MNI INTERVIEW: EU Should Top Up Recovery Plans- Italy's Freni

The European Union should top up the EUR191.5 billion it has provided for Italy’s National Recovery Plan, Undersecretary for Finance Federico Freni told MNI, adding that he expects the European Central Bank to continue buying bonds for longer due to soaring energy prices.

Projects included in Italy’s National Recovery Plan risk a “dangerous spiral of decline” without “a decisive intervention” to adjust for inflation, Freni said in an interview. The ECB is likely to continue for longer with its Asset Purchase Programme, which is set to run at EUR40 billion in April and then be phased out completely by the third quarter if data permits, he said.

“I believe the ECB’s plans will be revised considering the developments of the energy crisis,” he said.

The rise in energy prices requires a European response, in which the “ECB will play a central role,” he said, adding that he trusted that the central bank would act against any “excessive economic fragmentation” in the eurozone prompted by energy price inflation.

“If we really move towards a system of renewed and incisive common policies, the ECB will play its part,” he said.

A common EU response is also necessary in the case of the National Recovery Plans, according to Freni, though he said that Italy is already planning its own measures in response to the price blow out. The head of one of a major Italian construction lobby told MNI last week that projects would grind to a halt without more funds. (see MNI INTERVIEW: Italy Must Pay More For EU-Funded Projects)

SHARED CONCERNS

Freni said other countries share Italy’s concerns. While higher prices have common causes across the bloc, some member states are suffering more due to greater energy dependence, he said.

The EU should produce a mechanism which allows adjustments to be made which “do not require daily intervention” from governments and administrations, he said, arguing that contractors should not be expected to absorb higher prices for raw materials and energy.

Italy is also considering a new package to mitigate the rise of energy prices on consumers and companies and protect the economic recovery, he said, speaking after MNI reported that the government would announce fresh measures this week. (see MNI: Italy Mulling EUR7-8 Bln Extra To Offset Energy-Sources)

The new package could be funded by a reallocation of existing resources, by a budget expansion that would increase the fiscal deficit, or by a combination of the two, said Freni.

The Italian government is due to present a new Economic and Finance Document this week, containing updated macroeconomic forecasts incorporating the impact of the war in Ukraine together with new economic or defence measures. The document could be released on Thursday.

Italy has also been pressing the EU to ease rules on government debt and borrowing contained in the Stability and Growth Pact. Freni called for an emergency overhaul of the Pact and a temporary relaxation of rules on state aid. Europe’s green transition also needs urgent action, but this will not address the immediate crisis.

“Investment in renewable energies are shared and necessary but they are not decisive in the short term,” he said.