Loans through the NRP, a sword of Damocles hanging over the manoeuvre

Silent but not harmless, one figure hangs over the manoeuvre like a sword of Damocles: that of the amount of funds borrowed thanks to the NRP and yet to be spent by 2026. The reason is easily explained: it is not so much the subsidies (which do not affect the deficit and debt, given their nature as a true European 'gift') as the NRP loans, and above all the public spending financed with them, that will increase the dynamics of our deficit over GDP in the next two years. By how much?

The numbers at our disposal tell us that of the 122.6 billion in loans due to Italy, 68.7 have already been disbursed and 53.9 are still to come. But how many of the 68.7 billion have already been spent and have therefore affected deficits up to 2024 and will not affect future ones? We do not have a certain figure, but we do know that due to the known shortcomings and organisational delays of our contracting stations, which often lack the appropriate professionalism and sufficient personnel, a good portion will impact the territory and will therefore only be accounted for in the last two years of the NRP, the biennium 2025-26. Even if we only imagine that of these 68.7 billion, about 20 billion (remaining optimistic) are still to be spent, adding them to the 53.9 billion would reach the figure of about 75 billion, almost 4% of GDP: expenditure that could swell the 2025 and 2026 deficit-GDP ratios. This is no small concern for those who traditionally have to manage the purse strings, namely the Ministry of Economy and Finance (MEF), given that the new European rules of accelerated reduction of public deficits will apply in those two years. One would almost think that the Mef would paradoxically have been better off without this 'complication' of the NRP.

Until now, however, two souls have coexisted within the government: the traditionally austere one of the Treasury, which is actively involved in the signing of the new Stability Pact and its restrictive rules, and the more expansive one of the Ministry led by Raffaele Fitto, which is pushing for the rapid grounding of Pnrr funds in the name of the greater growth and development that they would generate for the country, also helping to reduce the high Italian debt-to-GDP ratio by increasing GDP. Two largely irreconcilable souls, but which since 2021 have always found a mediator in the European Union itself which, for expenditure with Pnrr funds on loan, has from the outset expressed a favour that it rarely shows when it comes to financing public investments in deficit directly with funds borrowed by Italy, despite the fact that management is then always national.

The exit of Minister Fitto, with a prestigious European post, will dramatically alter the internal balance of power within the government coalition with regard to public investment, potentially unbalancing it towards the party of austerity. Traces of this can already be seen from what we learn about the manoeuvre for 2025, which is largely restrictive as demanded by the new European rules. Where will the funds for the manoeuvre come from? From a meticulous and necessary spending review aimed at finally upgrading public spending? We fear that it will rather cut public investments not financed by the NRP, starting with those of the National Complementary Plan.

It is therefore also possible within this framework that the next two years will see a paradoxical slowdown in the grounding of the NRP, with the loss of precious development opportunities due to the Mef's fear of letting the 2025 and 2026 deficits get out of hand. This would be resounding and the Prime Minister will do well to firmly seize the operational levers of the NRP command before it is too late. In order to avoid the 'slow agony' of Europe and Italy, public investment is essential, as the Draghi report makes clear. Of course debt must be sustainable, but this is achieved with policies that stimulate growth, acting on the denominator instead of the numerator. Faced with the critical situation highlighted by the Draghi report, it seems clear that restrictive policies can only accelerate the loss of competitiveness and with it the accumulated social gains unless there is a decisive change of course towards public investment as indicated by the former ECB president.

Co-chairs OReP, Recovery Plan Observatory.