European Commission Recommendations: Changes to the NRRP must not lead to a decrease in the ambition of the projects

On May 24, the European Commission issued its recommendation on the Italian National Reform Program for 2023. The recommendations for Italy, similar to those of 2022, focused on the following aspects: fiscal policies, NRRP (National Recovery and Resilience Plan), green and digital transition.

Compared to last year, the Commission sets a quantitative goal for fiscal policy: to limit the nominal increase in nationally financed primary net expenditure to no more than 1.3 percent in 2024. With the prospect of deactivating the general escape clause of the Stability and Growth Pact and applying European budget rules – likely reformed by the end of 2023 – Italy will have to fully comply with the objectives set at the EU level. Should there be another rise in energy prices next winter, the Commission suggests focusing on financially sustainable incentives to support the most vulnerable households and businesses and on energy-saving incentives. The growth assumptions on which the Commission bases remain optimistic, as real GDP growth of 1 percent in 2023 and 1.5 percent in 2024 is forecasted.

The International Monetary Fund is on the same wavelength, stating that in a scenario where the public debt/GDP ratio has decreased and non-performing loans have remained low, Italy must seize the opportunity to set aside most of the unexpected revenues, adopting a credible medium-term debt reduction plan, supported by specific measures. The goal is to mitigate debt-related risks, leading to a rapid reduction of the debt/GDP ratio and supporting potential growth.

For the medium term, the Commission focuses on sustainable growth and productivity improvement, the latter being one of the most problematic aspects for our country’s economy. Increasing productivity is essential in an increasingly challenging demographic context, to protect the welfare system. Furthermore, spending the resources of the NRRP and cohesion policies, the latter often overlooked in the ongoing discussion about the spending capacity of European funds, remains essential. It is in everyone’s interest that European funds are fully and wisely spent. As Commissioner Gentiloni reminded, given the size of the Italian plan, a success of the NRRP in Italy would be a success for the whole of Europe, demonstrating that the temporary experiment of Next Generation EU could, in the future, become permanent, making the most of the positive elements and addressing the issues. Currently, the Italian Government appears to be struggling with the NRRP. On one hand, these weeks have seen challenges related to some projects, which seem unrealistic. Italy must maintain a pragmatic dialogue with the Commission, which rightly demands that changes do not lead to a decrease in the ambition of the projects. On the other, it is necessary to avoid stirring up controversies and making sensationalist moves with little practical use, such as the dispute over competencies between the Ministry of Economy and Finance and Palazzo Chigi, and the role of the Court of Auditors. The opposition also needs to show maturity: not to attack the government’s every move aprioristically and to support the country in precise modifications where necessary on projects dear to us all, from nurseries, to local health care, to university housing. Finally, on the fiscal side, the Commission recommends working on a tax reform that preserves the progressive nature of the Italian system, as also enshrined in the Constitution.

On all these matters, the Government will need to demonstrate unity, a matter on which some doubts may legitimately be raised. Although Brothers of Italy has carved out the role of a responsible, Europeanist, and governing party, despite election campaign expectations, on every single issue it will need to be able to restrain its minor allies, the League and Forza Italia, who could withdraw their support at delicate moments, and will need to look beyond certain sectors traditionally supporting the party now led by Giorgia Meloni. It is undeniable that to achieve what the Commission indicates, projects like the flat tax and differentiated autonomy and electoral basins not open to competition and growth do little to help move in the desired direction. For the good of the country, let’s hope responsibility prevails.