Italy Has a Once-in-a-Lifetime Opportunity to Change

Italy is in line to receive the biggest handout from the European Union’s pandemic recovery funds. Anyone who’s followed the country’s fortunes in recent years will be forgiven for shrugging: The euro zone’s third-largest economy has a history of failing to spend far smaller disbursements because of its hopeless state bureaucracy.

But there’s real cause for optimism this time. While Mario Draghi is an unelected prime minister, the former European Central Bank president has a technocrat’s grasp of his country’s failings, and he’s free from the shackles of day-to-day party politicking and the punitive austerity of previous EU regimes. He represents Italy’s best chance in decades to fix its public administration and thereby unleash the spending spree Italy needs to survive in the post-pandemic global economy.  

Draghi himself has run the numbers on the problem. He says that of 47.3 billion euros ($55.7 billion) of EU funds earmarked for Italy from 2014 to 2020, little more than 3 billion euros, or 6.7 per cent, was used. In 2017 Italy had 647 infrastructure projects in progress but to date two-thirds of these aren’t even half finished.

Frugal northern EU states worry about Rome wasting the recovery money. The bigger challenge is whether it will invest it at all. Draghi’s “primary objective” is to become capable of spending more than 200 billion euros in pandemic-related EU grants and funds, and then spending it well.

That he needs to teach Italy’s bureaucrats how to do their jobs shows the uphill battle in reforming the euro zone’s weakest big economy. Italy, like other EU countries, has until 30 April to submit plans for how it will use the pandemic funds.

To have any chance of success Draghi’s government must modernize Italy’s dysfunctional state. The country’s vast public administration has been the bane of successive prime ministers. Employing 3 million people, its tentacles extend from schools to state-owned companies and all points in between. 

Cutting the red tape and cronyism that plagues the civil service is essential for Draghi’s reform goals aimed at boosting Italy’s woeful productivity and growth: namely, fixing the country’s tax regime, its byzantine bureaucracy and its sluggish courts. The sclerotic state carries much of the blame for Italy ranking 58th out of 190 countries in the World Bank’s “Doing Business” survey. It comes a dismal 97th on securing building permits, 98th for starting businesses, 122nd at enforcing contracts and 128th on tax rules.

It’s a herculean task, but maybe not impossible. First, Draghi enjoys strong support in Italy. This is due to his personal standing but also because Italy’s party politicians understand they need to back him to get a slice of the EU pandemic windfall. This gives him a better chance of winning support for tough reforms than another Italian technocrat prime minister, Mario Monti, who in 2011 had only EU austerity to offer citizens. Three of Italy’s largest national union federations have signed a pact with Draghi’s government agreeing public-administration reform would be a “catalyst of the recovery.” 

Second, Draghi’s choice of Renato Brunetta as minister of public administration is shrewd. Brunetta, one of Italy’s political old guard, held the role before under Silvio Berlusconi. In one of the few bright spots of that failed government, he pushed through a first phase of reform and called out state-administration “slackers.”

The main thing in Draghi’s favor is a fluke of timing. Because of austerity measures and a generation of state employees reaching retirement age, the public administration has 300,000 jobs to fill. This offers the rare chance to refresh moribund ranks. In public administration, the average age of staff is 50.7 years, 17 per cent are older than 60, and only 3 per cent are younger than 30. On average it takes four years to fill jobs. An opaque hiring process has often favored insiders over those with appropriate skills. 

Draghi is determined to break these taboos. It’s the right priority. With Italy needing to use the pandemic funds to hit EU targets for digitalization and the green transition, Draghi needs people with the right attributes. He’s concerned — correctly — about Italy’s small and midsized firms, the backbone of the nation’s economy, being shut out of global supply chains chain because most are digital laggards. 

Draghi wants to hire more international graduates with advanced degrees into the civil service, and he wants to get universities, professional services and the private sector to help an economy that has never recovered from the 2008 crisis. 

He will face opposition. The toughest fight is tackling the “fuga dalla firma,” the public administration’s famous habit of staff avoiding taking responsibility for decisions. That’s a huge drag on productivity that affects, for example, a sole trader from Milan who wastes days trying to get approval for a new tax code or a global multinational that gives up opening a new warehouse outside Naples because it cannot get a local administrator to sign it off.

Draghi knows the size of the job. He also understands the benefits. A genuine public-administration reform would appease those “frugal” partners in northern Europe. What’s more, Italians have low trust in the state. Spending the tens of billions on offer prudently may help change that.

“Spending well would be a step toward a rebuilding of trust in institutions and legality,” Draghi said this month. Higher public trust correlates with greater wealth, less crime and other metrics of wellbeing. After a year of yet more trauma, Italy needs all of those.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Rachel Sanderson was Milan correspondent for the Financial Times from 2010 to 2020. She has also written about Italy for the Economist and reported for Reuters and Reuters TV from Rome, Paris and London.

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