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NextGen EU: Repair and Prepare

NextGen EU: For Italy, is about keeping bad old habits alive

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Italy plans to use NextGen EU money on short term solutions and keep its populist state alive. The goal is to "repair and prepare" for the next generation, however, many governments vision of the future seems to keep the same old status quo....

The EU is taking many measures to tackle the coronavirus pandemic and its impact. The most notable was the comprehensive package of €1 824.3 billion which combines the multiannual financial framework (MFF) and an extraordinary recovery effort, called Next Generation EU. The goal is to "repair and prepare" for the next generation, however, many governments vision of the future seems to keep the same old status quo. 

For instance, Italy's shortsighted planning may jeopardize the one in a lifetime opportunity to completely revamp the Italian economy and the country. It still not clear how Italy plans to spend its €209 billion of EU money but one thing is certain, its ambition to deliver an economic rebirth will fall short.

The first draft sent to parliament last month contained plans to lower taxes for the middle class, to double Italy's economic growth rate, to increase employment rate by 10 percentage points and research and development expenditure to 2.1%. All based in six macro areas: Digitalization, innovation and economic growth; Green policies aimed at decarbonisation; Transport infrastructure; Education, training, research and culture; Social and gender equality; and Health.

Not many projects were detailed in the draft and the ones that were, are completely focused on keeping old bad habits alive. For instance, in transportation, just over one billion euros were allocated to the controversial Turin-Lyon (Tav) high-speed railway line, 4.5 billion for Sicily's planned Palermo-Messina-Catania railway, and 2.6 billion for a direct high-speed link between Naples and Bari in the south. New investments in infrastructure are important, but citizens, especially the young generation, are much more concerned about privatizing Alitalia and increasing competition on the railway sector (over the Trenitalia monopoly), thus reducing the burden of these outdated and inefficient companies bailed out multiple times by taxpayers money.

Another example is the pension and social security systems. Today, Italy's pension system is fully publicly funded, in a pay-as-you-go model (Sistema Pensionistico a Ripartizione), a type of pension scheme where the benefits are directly tied to the contributions or taxes paid by individual participants, a very common in collectivist states the middle of last century. The result is the Italian government currently contributes around 30% of its overall annual public spending (net of interest expenses) to pensions. Added to Italy's declining birth rate and you have a recipe for catastrophe.

Many countries, such as Chile and Sweden have moved to a funded pension scheme (Sistema Pensionistico a Capitalizzazione) based on individual capital accounts, managed by private companies, between the 1980s and early 2000s, thus being able to lower the government expenditure considerably. A more modern and private managed model of a pension scheme would also reduce the burden on taxpayers and companies alike. Chile was able to reduce workers pension contribution from 33% to just 10% while increasing citizens future cashout. The absence of any proposal for revamping the pension and social security systems (INPS), shows that the government is not concerned about a sustainable approach to the social welfare state for future generations. 

The plan also includes the creation of more jobs in public administration - a mistake that would further increase government debt and the bankrupted pension system - while private companies carry the weight of heavy taxes and a quarter of young Italians (15-29) are not in employment, education or training (the No-No class), being one of the highest youth unemployment rates in the European Union. The government should focus its efforts on reducing taxes on employment, reviewing its legislation on employment status, and incorporating the youth into the labour market. 

Lastly, instead of creating a school model that will shape the future generation, astronomical investments will pour into revamping physical classrooms and schools - a model of education that failed students and parents during the COVID-19 pandemic - and computer vouchers for low-income families. Better investments would be to review the schools' curriculum and materials to include subjects such as personal finance, entrepreneurship and coding, to develop modern e-learning platforms and a school-work apprentice program to prepare teenagers over 16 years-old to join the workforce.

The 72-page long draft file for the Recovery Plan has ambitious goals but only a few good and effective ideas to tackle the many economic and social problems Italy faces today and will in the future. The current Italian political class is worried about keeping the current status quo instead of investing in building a new Italy. Spending faster than a drunken sailor, Conte's government is heading to a dangerous waste of money and more importantly opportunity. Fortunately, the money will not start to arrive until the first quarter of 2021, and each country has to detail how it will be spent before the allocated amounts are released.

We have until October 15th to send a draft recovery and resilience proposals to Brussels, while the deadline to present the final plan is January 2021.