Italy and Spain, the two largest recipients of Brussels’ €750bn Covid-19 recovery fund, face administrative bottlenecks in spending unprecedented EU financial support over the coming years, experts and economists have warned.
From mid-2021, the European Commission will begin disbursing borrowed cash from its landmark Next Generation EU recovery fund to member states aiming to jump-start their economies after pandemic-induced lockdowns. Italy and Spain, which are among the EU’s biggest and worst-hit countries, will be the top two recipients of the aid which is designed to fund long-term investment projects and encourage growth.
But the two countries also have a historically poor record in spending EU money — a process known as “absorption” — leading to concerns that the cash from Brussels may not be spent because of bureaucratic and administrative hurdles. Spain has the worst absorption rate of EU structural investment funds from 2014 to 2020 at 39 per cent, while Italy’s is 40 per cent, according to figures from the commission. In 2019 alone, Italy had the slowest absorption rate in the EU with only 30.7 per cent of funds being paid out, according to the European Court of Auditors.
Marcello Messori, an economist at Luiss University in Rome, said Italy’s earmarked €208bn of EU recovery money, a combination of grants and loans, was a “colossal opportunity but also an unprecedented administrative and managerial commitment for Italy”.
All EU member states must submit detailed reform plans to Brussels by April, laying out how they plan to use the loans and grants which are designed to boost innovation, digitalisation and facilitate the green transition. Brussels will then scrutinise the reforms and disperse money from the second half of 2021 and until the end of 2023.
“There is still much ambiguity concerning the state of the preparation of the Italian plan and in many cases the scope is too wide,” said Mr Messori. “With over 50 undetailed projects proposed, Italy still hasn’t narrowed down the proposals, but above all has not yet solved the problem of who has to supervise project implementation.”
Spain’s socialist-led government plans to use about 70 per cent of the €72bn of grants due from the recovery funds between 2021 and 2023 on green investment and digital transformation (it could receive up to €140bn in grants and loans between now and 2026).
The country’s socialist-led government has also passed a decree designed to help Spain overcome its difficulties absorbing and spending EU funds efficiently. The measure aims to help modernise public administration, increase public-private sector collaboration and allow more to be spent under urgent contracting rules.
Manuel Hidalgo, a senior fellow at the Esade Centre for Economic Policy, said Spain’s large and compartmentalised bureaucracy — with 8,000 entities spread over national, regional and local levels — combined with a complicated public contracting law cause an average lag of a year to adjudicate a contract. “We need to reform the public administration,” said Mr Hidalgo.
As Spain has already made big infrastructure investments in highways and high-speed trains, the government will have to design and oversee many smaller and more complicated investments in digitalisation, low-carbon technologies, and business development, said Juan Viesca, the former general director of European Funds and Projects for the region of Valencia, and current European Funds Director at the Brussels-based Finnova foundation. He points out that poorer countries like Poland have earmarked money for projects like “highways, hospitals, and ports which you absorb faster”.
In addition to receiving money from the emergency Covid-19 relief plan, EU governments will also have to spend a €1.1tn new common budget that begins this year and includes hundreds of billions in cohesion money to fund catch-up growth in the poorest member states. Henning Fahland, head of the Recovery and Resilience Task Force at the German Ministry of Finance who negotiated the budget package, has described absorption as a “challenge to everyone”.
Enzo Moavero Milanesi, former Italian foreign minister and Europe minister, said the country “had never been given the chance to spend a sum of this kind in recent years” but warned Rome’s national recovery plan had yet to “get off the ground”.
“We have not yet turned to the business side, to companies, to firms, so that the concrete projects come directly from the ground. It is difficult to think that everything can be worked out at an administrative level,” said Mr Milanesi. He said the country has suffered from an “endless number of rules and administrative constraints that complicate the market” and also been historically hampered from public spending by having the second highest public debt-to-gross domestic product ratio in the EU.
“In theory, the problem of public debt could be overcome by drawing on European funds. The opportunity is incredible, but if we delay everything these resources may not produce the desired effects,” said Mr Milanesi.