Mes, Stability Pact and Pnrr: the three open fronts between the EU and Italy

The discussions between Rome and Brussels thicken amid the three economic dossiers that worry the Italian government. Let’s try to see where they are

Mes, Stability Pact and Pnrr: the Italian government is engaged on three fronts with the European Union. In recent weeks the discussions between Rome and Brussels are continuing. Let’s see where these three economic dossiers are.

The modification of the Pnrr

Since the elections last September, the Italian government has announced its willingness to review the National Recovery and Resilience Plan (SKY TG24 SPECIAL) negotiated in 2021. However, it has not yet presented the formal requests for modifications, which the EU Commission first and then the Council of Member States will have to evaluate and possibly approve.

These requests will have to be negotiated together with the new chapter to be added to the Pnrr, that of Repower Eu. This is a new European fund for investment in energy and environmental sustainability, approved after the Russian invasion of Ukraine. In the European regulation it is written that the member countries should present the plans by the end of April, but could delay the choices until the summer.

A date to keep in mind, however, is the end of June. The Recovery funds (of which Italy has the largest share) are in fact disbursed only if the roadmap is respected and the Community exam is passed. Thus, to obtain the fourth installment of 16 billion, 27 objectives must be achieved and among these there are some that the government wants to review and remodulate. The Minister for European Affairs Raffaele Fitto brought three examples to Parliament: hydrogen supplies for cars, the expansion of Cinecittà, and nursery schools.

Italy, to renegotiate the Pnrr projects that have accumulated the most delays, could choose to divert investments and money to the cohesion funds, which have a scheduled deadline of 2029 (instead of 2026). Or abandon some projects to divert funds to investments that have a better chance of being completed.

Furthermore, it should not be forgotten that the fate of the third installment of the Pnrr remains uncertain: 19 billion for the end-2022 objectives. The Union has contested some points and so this tranche has not yet arrived. But the knot should be resolved shortly and will involve the exit from the perimeter of the Pnrr of the stadium in Florence and the sports complex in Venice, while there should be no more problems for port concessions and district heating.

The reform of the Mes

The second open front, this time with the countries of the Eurozone, is that of the ratification of the reform of the European Stability Mechanism. Definitively agreed at the beginning of 2021, approval by the Italian Parliament is still missing, the only one that has not yet expressed itself positively among the 20 member states.

The Mes is a sort of insurance that protects the countries that have contributed to it from the risk of bankruptcy and loss of access to the financial markets. For this reason, the Member States have poured almost 81 billion euros into its coffers.

The reform includes changes in the way countries can receive financial assistance. If ratified, there will be a precautionary credit line intended for states that have maintained a deficit/GDP ratio of less than 3% and a strengthened one which will instead be useful to all the others. However, the criterion for accessing the funds will be to have a public debt considered – by the EU Commission, the ECB and the Mes itself – “sustainable” and repayable. The reform also provides for a further safety net for the banks of the Eurozone, on which the ESM can also intervene in the event of difficulty with a loan – up to 68 billion euros – to the Single Resolution Fund, the European deposit guarantee fund .

In Italy the political debate on this instrument is very heated and the Meloni government has repeatedly stated that it wants to amend the reform before ratifying it. A change that would require new negotiations between the 20 countries of the Euro area and a new passage of all parliamentary assemblies.

The reform of the Stability Pact

Last in chronological order, the third front opened between Rome and Brussels is that of the reform of the Stability Pact. Suspended from 2020 first due to the pandemic and then the war in Ukraine, the European budgetary rules will come back into force from next year. The reform will serve to review the parameters, making them more flexible and at the same time more effective, given that part of the rules in force until 2019 have never actually been applied.

The EU Commission, after a long phase of consultation, presented its proposal which will now have to be negotiated with the Member States. The reference parameters remain the same as always (also because they are included in the treaties) – public debt should not exceed 60% of GDP and the annual deficit cannot exceed 3% – but there will no longer be fixed rules common to all to return with the budget, a direct negotiation between the individual European country and the Commission will instead be envisaged.

Each country – if the reform comes into force – will be able to negotiate a fiscal path for the next 4 or 7 years (if green and digital investments appear among the expenses). The path of reduction of the deficit – that is, of the debt year by year – could be about half a percentage point per year. The proposal is now on the table of the economy ministers of the 27 member states and will be analyzed and discussed in the coming weeks and months.

It will be necessary to overcome the skepticism of the more rigorous countries that do not trust excessively flexible rules, but Commissioner Gentiloni says he is confident.