Draghi to Tell Parliament How He’ll Spend Billions in EU Aid

(Bloomberg) --

Prime Minister Mario Draghi goes to Parliament on Monday to present details of his 235 billion-euro ($284 billion) plan to re-engineer Italy’s economy that will be a test of the European Union’s post-pandemic recovery fund.

Draghi’s plan taps 191.5 billion euros in EU grants and loans plus 30 billion euros in domestic funding and other small amounts of separate EU funds. The premier estimates the investment will boost gross domestic product by at least 3.6%. He is seeking parliamentary backing ahead of an April 30 deadline to submit the plan to the European Commission.

About 40% of funding is earmarked for green transition projects and 25% for digital projects, as requested by the EU. A large chunk of spending is also slated for infrastructure, modernizing and expanding Italy’s rail system and providing the impoverished south with high-speed trains. Some 40% of the plan’s resources are destined for southern regions.

“The boost to GDP over the next few years should be larger than our estimates of the output gap, testing the economy’s supply potential,” David Powell, senior euro-area economist at Bloomberg Economics, said in a report. “The absorption of spare capacity will push the country back toward full employment, giving wage growth a jolt, and spurring inflation. That may be enough to revive the animal spirits of capitalism.”

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Italy was the epicenter of Europe’s initial outbreak of Covid-19 and the fallout pushed the economy into the deepest recession since World War II. The country is the largest beneficiary of the EU’s 800 billion-euro pandemic fund and will be a test case for the speed of the rollout of the EU lifeline.

Draghi is acting from the conviction that Europe’s economies will be stronger in the long run if fiscal and monetary authorities work together to jolt them back to health as soon as possible. While that means running up debt in the short run, the alternative might be a cycle of half-measures and anemic expansion that leaves Italy and the EU increasingly lagging the U.S. and China.

The extra spending will push Italian debt near to 160% of output this year, higher even than the 159.5% touched after the devastation of World War I and more then double the EU’s 60% reference level for joining the euro.

Read More: Draghi Is Betting the House With Europe’s Biggest Stimulus Plan

Italy’s fractious political parties placed Draghi at the head of a national unity government this year to end a political stalemate and stem the pandemic. Italy has fully vaccinated only about 8% of its population and is likely to miss a target of reaching 500,000 daily shots by the end of April.

Draghi, who headed the European Central Bank for eight years until 2019, still has broad support among the majority of Italy’s political parties, meaning his plan should face little opposition in the legislature.

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