YOU are the Next Generation: Italian Recovery and Resilience Plan
Article written by: Federico Mammana, Danilo Volpe, Alessandro Vestri, Edoardo Cattaneo
Colosseum in Rome, Italy by Diliff is licensed under CC BY-SA 2.5,
European countries have been among the most hit by the health, economic and social crisis brought about by the COVID-19 pandemic. The European Union, through the Multiannual Financial Framework (MFF), the Recovery and Resilience Facility (RRF), and other complementary initiatives, commits a total of €1.8 trillion to sustain the post-pandemic recovery and to improve the long-term prospects of Europe and its citizens. NextGenerationEU (also branded Recovery Fund), which adds €750 billion to the MFF, was agreed upon on 21 July 2020, becoming the largest stimulus package ever financed through the EU budget. By submitting a comprehensive national plan, every Member State is eligible to obtain funds to enhance resilience, mitigate impacts of the crisis, as well as support the green and digital transitions.
European Generation believes in the historical significance of this project, and realizes how big of an opportunity this is. Hence, we believe it is crucial, for all European citizens, to understand what national and European leaders are doing to seize such an opportunity. This is the final aim of this series of articles, which we have entitled “YOU are the Next Generation” as to underline the direct impact the decisions taken in the Recovery and Resilience Plans will have especially on younger generations, as well as the responsibility each and every one of us has in shaping the present and the future of Europe.
Piano Nazionale di Ripresa e Resilienza: ‘Italia Domani’
On April 28th, the Italian parliament approved the ‘Piano Nazionale di Ripresa e Resilienza’ (PNRR), which foresees reforms and investments to be implemented in the span of the next five years. Italy plans to use the full financing capacity of NextGenerationEU, and more: €191.5 bn, of which €68.9 bn grants and €122.6 bn loans, will be financed through the RRF; €13 bn of grants will come from the REACT-EU initiative; €30.6 bn of additional funding will be completely drawn by public finance. With a total of €235 billion, the Italian PNRR represents the largest Recovery and Resilience Plan, as well as the one on which all eyes will be pointed in the following years.
Over the last 20 years, Italy has experienced a period of persistent economic stagnation, which was not shared with comparable EU countries such as Spain, Germany and France. Most economists, including the current Prime Minister Mario Draghi, agree in identifying the cause of such stagnation in the relentless decline of productivity, which in turn is largely driven by a series of structural deficiencies afflicting both the private and public sector. The stagnation has also contributed to the widening of the three major inequalities in Italy: gender, age and geographical inequalities. Unsurprisingly, Italy’s pathological problems have only worsened the severity of the COVID-19 crisis in the country, which has been one of the harshest in Europe.
To support the country’s recovery, in line with the EU guidelines, the investments and reforms foreseen by the Italian PNRR are articulated into six major missions:
Digitalization, innovation, competitiveness, culture and tourism;
Green revolution and ecological transition;
Infrastructure for sustainable mobility;
Education and research;
Cohesion and inclusion;
Health.
Like we did in the previous articles of this series, we will divide these missions into the three main categories identified by the European Commission. Furthermore, the Italian PNRR identifies some key areas of reforms which are deemed essential to ensure that the interventions have the desired impact. These mainly consist in long-awaited reforms of the public administration and of the judiciary, and to promote competition and legislative simplification. Reforms will be discussed in the following section.
Importantly, a set of ‘horizontal’ priorities in terms of equal opportunities are defined at the beginning of the PNRR: reducing the inequalities suffered by women and young people, and narrowing the gap between Southern and Northern Italy are correctly considered urgencies, and as such they are implicit objectives of most interventions in the plan. Critics have pointed out that dealing with these issues in such a generalized way may reduce the effectiveness of interventions, as compared to a more focused approach.
Reforms
The PNRR includes a chapter to expose the blueprint for the reforms to be implemented in the next years to ensure the effectiveness of the investments and policies. Most of these come at zero additional cost, as they involve changes in procedures and regulations.
The first to be discussed are the reforms of the PA and of the justice system, the so-called ‘horizontal’ reforms, as they are expected to positively impact all Missions transversally, improving the effectiveness of investments and policies. The reform of the public administration is structured around four pillars:
Access, to improve the selection processes in favor of young and high-skilled human capital, the PNRR includes the establishment of a unique application platform that would help reduce the information asymmetry during recruitment, and of new hiring paths specific to young and highly qualified people. The goal is to jumpstart labor turnover, which has been stuck for years, contributing to an understaffed, older and less tech savvy PA.
Good administration, to drastically simplify, speed up, rationalize, digitalize and make more user-friendly the labyrinthic system of procedures of the Italian PA, with special attention on those related to the execution of the PNRR. The improvements would involve a comprehensive and homogeneous revisions of norms and procedures at all levels of government, based on key principles such as the ‘silent consent’ and the interoperability of citizens’ data across administrations (‘once-only’ principle). Moreover, the introduction of a system of incentives based on benchmarking and outcome-based performance is mentioned.
Competencies, to improve the mobility and strategic management of human resources within the PA, based on their skills and professional profile, through a reform of the formation and management processes of civil servants.
Digitalization, to improve technological capacities across all the PA, both in terms of infrastructure and of human capital.
In line with the CSR for Italy, the PNRR intends to continue the process of reform of civil and criminal justice. The main focus is on reducing trial length, which is one of the main factors hampering the development of the Italian entrepreneurial system, contributing to the stagnation of productivity and exacerbating inequalities. The reform of the justice system is mapped out along the following interventions:
the establishment of an ‘office of the trial’ to assist the judge in dealing with procedural duties;
the reorganization of the civil trial by allowing for Alternative Dispute Resolution (such as arbitration, assisted negotiation or mediation) and partially restructuring the trial phases to solve deficiencies slowing down the whole process;
the revision of tax proceedings, to reduce the number of accumulated appeals and to improve the process of their resolution;
a series of measures aimed at simplifying and rationalizing the criminal trial, at fostering transparency and accountability of the investigating parties, and at reducing the average length of trials, which is far above the EU average;
a comprehensive reform of the judiciary, which introduces an array of measures to instigate efficiency, effectiveness, transparency and independence within the judicial branch.
Like for the PA reform, the normative adjustments of the justice system will be integrated with the recruitment of qualified workforce, including magistrates, and investment in the digitalization of procedures.
The simplification and competition reforms are defined as ‘enabling’, because they are considered crucial for the interventions in the PNRR to obtain the desired results. The legislative simplification and rationalization involve measures to promote organizational agility and procedural innovation, an important revision of public procurement law, simplification of norms related to environmental, urban and construction projects, and to investments in Southern Italy. Moreover, the on-going process of simplification of procedures in the PA is complemented with the strengthening of spending review practices, with measures of fiscal federalism, and with the elimination of norms favoring corruption and tax evasion. For what concerns competition, the PNRR stresses the importance of guaranteeing the correct functioning of competitive markets through the ‘annual law for the market and competition’, which in 2021 will also include norms related to strategic infrastructure such as telecommunications and energy and to non-economic public services such as healthcare, the removal of barriers to entry, and measures for improved antitrust enforcement. On the other hand, the liberalization of highly (and probably unfairly) protected sectors, such as beach concessions and taxis, has been temporarily postponed; according to one expert working on the PNRR, this decision has been taken in accordance with Commission representatives to avoid the negative effects this will have on people working in sectors already disrupted by the pandemic.
In conclusion, the PNRR mentions other sets of reforms that, even though outside the scope of the plan, are intended to support the post-pandemic recovery: the fiscal reform and the rationalization of the fragmented and convoluted Italian tax law, and a welfare state reform, focusing on active and efficient labor market policies and on income and family support (under the so-called ‘Family Act’).
Sustainability and green transition
In the field of green transition and smart mobility, Italy will commit to implement strategic investments with the following objectives:
Increase the share of renewable energies, by attempting to reach a target of 30% out of final consumption, and reduce the dependency on imported renewable technologies;
Exploit the huge potential given by the “utility-scale” facilities, which require however reforms of the market regulation to reach their full potential and incentivize the use of innovative and offshore solutions. In particular, a reform of the current legal framework is crucial for the effectiveness of these investments: for example, Italy needs a new legislative framework aimed at simplifying the authorization procedures for the renewable facilities both offshore and onshore, with a view to promote production from renewable sources; also, these legislative reforms should promote the usage of biomethan across different sectors. Focus is also given on the smart grids distributing electricity, which should become more digital and flexible with respect to the past; importance is given also to the resilience of such grids, which should be improved by reducing the impact arising from exposure to extreme meteorological conditions.
Strengthen the infrastructure networks and support smart mobility. In the field of smart mobility, the PNRR emphasizes the development of high speed trains, also to reduce the infrastructure gap between Northern and Southern regions, by strengthening especially the regional railway networks and corridors, such as the Naples-Bari high speed train line. These railway networks in the Southern regions should sustain the higher expected demand of connectivity and mobility. Moreover, creation and strengthening of railway networks between Northern Italy and Europe or cross railway nodes in the Centre-South (ex. Rome-Pescara) are crucial. Other investments relate to the development of underground lines in major italian cities, and to the electrification in the Southern regions together with development of regional railway lines and of the railway stations.
Development of a more sustainable local means of transport. The development of more sustainable local transport, and the construction and maintenance of cycle lanes is promoted (for a total of 570 km of cycle lanes in cities), also to foster social cohesion, since half of the resources are expected to directly benefit Southern Italy. Development of faster public transport should reach the ambitious target of moving 10% of car traffic to public transport, generating lower environmental impact. Furthermore, use of electric vehicles is another type of investment, prioritising filling stations and infrastructures for this type of “green” and modern transportation: in the end, such investment is expected to fuel sustainable mobility.
Incentivize the use of hydrogen. With respect to hydrogen, the most ambitious objective foreseen by the PNRR in this direction is represented by the creation of “hydrogen valleys” in specific areas of the country where the economy could rely more on hydrogen. The latter could prove useful to boost decarbonization in “a-bate” sectors, such as chemical industries. Furthermore, other ambitious policies are represented by hydrogen experimentation both for car and railway transport, in order to create hydrogen-based filling stations and convert to hydrogen railway networks in the areas characterized by a high number of passengers using diesel-based trains. Finally, strengthening R&D in the field, simplifying administration procedures, and removing legal obstacles to the spread use of hydrogen should accompany this investment.
Promote the green transition. The development of an international leadership engaged in research about green transition is prioritized, given also the strategic role of Italy in the Mediterranean, which could make the country a nevralgic point for the new markets emerging in the transition process. To that end, research on batteries, eolic and solar sectors is promoted through collaborations with other european countries such as France and Germany, which could promote the development of a european research network. Moreover, Italy commits to incentivize start-ups and SMEs active in the field of green transition, by prioritising innovation through modern venture capital financing mechanisms. With regards to energy efficiency, Italy commits to modernize obsolete school or education facilities in the light of energy requalification and seismic safety. Furthermore, ensuring higher efficiency of the judicial system and simplifying the authorisation of procedures related to energy efficiency could help to overcome the non-economic barriers faced by private investment.
Invest in digitalization and increased resilience of networks. Finally, other investments concern the digitization of supply chains and of logistics, the ‘green ports’ initiative (aimed at reducing the electric consumption by ports), digital innovation of airports, road security, and the safety and resilience of water supply networks through better management of Italy’s water resources. Finally, the PNRR plans the creation of innovative monitoring systems to evaluate potential risks impacting the territory, such as those arising from climate change and inadequate territory planning, and identify the appropriate measurement systems to measure risks of flood. These investments are all oriented towards increasing the resilience of the Italian territory.
Focus on parks as important public goods. Efforts should be put in creating new green parks and preserving their biodiversity, in an attempt to increase the quality of life and happiness of citizens. Moreover, protection of the sea habitats and adoption of tools to reduce or monitor air pollution are also key strategic priorities in this direction.
Innovation and digitalization
The “digitalization, innovation, competitiveness, culture and tourism” Mission of the Italian PNRR has the objective to increase the productivity of the system Italy to gain competitiveness in the international panorama. The efforts on digitalization and innovation are fundamental for this purpose. The data provided by DESI 2020 show that Italy is 25th in Europe for the level of digitalization. This position is justified by the limited diffusion of digital skills and the low adoption of advanced technologies that have dramatically led, in the last twenty years, to a drop in productivity, as opposed to a general growth trend registered in the rest of Europe. The mission is divided into three main components: the first one is meant to radically modernize the Public Administration through a digitalization-based strategy; the second one aims at promoting the innovation and digitalization in the productive system; while the third has the relaunch of the Italian “brand”, represented by its culture and tourism.
The digitalization of the Public Administration will follow a “cloud first” approach, with the development of a cloud environment where all the administrative data will be transferred. This process will help make the dispersed data centers in the country more efficient and safer through two complementary options. The administrative centers could, indeed, either choose to migrate the data to the Polo Strategico Nazionale, a new cloud-dedicated infrastructure, or migrate on the “public” cloud of one of the market operators previously certified. The modernization process will be developed through the supply of financial resources and technical competences, through a list of certified technical providers. The decrease in the digital gap that this component is aimed at reducing is expected to have a positive impact on productivity. Citizens’ information, indeed, will be provided “once only” through a unique and interconnected system (the “Piattaforma Nazionale Dati”) that will allow a bureaucratic lightening and a decrease in the administrative procedural times and costs. Additionally, the digital identity system will be reinforced, with the objective of merging the existing systems (SPID e CIE) into a more simple and integrated system. A unique digital identity system will allow an easier contact between the citizens and the PA, by making easier the diffusion of recently developed apps such as “PagoPA” and “IO” (digital channels that help the citizens to have access to PA’s services). Finally, the judiciary system will also be modernized, with the aim of increasing the productivity of judicial offices, which will lead to a reduction in the average duration of civil trials by more than 40% and of criminal trials by about 10%.
The second component of this mission addresses the productive system, with the objective of reinforcing Italian competitiveness through technological innovation and digitalization. This objective will be achieved through a “Transition 4.0”, a program of investments that will support the firms that will innovate or digitalize their processes of production. More in detail, this measure recognizes three kinds of tax credits for firms that invest in (a) capital goods, (b) research, development and innovation, and (c) digitalization training and development of related skills. An increased industrial efficiency will also be achieved through the Italian ambition of developing a Gigabit universal society by bringing 1 Gbps connections on the whole national territory by 2026, 4 years before the European objective established in the Digital Compass strategy for the next decade.
Finally, in the third component we can find investments in two sectors that are fundamental in designing the Italian “brand” and image in the world. The investments in the tourism and culture sectors are focused on the regeneration of cultural and touristic heritage, the enhancement of asset value and the digitalization of access. The investments will be addressed to every cultural area of the country, involving both the big touristic sites and the smaller “borghi” (villages) and rural areas, to create new cultural experiences that will balance the touristic flows sustainably. The interventions will also follow environmental sustainability, improving the energetic efficiency of the buildings and renovating the organizational/management practices of cultural events. Furthermore, some initiatives are planned to support the tourism sector, such as tax credits, dedicated insurance funds, incentives for aggregation and loans for digital and ecological transformation projects. Moreover, a strong acceleration to these two sectors will be pursued. The aforementioned measures, indeed, will be accompanied by a digitalization program aimed at developing a virtualized approach to the Italian cultural heritage. In this way, it will be guaranteed a universal access to Italian art pieces and an expected diffusion of innovative educational initiatives.
Cohesion, resilience and values
Italy is notorious for its chronic underinvestment in education and research. This is, on the one hand, due to an industrial base mostly made up of SMEs, incapable of sustaining the large fixed costs necessary to undergo R&D projects, and, on the other one, due to several decades of misguided political choices. Indeed, according to the OECD, Italy’s public spending on education was just 2.8% of GDP in 2015, while global R&D spending in Italy amounted to, roughly, 1.5% of GDP in 2019. These paltry numbers are enough of a justification for a large and transformative investment in these two sectors crucial for the long-term growth of the country. The plan groups these two parts together as “Mission 4” and allocates to them 30.88 bn of euros, divided, respectively, in 19.44 billions for education and 11.44 for research, thus representing more or less a seventh of the overall fund. Another important aspect of the plan is Mission 6, dedicated to the interventions and the investments the government intends to make to shore up our healthcare sector. Indeed, although the Italian healthcare system has been able to achieve good outcomes with relatively little funding, the pandemic has shed light on the cracks in the system. In particular, it has evidenced the regional disparities characterising it, the overreliance on large hospitals and a shortage of several key professional figures and of ICU beds. The aim of the PNRR is to address these issues by fostering a more diffused model of care, modernising hospital equipment and supporting the training of more doctors.
The first aspect of the plan is the large investment (4.6bn), in public childcare services. The aim is to create, by the end of 2026, 228,000 new public childcare places, thus expanding access to a crucial service for families in ill-serviced areas. This is especially important if we are to remove barriers to female employment and boost natality. Indeed, according to Eurostat, women’s employment rate in Italy was a disappointing 53.1%, rather far from the EU average of 66.5%. The problem with this part of the plan is that, at least in the version passed by the parliament, there is very little detail attached to it. Indeed, only 8 lines are dedicated to it, while over 3 pages are dedicated to explaining a 300 million investment in the renovation of 400 school gyms (with, surprisingly enough, very little, if any, detail regarding the implementation of such a measure). For instance, it is not explained whether the South, where the problem is more serious, will receive a larger share of the funds, nor how they plan to actually staff the newly built structures. That said, the investment is notable as it identifies and it aims to address an oftentimes overlooked problem. In a similar direction goes another project that aims to build or renovate around a 1000 canteens by 2026, thus allowing the interested schools to extend their opening hours, lessening the burden for mothers. The rest of the mission is dedicated to improving the quality of public schools and the access to vocational training and to tertiary education.
A first 1.5 bn investment is aimed at improving the tail end of the educational sector. The idea is to identify a set of schools that underperform under a set of unspecified indicators (probably school dispersion and underperformance in the standardised INVALSI tests) and to provide a series of support measures to improve learning outcomes and encourage students to remain enrolled. The underperforming schools would get the help of additional teachers and tutors (for Italian, Maths and English) and of mentors and advisors to encourage (and guide) the students to either pursue a degree or further vocational training.
A second 1.5 bn investment will be aimed at doubling the number of people enrolled in ITS, that provide advanced vocational training. The money will be used to increase the number of ITS schools, provide tailored training to the teachers and upgrade the existing labs. This investment is supposed to be coupled with a reform of the system following the “modello Emilia-Romagna” that’s supposed to better synergise universities, ITS and local companies and by a change in the syllabi of lower level technical and professional schools. This latter change is aimed at reducing the skill mismatch between the current needs of companies and the training offered by the public school system.
Another 1.46 bn investment will be made to support university students. This is to be divided into 0.96 bn euros to bolster the number of available places in student accommodations from 40,000 to 100,000 by 2026. The idea is to incentivise private companies to build new student accommodations by having the education ministry cover the costs for the first three years and by changing the current regulations. A possible problem with this approach is that the benefits of having more accommodations might not end up benefiting the most vulnerable students, and that simply providing greater incentives might not even lead to as many new places as the government hopes.
The rest of the money will be used to increase the average scholarship by 700 euros and the total number of students receiving income assistance. This seems woefully low, given that we are laggards in Europe for the amount of help we offer to university students. This is especially true if we think that a similar amount has been allocated to renovating school gyms.
Lastly, 3.9 bn will be allocated to improve the energy efficiency and the safety of school buildings, while 2.1 bn will be used to bring the internet to 40,000 schools and build new labs. A further 1.1 bn will be used to strengthen the STEM component of the school curriculum and introduce coding in many schools.
The research part of the plan is characterised by the division in several relatively small interventions:
1.8bn dedicated to projects deemed of national importance, the aim is to fund 5350 projects by 2026.
1.61 bn on 15 large research projects to be undertaken by large groups of universities and companies working together, part of the aim is to boost the number of female researchers employed from 34% to 40%.
1.6bn aimed at creating hubs of research in a set of areas (such as quantum computing, biopharma, agritech, fintech) through the collaboration of research centres and companies.
1.3 bn to be handed out to 12 existing (or new) local “champions of research”, after a selection process focused on their capability of involving the private sector, in particular SMEs, the quality of their research and the ties to foreign research centres.
1.5bn for IPCEI (Important Projects of Common European Interest), a fund dedicated to financing research by private companies in strategic areas designated by the EU.
1.58 bn for 30 infrastructural projects aimed at creating places where the academic and the industrial sector can meet.
A possible criticism for this approach is that, given the somewhat qualitative nature of the selection process for such projects, it is possible that the money will go towards projects proposed by firms that have more political heft or that are better connected. It might also be argued that, in order to foster research in the private sector, tax incentives would represent a more effective tool and that the money should rather go towards investment in public basic research, whose levels are, in Italy, relatively low.
In conclusion, the Mission 4 of the plan focuses on improving the quality and the access to education through a large investment in vocational training, increased assistance to struggling schools and greater economic support to university students. It also aims to expand access to childcare to reduce the burden on working mothers. This part of the plan also aims to bolster the faltering Italian research sector by creating greater synergies between the private and the public sector.
The last Mission, Mission 6, aims at making Italy’s healthcare system more resilient, by modernising it, by investing in a more diffused model of care, and making it more effective in facing the current challenges. With particular reference to the second point, the PNRR plans an increase of investment for the construction, operation and maintenance of multifunctional healthcare facilities diffused across the territory, such as “Case della Comunità”, “Centrali Operative Territoriali”, and “Ospedali della Comunità”. Additional expenditure is provided to enhance the capacity of the healthcare system, with particular focus on medical equipment, such as ICUs, and on health personnel, by increasing the number of places for doctors under training and the number of “scholarships” for the training of general practitioners. Further investment will be made on improving the safety and the energy efficiency of hospitals, as well as the capability of the healthcare system of collecting and analysing data about the healthcare needs of patients. In particular, the aim is to digitalise patients’ medical records by building on the new electronic healthcare card and expanding the “Fascicolo Sanitario Elettronico” (the current digitalised system of medical records) to make it actually effective.
Governance, monitoring and impact evaluation
The coordination, governance and monitoring of all interventions in the PNRR will fall under a specific department under the Italian Ministry of Economy and Finance (MEF), which will also take care of presentation of projects to the Commission to request financing. The Administrations, Regions and local authorities that will take care of the implementation phase will be closely monitored by the MEF, to ensure that the Targets and Milestones are reached, and to prevent irregularities. Furthermore, a ‘Control Room’ under the Prime Minister’s Office will ensure the interventions’ coherence with the overall strategy and with the normative reforms. A comprehensive system of control and audit will be provided, in compliance with European standards.
Depending on the model employed, the interventions in the PNRR are expected to produce an increase in real cumulative GDP between 12.7% and 14.5% over the next six years, on top of the normal trend of growth. The most important drivers of growth are estimated to be investments and private consumption. Reforms are also expected to contribute to the rebound of the Italian economy, with an additional 3.3% GDP growth in the long run. Finally, the PNRR should contribute to reducing gender, age and geographical inequalities, as the highest occupational gains would be experienced by women and young people in Southern Italy.
Conclusion
The economic condition of Italy has been a cause of concern for a long time, both at the national and at the european level. Being the third EU country by population and by GDP, and due to its high interconnection with other member states, Italy is de facto a too-big-too-fail country, and European leaders understand this very well. The political agreement on the NextGenerationEU was reached primarily thank to the mediation of Mrs. Merkel and Mr. Macron, who saw this as an opportunity to finally get Italy (but not only Italy) back on its feet after two decades of prolonged stagnation. Naturally, they did not promote NextGenerationEU out of compassion or as a ‘gift’ to the ‘belpaese’, but because what was at stake was the future of Europe as a whole. We Italians should look at NGEU and at the interventions in the PNRR as the last opportunity to assume our responsibilities and to come up as a prominent European and global player. With a post-pandemic debt-to-GDP just below 160% weighing on the shoulders of current and future generations, Mr. Draghi’s PNRR represent an ambitious, yet unavoidable, bet on the future of Italy. Only time will tell if this bet will be won. The priorities are correct, the political momentum is there, the right man for the job is there. What worries many is the realization.
