‘It would be a disaster’: Is Italy at risk of losing EU recovery funds?

There are rising concerns that Italy will lose billions of euros offered in EU post-pandemic recovery funds amid delays, changes to the spending plan, and questions about why Italy is using the money to build two sports stadiums.

'It would be a disaster': Is Italy at risk of losing EU recovery funds?
Prime Minister Giorgia Meloni has said plans to spend Italy's portion of the EU recovery fund must be reviewed. (Photo by Kenzo TRIBOUILLARD / AFP)

When Mario Draghi left Italy’s government last year, there were concerns about the fate of the EU recovery funds he had negotiated for his country.

Now, fears are rising that billions of euros are at risk of being lost as the new government aims to negotiate changes to spending plans drawn up more than two years ago.

READ ALSO: What’s changing under Italy’s post-pandemic recovery plan?

Out of all member states, Italy is taking the biggest chunk of European Union aid for economic recovery after the coronavirus pandemic, with 191.5 billion euros in grants and loans to be paid in instalments until 2026.

The first two instalments progressed smoothly, but the third payment from the EU is now frozen as Brussels asks for clarification about some aspects of Italy’s plans – particularly to spend the cash on building two sports complexes.

“I’m not worried about delays,” Prime Minister Giorgia Meloni, who took over in October, insisted on Monday, adding that any issues with the plan “are not the result of choices of this government”.

OPINION: Italy has a big chance to improve digital infrastructure – but will it take it?

Draghi, a former head of the European Central Bank, quit last summer after his coalition government fell apart and he was succeeded as premier by Meloni, the untested leader of the far-right Brothers of Italy party.

The EU has frozen the third scheduled payment to Italy, worth 19 billion euros, until at least the end of April pending clarification of some of the 55 objectives due during the second half of 2022.

Stadiums and beach concessions

Brussels has issues with some of Italy’s plans for the money, including the renovation of Fiorentina’s 1930s football stadium in a wealthy neighbourhood of Florence and the construction of a new sports stadium in Venice.

The EU funds were supposed to be focused on projects that boost digitalisation, the transition to a more environmentally friendly economy, and infrastructure, notably the rail sector, as well as revamping neglected urban areas, and European officials say the sports stadium projects do not fit the bill.

Another point of contention is Meloni’s decision to delay by at least a year plans to open up Italy’s many beach concessions to public tender, a decision that drew a rebuke from the government’s own independent judicial body.

READ ALSO: Why are so many of Italy’s beaches privatised?

Nero's palace in Rome, Italy

Plans for EU-funded redevelopment measures include work at many of Rome’s historical sites. Photo by Alberto PIZZOLI / AFP

Spending is also behind schedule, with Italy originally hoping to spend more than 40 billion euros by the end of 2022. 

But just 12 billion has been committed, six percent of the total EU fund, according to Italy’s Court of Auditors.

“There are clearly delays as far as spending and construction are concerned, not so much in achieving objectives,” Lorenzo Codogno, a former chief economist at the Italian Treasury, told AFP.

“There is zero chance of getting agreement from Brussels on extending the deadline beyond 2026. Italy has to deliver all milestones and targets by that time,” he added.

The credibility of the entire EU scheme, worth 800 billion euros, is now at stake.

READ ALSO: How one dying Italian village plans to spend €20m in EU recovery funds

EU Economy Commissioner Paolo Gentiloni, himself a former Italian prime minister, warned in March that “we Italians cannot be responsible for the failure of the first eurobonds at the European level, it would really be a disaster from a European point of view”.

“We need to roll up our sleeves in Brussels and Rome and make this stuff work,” Gentiloni said.

If the project fails, Italy “would have wasted a unique opportunity” and in the future, “the EU will become more austere” in applying stricter budgetary rules, said another former Italian premier, economist Mario Monti.

Italy’s EU Affairs Minister Raffaele Fitto has said the government is in talks with Brussels to replace some projects from its original plan, which it now says it cannot complete by the 2026 deadline.

These would be replaced with less ambitious projects that can be completed on time, while the original ones could be financed using separate European Union funds that can be spent until 2029, he said.

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Why Italy is fighting EU plans to limit vehicle emissions

Italy's government is leading a revolt against an EU plan for a green car transition, vowing to protect the automotive industry in a country still strongly attached to the combustion engine - despite the impact of climate change.

Why Italy is fighting EU plans to limit vehicle emissions

Prime Minister Giorgia Meloni’s hard-right coalition, which came into office last October, tried and failed to block EU plans to ban the sale of new cars running on fossil fuels by 2035, which her predecessor Mario Draghi had supported.

But this week the government took the fight to planned ‘Euro 7’ standards on pollutants, joining with seven other EU member states – including France and Poland – to demand Brussels scrap limits due to come into force in July 2025.

READ ALSO: Why electric cars aren’t more popular in Italy

“Italy is showing the way, our positions are more and more widely shared,” claimed Enterprise Minister Adolfo Urso, a fervent proponent of national industry in the face of what he has called an “ideological vision” of climate change.

The EU plan “is clearly wrong and not even useful from an environmental point of view”, added Transport Minister Matteo Salvini, leader of the far-right League party, which shares power with Meloni’s post-fascist Brothers of Italy.

Salvini led the failed charge against the ban on internal combustion engines, branding it “madness” that would “destroy thousands of jobs for Italian workers” while he claimed it would benefit China, a leader in producing electric vehicles.

Electric car being charged

Photo by Gabriel BOUYS / AFP

Federico Spadini from Greenpeace Italy lamented that “environmental and climate questions are always relegated to second place”, blaming a “strong industrial lobby in Italy” in the automobile and energy sectors.

“None of the governments in recent years have been up to the environmental challenge,” he told AFP.

“Unfortunately, Italy is not known in Europe as climate champion. And it’s clear that with Meloni’s government, the situation has deteriorated,” he said.

Low demand

Jobs are a big factor. In 2022, Italy had nearly 270,000 direct or indirect employees in the automotive sector, which accounted for 5.2 percent of GDP.

The European Association of Automotive Suppliers (CLEPA) has warned that switching to all electric cars could lead to more than 60,000 job losses in Italy by 2035 for automobile suppliers alone.

READ ALSO: Italians and their cars are inseparable – will this ever change?

“Since Fiat was absorbed by Stellantis in 2021, Italy no longer has a large automobile industry, but it remains big in terms of components, which are all orientated towards traditional engines,” noted Lorenzo Codogno, a former chief economist at the Italian Treasury.

For consumers too, the electric revolution has yet to arrive.

Italy has one of the highest car ownership rates in Europe: ranking fourth behind Liechtenstein, Iceland and Luxembourg with 670 passenger cars per 1,000 inhabitants, according to the latest Eurostat figures from 2020.

But sales of electric cars fell by 26.9 percent in 2022, to just 3.7 percent of the market, against 12.1 percent for the EU average.

Electric cars charge at a hub in central Milan on March 23, 2023. (Photo by GABRIEL BOUYS / AFP)

Subsidies to boost zero emissions vehicles fell flat, while Minister Urso has admitted that on infrastructure, “we are extremely behind”.

Italy has just 36,000 electric charging stations, compared to 90,000 for the Netherlands, a country the fraction of the size of Italy, he revealed.

READ ALSO: These are the most (and least) eco-friendly towns in Italy

“There is no enthusiasm for electric cars in Italy,” Felipe Munoz, an analyst with the automotive data company Jato Dynamics, told AFP.

“The offer is meagre, with just one model manufactured by national carmaker Fiat.”

In addition, “purchasing power is not very high, people cannot afford electric vehicles, which are expensive. So the demand is low, unlike in Nordic countries.”

Gerrit Marx, head of the Italian truck manufacturer Iveco, agrees.

“We risk turning into a big Cuba, with very old cars still driving around for years, because a part of the population will not be able to afford an electric model,” he said.