included in an ordinary budget law, there would have been talk of a "rain of hustlers" or "assault on the diligence", a phrase that Giovanni Giolitti even coined more than a century ago. Today it seems that spending public money, borrowed from the EU, in a thousand streams without worrying about economic and social returns, has become a virtue.
Upstream of today's problems, there are very specific political responsibilities. In the first instance attributable to the Conte 2 government and the Draghi government. The first has always taken for granted that the share of loans should be added to the share of subsidies – paid by the EU budget but, ultimately, always paid by Italian taxpayers. On the other hand, when the EU regulation clearly states that the loan share (up to 6.8% of Gross National Income) should have been "justified by the higher financial needs associated with the reforms and additional investments" and which, for this reason, would have could be requested subsequently "by 31 August 2023". Who knows how convenient it would have been for us to wait for this deadline instead of "taking home as much money as possible and then asking ourselves the problem of how to spend it". With the result, always remaining in the words of Boeri and Perotti, of asking the administrations "to pull out the projects they had in the drawer and move projects already started or in the pipeline to the Pnrr".
The Conte 2 Government at the beginning of January 2021 was already ready with a meager 167-page homework which already discounted the original sin of asking as much as 210 billion from the EU. Then Mario Draghi arrived who, in 10 weeks, hastily fleshed out that plan, without however ever wondering if it made sense to also ask for the loan quota. An act of reconnaissance that would have been logical to expect from a "technician" of such stature, but which unfortunately never arrived.
Now we find ourselves in the role of Achilles who tries to reach the tortoise, without ever reaching it, as in the famous paradox which, in our case, could turn out to be true.
In fact, having requested even that amount of loans – in the company of only 5 other small countries – imposes a tight timetable made up of ten installments into which 527 goals and objectives are divided, distinguished between reforms and investments. A titanic effort that no country has even dreamed of planning. To obtain 69 billion in subsidies, Spain must achieve its 415 objectives in more comfortable eight installments. Germany has 129 goals in five installments, for 25.6 billion in subsidies. Likewise France, with 175 objectives between investments and reforms, for 39.3 billion in subsidies. But the decisive and sensational aspect is that the fear of "losing money" in the event of a delay in submitting requests to the Commission is the offspring of a debate that exists only in Italy. In fact, the regulation provides that "such requests for payment may be presented to the Commission twice a year". Obviously a maximum limit (it says they can, they mustn't) which does not preclude the possibility of making a single request or not even one. Proof of this is that, to date, only 13 countries have requested and obtained the first installment, 6 countries the second installment and only one the third installment. Nobody is rushing, because the deadlines are "indicative" and the manageable number of objectives has allowed more time between one installment and another. The only peremptory deadline is the one that requires "payments to be made by 31 December 2026". Unfortunately, Italy has a ballast of ten installments on its shoulders, because it was the only way to spread out an abnormal number of things to do, which is proving to be unmanageable anyway.
Regardless of the assessments of the merits of what one intends to do, there is the problem of how to finance oneself. Because those that, in mid-2020, appeared as loans with interest rates close to zero, are no longer so. The Commission finances itself on the markets, like all sovereign states and, a few days ago, it had to grant investors a yield of 3.35% for a 25-year bond, 2.81% for a ten-year bond and even 2.86% for 3 months and 3.05% for six months.
The latest 6-month BOT offered a yield of 3.09%, 2.96% at 12 months. The thirty-year bond issued by the MEF in January offered 4.53%. So on short maturities, the presumed convenience of getting into debt with the EU is nil and beyond 10 years, it fluctuates between 100 and 120 points.
But what is the cost of the immense bureaucratic apparatus set up for the Pnrr? What will be the "mark-up" for its charges that the Commission will apply to the rates then applied to Italy? Total darkness, as it was for a long time for the cost of the debts of the Sure fund. When we do the math, that presumed initial convenience will be swept away.
President Giorgia Meloni takes note that the Pnrr is made up of things of dubious utility and now also paid dearly. The courage that Conte and Draghi didn't have.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/vi-spiego-i-veri-errori-di-conte-e-draghi-sul-pnrr/ on Sun, 09 Apr 2023 05:14:47 +0000.