Italy’s ‘last chance’: How Europe’s massive stimulus plan will determine Rome’s future

Italy has one final chance to reform its economy as the European Union prepares to disburse a historic amount of money, experts told CNBC on Friday.

The European Union agreed in July to raise 750 billion euros ($890 billion) in public markets — an unprecedented move for the bloc. Though the plan has yet to overcome some legislative steps before funds are available in 2021, there are hopes it will change the course of the Italian economy.

“I think it is the last chance for Europe and mostly for Italy,” former Italian Prime Minister Enrico Letta told CNBC’s Steve Sedgwick at the European House Ambrosetti Forum.

Italy is expected to receive about 81 billion euros in grants and about 127 billion euros in loans from the European Union, starting in 2021.

“Such a big amount of money,” Letta said. It will give Italy the opportunity “to do what we didn’t in the past,” he added, providing that “it is well spent.”

What is going to be critical is whether Italy now takes this as an opportunity to introduce the reforms that are long-overdue.
Carlo Cottarelli
former director at the IMF

Certain EU countries and economists have criticized Italy in recent years for not updating its labor market policies nor cutting red tape, among other much-needed reforms. This is seen as an impediment to reducing the country’s significant debt pile — the highest among EU nations, after Greece. 

“I am worried about the medium term,” Carlo Cottarelli, former director at the International Monetary Fund, told CNBC on Friday at the same event. 

“What is going to be critical is whether Italy now takes this as an opportunity to introduce the reforms that are long-overdue,” Cottarelli said, citing infrastructure and digital reforms.

Italy’s Prime Minister Giuseppe Conte has previously said the EU funds “have a real chance to make Italy greener, more digital, more innovative.”

However, some doubt remains about the government’s ability to achieve that, given no administration has successfully managed to transform the economy in the last decade.

“There is one difference” this time around, Cottarelli argued. “Now we can rely on the money coming from Europe and that money however is going to come only if reforms are implemented.”

European member states are putting together detailed plans about how they will invest the money coming from Brussels. The same plans will have to be approved by the majority of the 27 member states to ensure they follow key priorities, such as green policies.