Italy plans to dramatically expand public investment, focusing on boosting growth rather than reining in debt as the government plots its way out of the worst recession in a century.
State investment will rise above 3% of gross domestic product over the next four years from 2.3% in 2019, according to a draft blueprint for reforms prepared by Giuseppe Conte’s government and seen by Bloomberg.
The plan takes into account grants and loans from the European Union’s aidprograms that are still to be approved and will be discussed by leaders at a summit next week.
The gamble is that relaxing purse strings and speeding up the modernization of the country for everything from high-speed Internet to railways and energy will pull Italy out of its chronic economic sluggishness. This would eventually lead to a reduction in its huge debt pile, which is forecast to rise well above 150% of GDP this year.
But with Italy already reliant on European institutions to keep its borrowing costs under control, the plan could backfire if those costs were to rise, tipping the country into a full-blown financing crisis. The investment plan is meant to reduce concern by EU partners such as the Netherlands and Austria on wasteful expenses by showing what the money is earmarked for.
The alternative — further curbs on spending — would cripple a country that was already heading for recession before the pandemic and has been one of Europe’s hardest-hit by the coronavirus, the government has argued.
“Persuaded that in the immediate term it is necessary to support the recovery of the economy, budgetary policy will aim primarily at reviving growth and then, on a medium-term horizon, at prudent management of public finance,” the document says.
The government’s strategy aims “for much higher economic growth than in the past, but it will also set ambitious targets for the budget balances.”
Powerful Boost
Overall, Italy is set to spend 206 billion euros ($233 billion) for its emergency response this year and next year, financed by expanding the budget deficit by 75 billion euros in 2020 and 26 billion euros in 2021, according to the document.
The powerful boost to state spending outlined in the document is seen adding 2.6% to GDP by 2026 and 5% over the long term. This will be achieved by doubling the pace of expansion in state expenditure, both for direct investments and to incentivize private capital outlays, between now and 2034.
Specifically, the government wants to raise spending on education by 0.4 percentage points, narrowing the gap with its European peers. It also wants to expand Italy’s high-speed rail network. Overall, 67 billion euros of extra investment in the transportation network are penciled in, bringing the total effort on infrastructure to almost 200 billion euros.
The plan is set to be approved, together with measures to simplify Italy’s bloated bureaucracy, at a cabinet meeting on Monday evening. Conte said over the weekend that he intends to pass his so-called simplification plan this week, adding that he and Finance Minister Roberto Gualtieri will then start work on fiscal reform.
The draft sets goals such as higher investment on broadband coverage across the country, and promotion of environmentally friendly projects. Conte is also backing measures to increase private investment in Italy, based on incentives to industry and measures to improve companies’ access to credit.
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