The appointment of Mario Draghi as Italy’s prime minister in February has strengthened expectations that the former head of the European Central Bank will do something no one else has done: address Italy’s structural weaknesses and upgrade its growth potential to Italy’s. Eurozone.
Expectations are high in Italy and across Europe. If Draghi succeeds in effectively utilizing the resources of the 50 750 billion European recovery fund, he will help the European Central Bank break out of the extraordinary monetary policy measures proposed by former governors of the Bank of France, Jacques de la Rousseau and David. Marso of OMFIF. In addition, it would be politically easier to demonstrate the need for more economic integration in the euro and in Germany and other “core” European countries, thus ending the “unfinished” economic and financial union project.
In his first public address to the Italian Parliament, Draghi stated that Italy’s supply-side policies are a priority in line with the recommendations of the European Commission. Taxes, Public Administration and Justice – The Growth Gap between Italy and the Eurozone will be bridged through a comprehensive public investment program focusing on structural reforms, digitization and green infrastructure. These supply-side policies are very different from the demand-side policies that were launched last year to keep the economy afloat during the pandemic.
Draghi’s focus on supply chain structural reforms comes as no surprise to those who have followed his years as head of the European Central Bank. Since the financial crisis of 2008, monetary policy has been a constant concern of central bankers as “the only game in town”. The pandemic unleashed another game – monetary policy – that wiped out resistance to high public debt due to the economic massacre caused by the global recession. Another game to add soon: Supply-side structural upgrades with the approval of the European Union-sponsored recovery fund.
Structural reforms and the public investment projects in Italy envisioned by Draghi, with the support of RES, offer many opportunities. The experience of countries like Ireland and some Central and Eastern European countries in utilizing the resources provided by European funds shows that the impact will be significantly increased.
But there are also big risks. Italy has a long history of failing to address structural weaknesses, mainly because of its unstable and fragmented political class. Italy’s appetite for EU structural funds is low, and the country has not been able to bridge the economic gap between the North and the South despite the mixing of EU structural funds in recent decades.
Why should this be different with ERF? The misuse of EU funds by Italy in the past has been linked to the institutional weakness of the local governments responsible for investing these funds. RES will be a national project under the control of the Central Government. We will see if Draghi succeeds where others fail.
Massimiliano Castelli is the Chief Executive Officer and Head of Strategy and Consultancy at UBS Asset Management’s Companies Company.