MNI INTERVIEW:Italy Risks Missing Reform Deadlines For EU Cash

The Italian government risks failing to pass key reforms in time to meet deadlines necessary to unlock tens of billions of euros in NextGenEU funds, partly due to rushed drafting of complex legislation, the economic spokesman for the right-wing League Party told MNI, though he downplayed the danger that the European Union could withhold the cash.

Draft laws to overhaul Italy's courts and bureaucracy go beyond requirements needed to access EU aid, the League's Alberto Bagnai said in an interview, adding that he was also "deeply disappointed" with proposed legislation to delegate power to the government to enact a tax reform. There was a possibility the drafts could be rejected, he said, though he added that the coalition supporting Prime Minister Mario Draghi, of which the League is a key part, is likely to survive so long as the country's budget policy remains expansive.

Members of other coalition parties share his perception of the shortcomings of the "useless and harmful" tax draft, said Bagnai.

"The document is too generic overall, as well as being too specific regarding issues on which there was no consensus. This way of doing things is irrational and will lead to nowhere," he said.

RISKS OF DELAY

The court and public administration reforms, which must be approved this year under the terms of NextGenEU, also run the risk of delay, he said.

But Bagnai, a well-known eurosceptic economist, saw little chance that the EU would hold back payments. Brussels would understand the need to approve solidly-founded legislation rather than hurry through shoddy reforms, he said, noting also that the delivery of European cash has not been made contingent on reforms in other countries such as France, Germany and the Netherlands.

Draft reforms should preferably be stripped back to those specifically required by Italy's National Recovery Plan under NextGenEU, Bagnai said, accusing the government of diverging from agreements over tax and other reforms outlined in a document approved by the coalition parties in June. Points on which the parties agree, such as simplifying taxes and promoting growth, have been brushed over in the government's drafts, while the executive makes specific proposals in other areas in which there was no consensus, such as property tax, he said. A verbal promise from Draghi not to raise taxes is insufficient, he added.

Polls suggest that the League, the second-largest party in parliament, could take a leading role in Italy's next government once Draghi goes and elections are held, in partnership with the far-right Brothers of Italy. In the meantime, the temporary freedom from rules on public borrowing in the EU's Stability and Growth Pact, suspended during the pandemic emergency, has given Italy's parties room to agree within a coalition, said Bagnai, noting that the 2022 budget, to be presented by Oct. 20, will be another fiscally expansive affair.

While the budget is unlikely to include additional measures, requested by other coalition parties but not the League, to help companies and households with soaring energy prices, it will propose more debt relief for business, Bagnai said.

The government is also seeking to avoid a return to an earlier requirement for almost all workers to stay in employment until the age of 67, once the so-called Quota 100 system, which allows people to retire at 62 if their age plus years in employment add up to 100, expires after Jan. 1. The League has argued for keeping Quota 100, but officials have told MNI a compromise solution is more likely.

SGP REFORM

The outlook for future budgets, though, is not clear, said Bagnai, adding that any move to austerity could open the door to an early exit for Draghi from the premiership. A key factor for determining the duration of the stay of the former ECB chief at the head of government will be the result of parliament's deliberations to choose the next national president, he said.

Rather than attempting to accumulate primary surpluses, Italy should foster internal demand by raising salaries and consumption, according to Bagnai. Nor should the government be overly concerned about the global surge in inflation, he said, adding that higher prices would erode debt.

But upcoming EU talks on reforming the SGP are likely to yield little, he said.

"Nobody is negotiating anything. There is a strong resistance from the northern countries to any kind of change," he said, dismissing any possibility that a new German government will lessen that country's resistance to easing eurozone debt rules.

SGP reform should at least ditch calculations based on estimates of GDP output gaps which have contributed to making Italian budget policy strongly procyclical, according to Bagnai.