{"id":69871,"date":"2022-01-19T06:00:52","date_gmt":"2022-01-18T19:00:52","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=69871"},"modified":"2022-01-18T18:23:13","modified_gmt":"2022-01-18T07:23:13","slug":"presidential-election-could-put-italys-draghi-led-recovery-at-risk","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/presidential-election-could-put-italys-draghi-led-recovery-at-risk\/","title":{"rendered":"Presidential election could put Italy\u2019s Draghi-led recovery at risk"},"content":{"rendered":"
<\/figure>\n

As Italy scrambles to control surging Covid-19 infections\u2014including by making vaccination compulsory<\/a> for anyone over 50\u2014cracks are appearing in the broad ruling coalition led by Prime Minister Mario Draghi. A crucial test will come next Monday, when Italy\u2019s 630 members of parliament, 321 senators and 58 regional representatives elect a new president<\/a>.<\/p>\n

Many names have been put forward, including former prime minister Silvio Berlusconi, who appears to have the backing<\/a> of the centre-right bloc, despite a long history of scandals and a tax-fraud conviction<\/a>. Another leading contender is Draghi himself, who has built a strong reputation as a highly capable leader.<\/p>\n

Following two decades of stagnation<\/a>, Italy\u2019s economic outlook is bright. After shrinking by nearly 9% in 2020, GDP grew<\/a> by more than 6% in 2021, largely owing to the government\u2019s expansionary fiscal policy, funded by the \u20ac750 billion ($1.19 trillion) Next Generation EU recovery fund.<\/p>\n

Under the 2022 budget law<\/a>, pandemic-related measures, such as income support to households, will be phased out. But welfare provisions, such as universal child allowance<\/a>, will be expanded and tax-payment deferrals<\/a> have been extended. So, while growth will most likely slow slightly this year, it is expected<\/a> to remain robust, at about 4.3%.<\/p>\n

It helps that consumer confidence, in particular, is at its highest level<\/a> in a decade. This partly reflects strong employment growth, which has fuelled household demand, even though most new jobs are on fixed-term<\/a> contracts.<\/p>\n

But there are plenty of risks on the horizon, not least the surge in Covid-19 infections. On 11 January alone, about 220,000<\/a> new Covid-19 cases were reported. Inflation\u2014which reached 4.2%<\/a> in December\u2014is also a concern, with rising consumer prices threatening to dampen confidence and constrain spending.<\/p>\n

To prevent GDP growth from reverting to its historical trend, Italian policymakers will need to engineer a virtuous circle of long-term growth and investment. Fortunately, they have a head start: the EU Recovery and Resilience Facility, the centrepiece of Next Generation EU, is set to deliver<\/a> to Italy \u20ac68.9 billion ($109 billion) in grants and \u20ac122.6 billion ($194 billion) in loans over the plan\u2019s lifetime.<\/p>\n

Between now and 2026, these funds should support<\/a> the creation of up to 240,000 new jobs and a 1.5\u20132.5% increase in Italy\u2019s GDP, with another 0.3 percentage points coming from the facility\u2019s impact in other EU member states. Italy\u2019s real GDP is expected<\/a> to be about 3% higher in 2026 than it would have been without Next Generation EU.<\/p>\n

But, to make the most of this opportunity, Italy\u2019s leaders will have to implement a long list of reforms that has remained largely the same for the last 20 years. That means making public administration leaner and more efficient, reducing bureaucratic red tape and upgrading the tax system with clearer rules, fewer loopholes and better enforcement. A faster-moving judiciary and a fairer, more geographically and demographically skill-balanced labour market should also be top priorities.<\/p>\n

Such interventions would go a long way toward improving Italy\u2019s business environment. Among G7 countries, only Japan attracts less foreign direct investment<\/a>.<\/p>\n

Robust and sustainable long-term growth is a priority for any economy. But, for Italy, the imperative is almost existential. For starters, its population is ageing rapidly: the country has the world\u2019s second-highest old-age dependency ratio<\/a>.<\/u><\/p>\n

In addition, Italy has the second-largest public-debt burden in the EU, at about 160% of GDP<\/a>. To reduce this burden\u2014which increased significantly in 2020, owing to the combination of economic contraction and fiscal expansion\u2014the government will ultimately need to run primary budget surpluses (which exclude debt-servicing costs).<\/p>\n

This will be no easy feat, given that the budget deficit stood at 9.4% of GDP<\/a> in 2021. The government hopes to reduce it to 5.6% of GDP this year, with the primary deficit dropping to 1.2% of GDP by 2023. Achieving this\u2014and, ultimately, a primary surplus\u2014will depend significantly on higher tax revenues through stronger economic growth.<\/p>\n

If the government is to implement the national recovery and resilience plan, including the relevant economic reforms, it will need to continue to inspire confidence. And that requires political stability.<\/p>\n

What stability currently exists can be attributed largely to Draghi. He was sworn in as prime minister early last year precisely to break a protracted political deadlock<\/a>. And it was under his leadership that a broad coalition drafted the national recovery plan, applied for funding and initiated its implementation.<\/p>\n

But Draghi can remain prime minister only until the general election in March 2023, meaning that he has about a year to lay the foundations for many recovery projects. On top of this, Draghi\u2019s broad governing coalition may not remain effective\u2014or even intact\u2014after the coming presidential election.<\/p>\n

Whatever the outcome of the presidential election, will Draghi be able to create a more compact coalition, capable of implementing the national recovery plan? Would Europe continue to view Italy as a reliable partner if Berlusconi became president or if early elections produced a eurosceptic nationalist government? Can Italy forestall a new political\u2014and, ultimately, economic\u2014crisis?<\/p>\n

These are some of the possible scenarios now confronting Italy and Europe. Some are low-probability, but the chance of them materialising is not zero. Next Generation EU has afforded Italy a once-in-a-generation opportunity to reset its economy. But the country\u2019s still-tenuous political situation makes it far from clear that the government will manage to seize it.<\/p>\n","protected":false},"excerpt":{"rendered":"

As Italy scrambles to control surging Covid-19 infections\u2014including by making vaccination compulsory for anyone over 50\u2014cracks are appearing in the broad ruling coalition led by Prime Minister Mario Draghi. A crucial test will come next …<\/p>\n","protected":false},"author":1149,"featured_media":69875,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[2531,2110,753,1025,2131],"class_list":["post-69871","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-debt","tag-economic-policy","tag-election","tag-european-union","tag-italy"],"acf":[],"yoast_head":"\nPresidential election could put Italy\u2019s Draghi-led recovery at risk | The Strategist<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.aspistrategist.ru\/presidential-election-could-put-italys-draghi-led-recovery-at-risk\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Presidential election could put Italy\u2019s Draghi-led recovery at risk | The Strategist\" \/>\n<meta property=\"og:description\" content=\"As Italy scrambles to control surging Covid-19 infections\u2014including by making vaccination compulsory for anyone over 50\u2014cracks are appearing in the broad ruling coalition led by Prime Minister Mario Draghi. 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