Here are the conditions that Brussels will impose on Italy with the Recovery Fund

Here are the conditions that Brussels will impose on Italy with the Recovery Fund

The Recovery Fund analyzed by Federico Punzi of Atlantico Quotidiano

This latter agreement certainly cannot be presented as an advancement of the idea of ​​European Community, much less federalist. The Commission will issue bonds, true, and there will be de facto tax transfers (from north to south), but exceptionally, it's written in black and white, to respond to one of those events that happen once a century. Not as a strategic or experimental choice. And it should be borne in mind that if in the end an agreement was reached, it is thanks to the "sacrifices" of the Commission, that it put on the plate the defunding of programs managed by Brussels to satisfy the nation states, so that they could bring home the Mediterranean countries direct, the Frugal Five rebates more full-bodied than ever.

The only real "success", if you can call it that, of the Recovery Fund agreement, is all political. The program in fact places a heavy mortgage on the economic policy of our country for the years to come (spending, spending, spending) and on the government formula called to implement it. It also makes it even more evident, as the declarations of a different, even opposite, sign of the opposition parties show, that there is no such thing as a "center-right".

And this is, after all, the outcome that both our government and the other leaders, Merkel and Rutte, were aiming for: a political insurance policy, a program that could bind us hands and feet. Since the Mes in the "health" version is politically impractical, they have transformed the Recovery Fund into a "Recovery Mes", with even more stringent conditionalities and "emergency brakes". For some conditions, Prime Minister Conte himself would have pushed.

It is therefore understood that the Democratic Party gloats. The allies may alternate according to the circumstances and the political context, but the Pd will be the inevitable, substantially immovable pivot of the government team that will act as guarantor and executor of the policies dictated by Brussels, necessary to ensure access to funds and their flow smoothly. And if someone proposes to deviate from those policies – perhaps to seriously cut taxes – they will have an easy game in pointing him out as an irresponsible who wants to make us lose European money … It will be the work, as it has been since the 2011 coup , of the Quirinal tenant, in triangulation with the European capitals and the pressures of the leftist media – and, if all this were not enough, of the militant judiciary – to ensure that the government formula is found, regardless of the response of the ballot boxes , taking advantage of the ever more appropriate "elasticity" of the electoral law.

But what is the conditionality mechanism of the Recovery Fund? To access the program, Italy will have to submit a national plan to the European Commission. The prerequisite for a positive assessment by the Commission is the "effective contribution" of the plan to the "green and digital transition". But the highest score in the evaluation "must be obtained with regard to consistency with country-specific recommendations", those recommendations that the Commission annually dictates to each member state, obviously more or less binding according to the respect of parameters and commitments made . In the case of Italy, as is known, first of all the reduction of the structural deficit / GDP ratio and of the public debt. Among the "suggested" measures, taxes on real estate, cutting tax breaks and reduced VAT rates, therefore more taxes. But also the fight against tax evasion and corruption, pension, labor and justice reforms. In short, the famous "structural reforms".

The assessment of the national plan made by the Commission will have to be approved by the European Council, by qualified majority. And this is where the so-called "emergency brake" claimed by the Dutch Prime Minister Rutte intervenes. Even a single government will be able to refer the recipient country to the European Council if it believes it does not meet the conditions ("serious deviations from the intermediate and final targets"), asking the President of the European Council to postpone the examination of the matter to the next summit. . Agree, not a real right of veto, but the power to delay and hinder the process of disbursement of funds, therefore a powerful weapon of political conditioning.

But not even the approval of the plan will guarantee the disbursement of all the funds. In fact, the summit conclusions specify that the plans "will be reviewed and adapted, where necessary, in 2022 to take into account the final distribution of the funds for 2023". 30 percent of the funds to be used by 2023 could be tied to a review of the plan: additional conditions.

And mind you, these "conditions" will not prevent our governments from squandering money, nor will they guarantee us good reforms, as some liberals delude themselves, because the waste is inherent in the logic itself, the conductor of the instrument.

In all of this, the macroeconomic aspect takes second place. The Recovery Fund is useless (if not harmful) for the purpose for which it was initially conceived, the revival of the European economies heavily affected by the pandemic. First, too diluted times: the first grants should arrive in late spring of 2021, 70 percent of the funds will have to be committed in 2021-2022, the remaining 30 by the end of 2023, so let's talk about a disbursement horizon, if it goes well, four years (2021-2024), but the program will run until 2026.

Second, a modest amount: around 80 billion, according to the government's (optimistic) estimates, the grants to which Italy would be entitled, but we are talking about gross figures, because we will have to pay more contributions, both directly and indirectly ( new EU taxes: plastic tax, digital tax, carbon tax, financial transaction tax and so on …).

One of the paradoxes of the Recovery Fund agreement is that it will be a new tax, the plastic tax, to arrive first, from January 1, 2021, neither grants nor loans. Silvia Merler, head of the Algebris Policy & Research Forum research, calculates in 50 billion the largest contribution that would be required from Italy, for a net transfer (80 minus 50) of 30 billion, roughly the equivalent or slightly more 7 years of our net contributions to the EU budget. Although assuming 40 billion, net of the higher contribution and always admitted to being able to spend it, 10 a year are not even a point of GDP, compared to an -12 percent estimated for this year.

Third, the logic is too similar to that of the EU multi-year budget: the restriction on the destination of the funds, which can be used for ideologically oriented investments (green and digital), certainly not to cut taxes. The most effective recipe would have been to leave more money in the pockets of citizens and businesses, and let them decide where to direct them. On the contrary, we find ourselves with an extra share of the already inefficient EU budget.

Do we want to bet that the effect of the Recovery Fund on the Italian economy will be imperceptible? That we will find ourselves with anemic GDP growth, provided that we will return to growth? Do you remember the hundreds of billions Juncker plan? Who has seen?

(excerpt from an article in Atlantico Quotidiano)

This is a machine translation from Italian language of a post published on Start Magazine at the URL on Sat, 01 Aug 2020 06:16:54 +0000.