EU defeat: Italy to have recovery fund backfire on bloc as Rome set to reject reforms

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The European Union finally clinched a deal over the controversial coronavirus recovery fund after five days of tense talks and clashes among EU leaders. The bloc agreed to €750billion (£680billion) in loans and grants to be distributed to member states in a bid to relaunch their economies in the aftermath of the pandemic. Commentators have suggested the €209billion (£187billion) Italy is set to receive as part of the rescue fund could finally force Rome to pursue necessary pension reforms but think tank director Pieter Cleppe dismissed the idea, claiming the key member state will now continue to ignore calls for change.

Speaking to France 24, Mr Cleppe said: “An argument that comes back again and again is that people in the Netherlands work nine years longer than in Italy if you look at the pension age.

“The fact that the previous Government in Italy has been taking a step back in terms of making the Italian pension system sustainable, that holds an important lesson.

“If you facilitate Italian Government funding, which the European Central Bank has been doing indirectly, with the expectation that this would allow the Italian Government to make reforms it actually has the opposite effect.”

The Open Europe director continued: “It’s only when a government is in financial trouble that it will finally take the necessary steps.

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“What has been decided, basically joint EU lending which would then translate into more transfers to countries like Italy, this will not make necessary fundamental reforms in Italy more likely.

“It will make them less likely.”

Brussels and Rome have repeatedly locked horns over the years over Italy’s failure to implement past pension reforms to fall in line with European standards.

The EU has long called on the southern European state proceed with reform, noting the the high spending invested to fund old-age pensions limits Italy’s ability to improve in other areas.

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In a 2019 report discussing its recommendations for Italy, the EU wrote: ” Between 2019 and 2021, the new early retirement scheme (‘quota 100’) will allow people to retire at age 62 if they have paid 38 years of contributions.

“In addition, the scope of the existing provisions for early retirement has been extended, including by suspending until 2026 the indexation to life expectancy of the required minimum contribution, which past pension reforms had introduced

“For those provisions, the 2019 budget earmarked funds worth 0.2 per cent of GDP in 2019 and 0.5 per cent of GDP in 2020 and 2021, but additional costs are also expected in the following years.

“The high public spending for old-age pensions restrains other social and growth-enhancing spending items like education and investment, and limits margins to reduce the overall high tax burden and the high public debt.”

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Italian Prime Minister Giuseppe Conte welcomed the recovery fund as an opportunity to “change the face” of Italy in the coming years.

Despite fierce opposition from the fiscally conservative Frugal Fours – The Netherlands, Austria, Sweden and Denmark – Prime Minister Conte secured 28 percent of the overall fund.

Mr Conte said: “Now we have to run and use these funds for investments and structural reforms.

“We have a real chance to make Italy greener, more digital, more innovative, more sustainable, inclusive. We have the chance to invest in schools, universities, research and infrastructures.”

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