By Silvia Marchetti
ROME (MaceNews) – Italy’s coalition parties are at odds over budget priorities and the use of direct European aid to tackle the COVID-19 pandemic, according to party sources.
The government is expected to forward to the European Commission by the end of this week an updated fiscal framework that will form the pillar of the next 2021 budget plan with key measures to stimulate the economy. The rub will come later as coalition parties remain at odds over implementation.
The fiscal document will allocate total EUR40 billion to boost the economy next year of which EUR20 billion would come from the European Recovery Fund set up to support member states in handling the pandemic, provided Rome forwards a detailed reform plan.
The remaining EUR20 billion would be raised through greater deficit funding.
“It’s not clear whether we will successfully be able to insert the EU’s EUR20 billion share within the budget document, and actually spend it. A draft reform plan has been sketched but it still needs to be clearly defined and added to the budget document,” said an official from the Democrat party.
The final budget and reform plan for EU aid must go through parliament and both are likely to be modified by opposition and ruling parties. It will be a long process: both the Senate and the Lower House will vote on it several times and will have until end of December to clear a final budget plan, while there’s time until March to finalize the reform plan to secure EU aid as it is unlikely to launch before, said a 5 Stars source.
The Democrats want to focus key budget and reform measures on investments in infrastructure, energy efficiency and firm productivity, while the 5 Stars are pushing for greater financial support to low earners and struggling families. The government is also working on an ambitious fiscal reform to cut down on tax credits and harmonize taxation.
The ERF, which will be funded through the issuance of a common EU debt instrument, is expected to be operative by April 2021. Italy would be the largest beneficiary with roughly EUR200 billion, of which EUR70-80 would be in grants and EUR120-130 in loans. The EU aid will be spread across six years.
The 5 Star Movement is raising pressure on Democrat allies to evaluate the need to tap the ERF, and to avoid using the loans, just the grants.
“In such favorable moment, with extra low rates and the ECB buying huge quantities of our public securities while the QE is expected to further expand, issuing more debt appears to be more convenient than asking for EU loans, particularly since bonds aren’t dependent on reforms,” argued the 5 Stars source.
Another 5 Stars official said the EU’s grants don’t come for free, given Italy would need to increase its share of net contributions to the European budget, which 5 Stars says is too high.