The Power of Pragmatism in Reforming European Fiscal Policies.

Vision paper on reforming European Fiscal Policies.

The game that the Italian government is playing in Brussels in the coming days can only be won if the Prime Minister succeeds in giving it a relevance that is, indeed, European. To win, the Italian candidate must manage to represent—with the delicate balance required by the work of the Commission—a comprehensive idea of reforming the Union's fiscal tools. It would be a mistake, however, to think of the next Commissioner as merely the guardian of the largest portfolio (the new Recovery and Resilience Facility—RRF, but also the old cohesion policies) for the country that benefits the most from it. The reassessment (and management) of the two major European fiscal policies could be successful with a commissioner who has the pragmatism to finally bring together both the efficiency criterion (which is fundamental even for many conservatives) and the solidarity principle (which Italy has an interest in defending).

Minister for European Affairs, Cohesion Policies, the National Recovery and Resilience Plan (PNRR), with a mandate for the South: the department led by Minister Fitto (curiously defined as "without portfolio" because it technically performs functions delegated by the Prime Minister) is certainly the longest-named one. Moreover, it is also the one to which the Meloni government has entrusted the most important challenge: to succeed in the miracle of spending by 2026, the €195 billion that the European Union has allocated to Italy through the PNRR.

The Minister, who aims to replicate his responsibilities on a European level, has earned at least two confirmations in the past two years that bolster his credibility.

The first is his ability to work as best as possible within the constraints of the difficult dossier he inherited. It is the European Commission that certifies this, having just transferred the fifth installment of the entire PNRR to Italy as verification of the progress of the "milestones and targets" that mark its implementation: in Europe, only Croatia is so advanced (on a plan twenty times smaller), and we have already received 59% of the PNRR resources from the Union’s account (even though we had only spent a quarter of it by the end of last year, with some critical delays in health and universities).

The Minister's second merit was to use the results achieved to propose corrections that have already had the effect of easing some of the excessive rigidities of the initial regulatory framework. Two years ago, one of the few serious debates during the election campaign was about the possibility of modifying the PNRR during its course (and extending its final deadline) to account for potential difficulties or external shocks: it is also thanks to the Minister that the dogma of the impossibility of (still limited) reprogramming based on the specific needs of the country has been downplayed.

The portfolio that could be entrusted to the Italian commissioner is worth more than a trillion (about 650 on the RRF and 370 on the Structural Funds for cohesion policies), and Italy is by far the largest beneficiary (a total of 237 billion compared to Spain's 197 and Poland's 135, which follow in terms of expectations). But its chances would be enhanced if the portfolio were completed by a vice-presidency (for example, the current commissioner for economic affairs, Gentiloni, has to coordinate with Vice-President Valdis Dombrovskis). However, much "power" would correspond to equally significant responsibility. The new commissioner would be managing two enormous policies and would need to initiate an equally broad reform.

First of all, they should launch a much more structured assessment than the one the Commission is currently conducting to understand what is working in the RRF: for each of the 27 countries and for each of the six investment priorities (from environment to digital). This work is essential to understand if—as common sense and the best academia suggest—it makes sense to make a fiscal capacity of the Union permanent that is independent of contributions from individual states. And based on what improvements compared to the experience we are having.

Secondly, no less urgent is reorganizing the spending of structural funds (from which we have been expecting the miracle of solving the ancient southern issue for thirty years). The evidence shows that by December 2023, Italy had spent almost 25% of the PNRR in two years and only 1% of the 42 billion structural funds for the 2021–2027 period. But even at the European level, cohesion policies seem to be working less and less: EUROSTAT figures indicate that regional disparities have been increasing for the past 15 years.

One idea could be to use the next reprogramming to recover performance and start imagining an integration of the two major instruments—RRF and structural funds—using everywhere a method that links Commission payments to concrete results achieved (as with the RRF, albeit greatly simplified compared to the roughly one thousand milestones that articulate the Italian PNRR).

Giorgia Meloni and Ursula von der Leyen are both proposing a leadership of pragmatism and ambition. A commissioner who—without fanfare—reconciles the duty to account for every euro spent and the need to direct public investments to make the continent competitive could achieve the goal of overcoming confrontations that no longer make sense.

References:

European Commission (2024). The Recovery and Resilience Facility. Link.

Ministry of Economy and Finance (2021). Link.

European Commission (2024). Cohesion for a Competitive and Inclusive Europe – Report of the High-Level Group on the Future of Cohesion Policy. Link.