Italy Bets on Spending to Grow Out of Its Crippling Debt
Italy plans to expand public investment, focusing on boosting growth rather than reining in debt.
(Bloomberg) -- 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 an overnight statement from Giuseppe Conte’s cabinet following a minsters’ meeting.
During the meeting, Finance Minister Roberto Gualtieri presented details of the government’s National Reform Plan, which also includes new spending on education, moves to boost private investment and measures to improve Italy’s competitiveness.
The government also approved Conte’s signature “simplification” decree, a laundry list of new rules and procedures for doing business in the country, covering public tenders, construction approval processes and local digitalization efforts.
Italy’s new investment plan takes into account grants and loans from the European Union’s aid programs that are still to be approved and will be discussed by leaders at a summit next week.
The European Commission sees the Italian economy shrinking 11.2% this year, the deepest contraction in the euro area. 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 designed 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.
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 a draft blueprint for reforms prepared by Conte’s government and seen by Bloomberg.
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 country will start work on 130 infrastructure projects, Conte said during a press conference on Tuesday.
The government said in the statement overnight that it wants to raise spending on education by 0.4 percentage point, narrowing the gap with its European peers.
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