Is Italy overtaking Germany as Europe’s financial powerhouse? – DW – 04/03/2024 | EUROtoday

Mauro Congedo has been discovering and renovating small architectural treasures along with his brother and father for 25 years in Salento — a peninsula within the southeast of Italy that makes up the “heel” of the nation.

The flats and homes that Congedo restores on this reasonably distant area at the moment are out of the blue discovering consumers from Germany and England. “Things are going well again,” mentioned the 50-year-old architect.

During the coronavirus pandemic, enterprise nearly got here to a standstill. But what occurred afterward in Italy within the trade was “crazy” he says, dragging out the “a” for a very long time. But look deeper and Congedo is not the one one enthusiastic in regards to the financial restoration in Italy.

Italy goes from downside baby to go of the category

While governments in Rome had been used to saying miserable progress forecasts and poor debt rankings within the years earlier than the pandemic, the nation is now rapidly changing into Europe’s progress engine.

In the final quarter, the Italian economic system grew by 0.6%, whereas the German economic system shrunk by 0.3% in the identical interval. Beyond this brief three-month snapshot, different figures for Europe’s third-largest economic system are spectacular.

“The Italian economy has grown by 3.8% since 2019,” mentioned Jörg Krämer, chief economist at Commerzbank. That is “twice as much as the French economy and five times more than the German economy,” he instructed DW.

In Germany, the prospects are certainly trying bleak. The Organization for Economic Cooperation and Development (OECD) predicts progress of 0.3% this 12 months for Germany. Leading German specialists are solely anticipating progress of 0.1%. Italy, alternatively, is predicted to develop by 0.7% this 12 months, in accordance with the OECD.

The Italian inventory market can also be benefiting from the optimistic temper. The FTSE MIB benchmark index, which is made up of 40 massive corporations, rose by round 28% final 12 months, greater than every other European inventory market indices. Italy is on observe for extra progress.

Trust within the Italian authorities is returning

It did not at all times look so encouraging. Economists initially reacted very cautiously when Giorgia Meloni turned prime minister in October 2022. During the election marketing campaign, Meloni and her Brothers of Italy get together introduced a nationalist “Made in Italy” financial course, agitated towards migrants and didn’t clearly distance herself from Russia.

After her election, the German weekly Stern described her because the “most dangerous woman in Europe.” But by way of financial coverage, Meloni has up to now largely remained on the identical course as her predecessor Mario Draghi. This course is paying off for Italy, at the least on the bond market. The rate of interest at which the county borrows cash is again to the extent earlier than she took workplace.

At a press convention earlier this 12 months, Meloni tried to take credit score for the financial upswing. Above all, the dearth of political stability up to now had slowed the economic system she mentioned, talking from a place firmly within the saddle.

But how a lot of the expansion is right down to Meloni’s success?

“Not much,” mentioned Krämer from Commerzbank. “The strong growth can be explained by Italy’s loose fiscal policy.” That means Italy’s progress relies totally on new debt. While the Italian state’s new debt earlier than COVID-19 was 1.5% of gross home product (GDP), it has shot up lately and was 8.3% of GDP within the first half of 2023.

The nation’s general mountain of debt is rising, too. In January, the EU Commission estimated that it will exceed 140% of GDP this 12 months and proceed to rise in 2025. For comparability, in Germany the debt ratio is 66%, in France it’s nearly 100%.

Huge development subsidies inject the economic system

To assist the economic system, the Italian state has been funding varied house renovation measures for the reason that finish of 2020. For some measures they pay round 50% of the associated fee, others get much more. The hottest is named the “Superbonus 110” for energy-efficient renovations.

Through this program anybody who renovates their home or condominium to make it extra energy-efficient will get all the bills plus a ten% refund on prime via a tax discount scheme.

“You can imagine that construction investments have skyrocketed,” mentioned economist and Italy knowledgeable Krämer. “This effect explains two-thirds of the strong growth we are seeing.”

The architect Mauro Congedo will not be overly enthusiastic in regards to the Superbonus 110 program. Everything has develop into dearer. On prime of inflation, this system drove up the prices of supplies and staff.

“If the state pays for everything, then people don’t care how much it costs,” mentioned Congedo. In addition, nobody controls the costs. Construction corporations from Naples, Bari and the provincial capital Lecce requested him a number of occasions to regulate his prices upward. “They wanted me to charge twice as much. I didn’t do it. It feels like stealing,” he mentioned.

He thinks a bonus for the energy-efficient renovation of buildings is an efficient factor generally. However, house owners ought to should contribute to the prices and never simply get all of it from the federal government. Congedo would not assume a lot about Giorgia Meloni both. The solely good factor she did was get the Superbonus 110 program beneath management, he says.

Money from the European Union

In reality, the ultra-right head of presidency has slowed down the Superbonus program launched by the left-wing Five Star Movement. In 2023, it coated a most 70% of prices and this 12 months as much as 65% of the renovation prices.

Nevertheless, the tax credit ensuing from this system will considerably cut back authorities income within the subsequent few years. For the federal government in Rome it’s most likely very handy that billions are nonetheless flowing — primarily from Brussels. Italy is without doubt one of the greatest recipients of the EU’s COVID restoration fund.

By 2026, nearly €200 billion ($216 billion) shall be paid out to Italy within the type of subsidies and loans. “The Italian state must reduce its very high budget deficit by this time at the latest,” ​​mentioned Krämer. “If they only start saving then, then this Italian growth miracle will probably end because they didn’t use the time for structural reforms.”

Mauro Congedo is anxious that remnants of the Superbonus 110 program will stay for a very long time. “The prices are very high, and we have incurred a lot of debt.”

Luckily, he will not run out of labor anytime quickly. He’s at the moment engaged on eight tasks on the similar time.

This article was initially written in German.