ECONOMY

Draghi Bets 261 Billion Euros to Redesign Italy’s Economy

Prime Minister Mario Draghi has just a few days to refine what he calls a “historic” plan to rescue Italy’s economy from the pandemic and fix long-lasting structural weaknesses, with 261.1 billion euros ($315.6 billion) of chiefly European Union funds.

The premier will speak in the lower house on Tuesday morning, and address the Senate in the afternoon, a day after unveiling his blueprint. A cabinet meeting on Wednesday or Thursday is expected to give final approval before the Italian proposal is sent to Brussels by an April 30 deadline.

Much is riding on the plan’s success. It would overturn the fortunes of an economy long regarded as potential Ground Zero for major European crises, with the government estimating the windfall from the mainly EU grants and loans will boost economic output by about 3.6% by 2026. For the European Central Bank, which has been backing Italian bonds through an unprecedented stimulus, it could mean winding down that support earlier than currently expected, according to Bloomberg Economics.

Germany and France, the two countries instrumental in the creation of the stimulus package, will be presenting their plans jointly on Tuesday at 14:30 CET.

About 40% of Italy’s funding will be allocated to green projects and 25% to digital ones, with priorities including infrastructure and high-speed trains.

The package drawn up by Draghi, a former chief of the European Central Bank who heads a broad coalition, comes on top of over 170 billion euros passed in economic stimulus since the start of the pandemic last year.

“The measures proposed in the spending plan are intended to raise the long-term supply potential of the economy,” David Powell, senior euro-area economist at Bloomberg Economics, wrote in a note. “The benefit will depend on how efficiently it’s implemented.”

Issues for Italy include its mammoth debt, which will rise to nearly 160% of economic output due to the added spending. The debt poses a long-term risk to the country, as well as the EU, and many economists agree the only solution at this point is to try to grow out of it. That’s not an easy task for an economy that contracted almost 9% last year.

Currently, Italy is also protected by European Central Bank bond-buying that’s keeping the cost of debt manageable. A solid recovery in Italy would reduce the risks when the ECB winds down its asset purchases.

Among companies destined to benefit the most from Draghi’s plan are technology, telecom, utilities and infrastructure firms, Mediobanca said in a note. Accelerating energy transition is “a clear positive” for utilities, especially for firms more exposed to renewable energy, hydrogen and circular economy models including Enel, Snam, Prysmian, Hera and ERG, the broker said.

Planned investments range from about 6 billion euros for ultra-fast telecoms networks and 750 million euros for high-tech industrial projects including semiconductor production, to targeting coverage of all energy demand from e-cars by building more than 3.4 million charging stations.

More than half the infrastructure investments, especially for high-speed trains and ports, will be destined for the depressed southern regions, Draghi told lawmakers on Monday.

“It’s not a question of parochialism: if the south grows, Italy grows too,” he said.

The investments are twinned with wide-ranging structural reforms to cut red tape and speed up the slow legal system, often a source of uncertainty for foreign investors.

Most Related Links :
reporterwings Governmental News Finance News

Source link

Back to top button