Connect with us

EU

Renewed Italian nationalism has Conte’s government straying into dangerous economic territory

SHARE:

Published

on

Despite Italian foreign minister Luigi di Maio’s denials, reports are still floating around that the Italian government wants the European Central Bank to write off some of its debt in order to support Rome’s expansionary fiscal policies. The ECB is unlikely to agree, particularly given the increasingly dubious ways in which Rome is burning cash for questionable projects, from propping up perpetually loss-making companies, to pushing for the creation of national champions, writes Colin Stevens.

Indeed, under the Conte administration, Italian state lender Cassa Depositi e Prestiti (CDP), founded 170 years ago to finance basic infrastructure like roads and waterworks, has metamorphosed into a €474 billion juggernaut which the Italian government is puppeteering to build national champions in a range of industries. The coronavirus pandemic has only exacerbated this trend, as Italy has taken full advantage of the EU’s relative laxity on fiscal and state aid rules to plough state money into drowning companies and buy up majority stakes in healthy ones. Italy claims that these interventions are necessary to help the economy withstand the coronavirus downturn, but it increasingly appears like the Conte administration is using the pandemic as cover to indulge in its statist dreams – a troubling trend that the ECB would be remiss to encourage.

The great renationaliszation of Italy

Advertisement

For three decades, the selling of state assets in Italy – begun as a condition of joining the euro – was an effective way to offset Italian debt. Since 2017, however, Italy has been reversing this trend of selling off state assets, starting from the nationalisation of the flailing bank, Monte Paschi di Siena. The country’s populist-led coalition government capitalised on a variety of events – from the anger generated by the collapse of the Morandi bridge to the disillusionment after Italian heritage brands such as Bulgari and Gucci were snatched up by foreign investors – to increase their interference in the economy, often using CDP as a conduit.

It’s unsurprising, then, that Rome is also exploiting the pandemic to ratchet up its intervention in the free market. The EU recovery funds, expected to be disbursed in summer 2021, will give Italy yet more cash to spend on renationalising firms and bolstering CDP’s stakes in private corporations. Italy has yet to submit its finalised plan to Brussels for how it intends to spend the whopping €209 billion it was granted, the single largest slice of the Recovery Fund pie, and public watchdogs fear that Rome will continue on its lavish spending spree, to the benefit of CDP’s coffers rather than Italian citizens.

State spending spree

The EU’s tailored budget was designed to be directed predominantly at the languishing sectors of aviation, tourism, events and media. Given its track record, the Conte administration is unlikely to use it accordingly. At the government’s urging, the CDP has had a heavy hand in the clinching of numerous majority stakes in firms from Forex Euronext to payment app Nexi. Fabrizio Palermo, the CEO of the state lender, justified the spending spree by explaining that “we decided to rationalise our portfolio but also to sustain the companies in it with a strategy of trying to create champions on one side and continue to develop infrastructure on the other”.

This rationale, however, is increasingly less easy to justify, particularly in the wake of the sovereign fund’s most recent misjudged merger which the state and its fund are aiming to push through - namely the hot-button tie-up of the peninsula’s only two broadband providers Telecom Italia (TIM) and Open Fiber. The CDP is set to sell its 50% stake in Open Fiber to TIM (of which it is also second largest shareholder, with a 9.9% stake) to create a tele-giant. In doing so, instead of fulfilling its original mandate to invest in Italy’s infrastructure, the CDP risks setting the development of Italy’s broadband back by years.

A game of Monopoly

The rollout of a super-fast national fibre network is dearly needed in Italy. A monolithic company, however, will be the opposite of a “champion”. When TIM previously held a monopoly, Italy suffered under slow internet at inflated prices. Open Fiber’s entry on the market brought valuable competition and an uptick in the rollout of ultrafast broadband. Throwing in the towel on broadband competition risks slowing the expansion of Italy’s broadband network to a crawl again.

No wonder that consumer groups have published concerns that the merger will be “detrimental for the market, with the ultimate price to be paid by Italian consumers and businesses”, particularly since the vertical integration would ensure TIM maintains directorial control over matters while also acting as a network operator, thus threatening competitors’ market share. The practice of aiding ‘favoured’ companies skews competition and is likely to anger foreign investors in the country, as in the case of Ryanair, who lament the €30 billion in state aid allocated to European flag carrier airlines. Far from heralding in a new era, a renewed monopoly will be a nasty blast from the past.

Time for smarter spending

Rome’s escalating state intervention risks distorting the market and spooking foreign investors just when the economy needs them most. Even Italy's mammoth share of the coronavirus recovery fund won't last long if it's whittled away on propping up loss-making ventures like Alitalia and Monte Paschi di Siena. With pundits predicting that Covid-19 could shrink the Italian economy by 10% this year, other sources of funding will be in short supply – especially given that the ECB is likely too savvy to grant Italy’s hopes of a debt-write off. If Conte really means to change the face of his country, he will have to put his money where his mouth is – and not in distorting healthy market competition to the entire country’s detriment.

Belgium

Cars and pavements washed away as Belgian town hit by worst floods in decades

Published

on

By

The southern Belgian town of Dinant was hit by the heaviest floods in decades on Saturday (24 July) after a two-hour thunderstorm turned streets into torrential streams that washed away cars and pavements but did not kill anyone, writes Jan Strupczewski, Reuters.

Dinant was spared the deadly floods 10 days ago that killed 37 people in southeast Belgium and many more in Germany, but the violence of Saturday's storm surprised many.

"I have been living in Dinant for 57 years, and I've never seen anything like that," Richard Fournaux, the former mayor of the town on the Meuse river and birthplace of the 19th century inventor of the saxophone, Adolphe Sax, said on social media.

Advertisement
A woman works to recover her belongings following heavy rainfall in Dinant, Belgium July 25, 2021. REUTERS/Johanna Geron
A woman walks in an area affected by heavy rainfall in Dinant, Belgium July 25, 2021. REUTERS/Johanna Geron

Rainwater gushing down steep streets swept away dozens of cars, piling them in a heap at a crossing, and washed away cobbles stones, pavements and whole sections of tarmac as inhabitants watched in horror from windows.

There was no precise estimate of the damage, with town authorities predicting only that it would be "significant", according to Belgian RTL TV.

The storm wreaked similar havoc, also with no loss of life, in the small town of Anhee a few kilometres north of Dinant.

Continue Reading

Czech Republic

NextGenerationEU: European Commission endorses Czechia's €7 billion recovery and resilience plan

Published

on

The European Commission has today (19 July) adopted a positive assessment of Czechia's recovery and resilience plan. This is an important step towards the EU disbursing €7 billion in grants under the Recovery and Resilience Facility (RRF). This financing will support the implementation of the crucial investment and reform measures outlined in Czechia's recovery and resilience plan. It will play a key role in helping Czechia emerge stronger from the COVID-19 pandemic.

The RRF is at the heart of NextGenerationEU which will provide €800bn (in current prices) to support investments and reforms across the EU. The Czech plan forms part of an unprecedented co-ordinated EU response to the COVID-19 crisis, to address common European challenges by embracing the green and digital transitions, to strengthen economic and social resilience and the cohesion of the Single Market.

The Commission assessed Czechia's plan based on the criteria set out in the RRF Regulation. The Commission's analysis considered, in particular, whether the investments and reforms set out in Czechia's plan support the green and digital transitions; contribute to effectively addressing challenges identified in the European Semester; and strengthen its growth potential, job creation and economic and social resilience.

Advertisement

Securing Czechia's green and digital transition  

The Commission's assessment of Czechia's plan finds that it devotes 42% of its total allocation to measures that support climate objectives. The plan includes investments in renewable energy, the modernisation of district heating distribution networks, the replacement of coal-fired boilers and improving the energy efficiency of residential and public buildings. The plan also includes measures for nature protection and water management as well as investment in sustainable mobility.

The Commission's assessment of Czechia's plan finds that it devotes 22% of its total allocation to measures that support the digital transition. The plan provides for investments in digital infrastructure, the digitalization of public administration, including the areas of health, justice and the administration of construction permits. It promotes the digitalisation of businesses and digital projects in the cultural and creative sectors. The plan also includes measures to improve digital skills at all levels, as part of the education system and through dedicated upskilling and reskilling programmes.

Reinforcing Czechia's economic and social resilience

The Commission considers that Czechia's plan effectively addresses all or a significant subset of the economic and social challenges outlined in the country-specific recommendations addressed to Czechia by the Council in the European Semester in 2019 and in 2020.

The plan provides for measures to tackle the need for investment in energy efficiency and renewable energy sources, sustainable transport and digital infrastructure. Several measures aim at addressing the need to foster digital skills, improve the quality and inclusiveness of education, and to increase the availability of childcare facilities. The plan also provides for improving the business environment, mainly through extensive e-government measures, a reform of the procedures of granting construction permits and anti-corruption measures. Challenges in the area of R&D shall be improved by investment geared at strengthening public-private cooperation and financial and non-financial support to innovative firms.

The plan represents a comprehensive and adequately balanced response to Czechia's economic and social situation, thereby contributing appropriately to all six pillars referred to in the RRF Regulation.

Supporting flagship investments and reform projects

The Czech plan proposes projects in all seven European flagship areas. These are specific investment projects which address issues that are common to all member states in areas that create jobs and growth and are needed for the twin transition. For instance, Czechia has proposed €1.4bn to support the energy efficiency renovation of buildings and €500 million to boost digital skills through education and investments in upskilling and reskilling programmes for the entire labour force.  

The Commission's assessment finds that no measure included in the plan does any significant harm to the environment, in line with the requirements laid out in the RRF Regulation.

The arrangements proposed in the recovery and resilience plan in relation to control systems are adequate to prevent, detect and correct corruption, fraud and conflicts of interests relating to the use of funds. The arrangements are also expected to effectively avoid double funding under that Regulation and other Union programmes. These control systems are complemented by additional audit and control measures contained in the Commission's proposal for a Council Implementing Decision as milestones. These milestones must be fulfilled before Czechia presents its first payment request to the Commission.

President Ursula von der Leyen said: “Today, the European Commission has decided to give its green light to Czechia's recovery and resilience plan. This plan will play a crucial role in supporting a shift towards a greener and more digital future for Czechia. Measures that improve energy efficiency, digitalize public administration and deter the misuse of public funds are exactly in line with the objectives of NextGenerationEU. I also welcome the strong emphasis the plan places on strengthening the resilience of Czechia's health-care system to prepare it for future challenges. We will stand with you every step of the way to ensure that the plan is fully implemented.

Economy Commissioner Paolo Gentiloni said: “Czechia's recovery and resilience plan will provide a strong boost to the country's efforts to get back its feet after the economic shock caused the pandemic. The €7bn in NextGenerationEU funds that will flow to Czechia over the next five years will support a wide-ranging programme of reforms and investments to build a more sustainable and competitive economy. They include very sizeable investments in building renovation, clean energy and sustainable mobility, as well as measures to boost digital infrastructure and skills and the digitalisation of public services. The business environment will benefit from the promotion of e-government and anti-corruption measures. The plan will also support improvements in healthcare, including reinforced cancer prevention and rehabilitation care.”

Next steps

The Commission has today adopted a proposal for a Council Implementing Decision to provide €7bn in grants to Czechia under the RRF. The Council will now have, as a rule, four weeks to adopt the Commission's proposal.

The Council's approval of the plan would allow for the disbursement of €910m to Czechia in pre-financing. This represents 13% of the total amount allocated to Czechia.

An Economy that Works for People Executive Vice President Valdis Dombrovskis said: “This plan will put Czechia on the path to recovery and boost its economic growth as Europe gears up for the green and digital transitions. Czechia intends to invest in renewable energy and sustainable transport, while improving the energy efficiency of buildings. It aims to roll out greater digital connectivity across the country, promote digital education and skills, and digitalize many of its public services. And it places a welcome focus on improving the business environment and justice system, backed by measures to fight corruption and promote e-government – all in a balanced response to the Czech economic and social situation. Once put properly into practice, this plan will help to put Czechia on a sound footing for the future.”

The Commission will authorize further disbursements based on the satisfactory fulfilment of the milestones and targets outlined in the Council Implementing Decision, reflecting progress on the implementation of the investments and reforms. 

More information

Questions and answers: European Commission endorses Czechia's recovery and resilience plan

Recovery and Resilience Facility: Questions and answers

Factsheet on Czechia's recovery and resilience plan

Proposal for a Council Implementing Decision on the approval of the assessment of the recovery and resilience plan for Czechia

Annex to the Proposal for a Council Implementing Decision on the approval of the assessment of the recovery and resilience plan for Czechia

Staff-working document accompanying the proposal for a Council Implementing Decision

Recovery and Resilience Facility

Recovery and Resilience Facility Regulation

Continue Reading

Belgium

Death toll rises to 170 in Germany and Belgium floods

Published

on

The death toll in devastating flooding in western Germany and Belgium rose to at least 170 on Saturday (17 July) after burst rivers and flash floods this week collapsed houses and ripped up roads and power lines, write Petra Wischgoll,
David Sahl, Matthias Inverardi in Duesseldorf, Philip Blenkinsop in Brussels, Christoph Steitz in Frankfurt and Bart Meijer in Amsterdam.

Some 143 people died in the flooding in Germany's worst natural disaster in more than half a century. That included about 98 in the Ahrweiler district south of Cologne, according to police.

Hundreds of people were still missing or unreachable as several areas were inaccessible due to high water levels while communication in some places was still down.

Advertisement

Residents and business owners struggled to pick up the pieces in battered towns.

"Everything is completely destroyed. You don't recognise the scenery," said Michael Lang, owner of a wine shop in the town of Bad Neuenahr-Ahrweiler in Ahrweiler, fighting back tears.

German President Frank-Walter Steinmeier visited Erftstadt in the state of North Rhine-Westphalia, where the disaster killed at least 45 people.

"We mourn with those that have lost friends, acquaintances, family members," he said. "Their fate is ripping our hearts apart."

Around 700 residents were evacuated late on Friday after a dam broke in the town of Wassenberg near Cologne, authorities said.

But Wassenberg mayor Marcel Maurer said water levels had been stabilising since the night. "It's too early to give the all-clear but we are cautiously optimistic," he said.

The Steinbachtal dam in western Germany, however, remained at risk of breaching, authorities said after some 4,500 people were evacuated from homes downstream.

Steinmeier said it would take weeks before the full damage, expected to require several billions of euros in reconstruction funds, could be assessed.

Armin Laschet, state premier of North Rhine-Westphalia and the ruling CDU party's candidate in September's general election, said he would speak to Finance Minister Olaf Scholz in the coming days about financial support.

Chancellor Angela Merkel was expected to travel on Sunday to Rhineland Palatinate, the state that is home to the devastated village of Schuld.

Members of the Bundeswehr forces, surrounded by partially submerged cars, wade through the flood water following heavy rainfalls in Erftstadt-Blessem, Germany, July 17, 2021. REUTERS/Thilo Schmuelgen
Austrian rescue team members use their boats as they go through an area affected by floods, following heavy rainfalls, in Pepinster, Belgium, July 16, 2021. REUTERS/Yves Herman

In Belgium, the death toll rose to 27, according to the national crisis centre, which is co-ordinating the relief operation there.

It added that 103 people were "missing or unreachable". Some were likely unreachable because they could not recharge mobile phones or were in hospital without identity papers, the centre said.

Over the past several days the floods, which have mostly hit the German states of Rhineland Palatinate and North Rhine-Westphalia and eastern Belgium, have cut off entire communities from power and communications.

RWE (RWEG.DE), Germany's largest power producer, said on Saturday its opencast mine in Inden and the Weisweiler coal-fired power plant were massively affected, adding that the plant was running at lower capacity after the situation stabilized.

In the southern Belgian provinces of Luxembourg and Namur, authorities rushed to supply drinking water to households.

Flood water levels slowly fell in the worst hit parts of Belgium, allowing residents to sort through damaged possessions. Prime Minister Alexander De Croo and European Commission President Ursula von der Leyen visited some areas on Saturday afternoon.

Belgian rail network operator Infrabel published plans of repairs to lines, some of which would be back in service only at the very end of August.

Emergency services in the Netherlands also remained on high alert as overflowing rivers threatened towns and villages throughout the southern province of Limburg.

Tens of thousands of residents in the region have been evacuated in the past two days, while soldiers, fire brigades and volunteers worked frantically throughout Friday night (16 July) to enforce dykes and prevent flooding.

The Dutch have so far escaped disaster on the scale of its neighbours, and as of Saturday morning no casualties had been reported.

Scientists have long said that climate change will lead to heavier downpours. But determining its role in these relentless rainfalls will take at least several weeks to research, scientists said on Friday.

Continue Reading
Advertisement
Advertisement
Advertisement

Trending