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Italy Faces Barriers to Obtain About €90 Billion in EU Funds

2023-11-13 20:54
The government of Prime Minister Giorgia Meloni will likely have trouble accessing about half of Italy’s share of
Italy Faces Barriers to Obtain About €90 Billion in EU Funds

The government of Prime Minister Giorgia Meloni will likely have trouble accessing about half of Italy’s share of recovery funds from the European Union as bureaucracy, inflation and technical difficulties slow projects down.

Rome will probably obtain the next, fourth installment worth €16.5 billion ($17.7 billion), though there may be some delays in meeting project targets, according to people familiar with the matter.

Beyond that however, targets have become increasingly difficult to meet and the pace of needed reforms is also slowing. That means Italy may not access further money for some time and risks missing funds before a 2026 deadline for EU payments, said the people who asked not to be named on confidential talks. Rome still has to access about €92 billion.

The fourth tranche would bring total cash disbursed to €101.9 billion or about 52% of what’s available, based on information on the government’s website.

The slowdown shows the challenge faced by Meloni as she tries to harness the biggest aid program since Italy’s post-World War II reconstruction to help boost anemic growth. The funds are badly needed for investments in various areas including infrastructure, digitalization, education and green energy.

Yet high borrowing costs and low growth make it difficult for the government to invest in the euro zone’s third-biggest economy without seeing its mammoth debt get out of control.

Italy’s EU affairs ministry did not respond to a request for comment. The government said on Oct. 10 that work on meeting targets for both the fourth and fifth tranche are ongoing, as well as talks with the EU to obtain modifications in some of the targets.

Italy is under particularly close scrutiny by investors, including on the recovery funds payments, as it is in the midst of a series of rating reviews with Friday’s update from Moody’s Investors Service a key focus. So far, all verdicts have confirmed Italy’s standing and a downgrade by Moody’s to junk would be very controversial.

Before that, the European Commission’s publication of fresh economic forecasts Wednesday will provide further insight on Italy’s debt and deficit paths.

EU Affairs Minister Raffaele Fitto has said that Italy won’t be able to complete some of the projects needed to unlock EU funds by a 2026 deadline. The country has been renegotiating some of the terms, with Brussels allowing leeway but on a case-by-case basis.

Italy has a history of missing deadlines for the disbursement of EU funds and it’s running into some age-old problems, particularly in the less wealthy areas that most need the funds. Targets linked to recovery fund help include cutting payment times of public administration and red tape, as well as completing projects by set deadlines.

Paperwork

Hold ups include lack of technical staff in smaller towns and less wealthy regions to process the paperwork and handle the application process, difficulty obtaining local authorizations for some projects, and delays linked with increases in costs.

In the meantime, Meloni faces an economy seen growing 0.7% this year, according to the Bank of Italy, with debt seen stuck at a whopping 140% of output. All the while she needs to keep promises to voters including tax cuts and aid to lower income families while continuing to cut the deficit.

That balancing act will likely become more complex as the EU’s fiscal rules return next year, forcing countries to keep their finances even more in check. Though the rules are being renegotiated with the possibility of country-specific paths back to sound finances, Italy has a long way to go back to the zone’s 3% deficit limit.

--With assistance from Zoe Schneeweiss and Chiara Albanese.