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Meloni’s main problem with the EU is spending its cash

Meloni’s main problem with the EU is spending its cash

Italy’s issues around spending COVID recovery funds could spell disaster for its economy — and Brussels’ reputation.

When Giorgia Meloni, the leader of a party with fascist roots, burst onto the EU political stage after winning elections last fall, quiet dread infiltrated Brussels.

She arrived in office shamelessly anti-immigrant, trumpeting “traditional” families and armed with a track record of Euroskeptic statements. A clash with Brussels was undoubtedly imminent.

Six months later, however, Meloni’s culture wars are not Brussels’ main headache with Rome — even as she pushes them back home. Instead, it’s about the money.

Rome is struggling to meet the terms and conditions Brussels has attached to billions in euros earmarked for Italy from the EU’s COVID recovery fund. Going forward, Meloni wants to renegotiate those terms to free up that money. But Brussels is still waiting for concrete plans that require its approval, as well as that from other EU countries.

While the battle may seem bureaucratic, this impasse carries major ramifications for both Meloni and the EU. Italy is the EU’s third-largest economy, and a failure to use that money could further drag down a country already battered by a generation of underinvestment and low growth.

It would also call into question the EU’s norm-breaking decision to collectively take on hundreds of billions of joint debt to help countries bounce back from the pandemic. Italy, slated to receive over a quarter of the massive €724 billion recovery fund, stands to be the biggest recipient in this decision.

If Italy fails to spend the money — and do so effectively — this will cast a shadow over the whole endeavor. Meloni will have squandered free billions, and EU countries will think long and hard before agreeing to any more debt-funded aid.

“It’s clear that two things need to happen in order for this to be a success: The first is that the money is spent, and the second is that the money is spent well,” said Nils Redeker, co-director of the Jacques Delors Centre, a think tank in Berlin.

It's the money, stupid

As Italy's new prime minister passes her six-month mark in office, many in Brussels are wondering what all the fuss was about.

“Meloni has been pretty quiet,” said one EU diplomat from a large member country, who spoke on condition of anonymity in order to freely discuss international dynamics. “It’s certainly been a surprise.”

Some of this comes down to personality and Meloni's canny knack for political messaging, which has helped her ascend Italy’s political ladder.

But unlike some other nationalists, Meloni doesn’t deploy megaphone diplomacy when in Brussels — opting instead to mostly speak in the private setting of the European Council, where EU leaders gather away from the media’s prying eyes.

She has also benefited by arriving in Brussels at a time when other EU countries are moving toward her hard-line stance on migration.

Meloni has pushed to limit same-sex parental rights. Meanwhile, one of her close political allies recently echoed white supremacists speaking of “ethnic replacement,” and yet another made inflammatory comments over the country’s fascist past.

While Meloni’s conservative crusades back home have been alarming many in Brussels, such issues are largely not the EU’s remit.

Instead, the most titanic clashes between Rome and Brussels are over a classic family issue: money management.

The EU has determined that Italy will get a staggering €191.5 billion from the post-pandemic fund. But Meloni’s management of that windfall is raising eyebrows in Brussels.

Most visibly, there are the sports stadiums. The government wanted to use some of the money to rehabilitate Florence’s 98-year-old arena and build a new one near Venice, but Brussels gave that a hard no. As a result, all of Italy’s the third payment under the recovery fund — €19 billion — has been delayed.

“Work is still ongoing on the Commission’s assessment of Italy’s third payment request,” said a European Commission spokesperson. "Constructive exchanges are being pursued with the Italian authorities, and further information is being provided where needed," the spokesperson added.

Publicly, Brussels is striking a conciliatory tone, with European Economy Commissioner Paolo Gentiloni insisting last month that “the points to be clarified will be clarified.” But, he added forebodingly: “The absorption of such huge resources is not easy in Italy, and therefore as the plan progresses the road becomes more demanding.”

Italy has a poor track record of spending EU funds, according to a Bruegel analysis in 2020, managing to use only 40 percent of resources during the last budget cycle. Pandemic recovery funds need to be spent by 2026 or are simply lost.

However, one Italian official who was not authorized to speak publicly stressed that more recent official EU data on the last budget cycle reflect that Italy is managing to use 65 percent of EU resources, nearly in line with the EU average.

Big spender runs into trouble

Rome had time to head off the spending spat.

Meloni campaigned last year on a promise to swiftly renegotiate the country’s post-pandemic spending plan. After she won, the Commission said it would listen — to some points.

“We’re only talking about investments, there’s no room to go back on reforms,” Declan Costello, the Commission’s second in command in its economic department, said at an event in Rome in mid-December.

Yet four months later, the Commission is still waiting to hear back from Rome.

A revised plan promised in April is unlikely to come before summer.

What’s more, Italy has requested further funding from a pool of untapped loans, without specifying how much — raising doubts given how the government is already struggling to spend what it was awarded.

The plan is entering a crucial phase: While many of Italy’s economic reforms were passed under erstwhile Prime Minister Mario Draghi, voting on laws is one thing; implementing investments is another.

So while the government can design the process to award contracts, and manage investment projects, regional and local authorities are often the ones to actually spend the money.

In other words, it takes time.

With this in mind, Raffaele Fitto — Italy’s EU affairs minister overseeing the recovery funds — has floated the idea of shifting some of the harder recovery projects subject to the 2026 deadline into Italy’s plans for its regular EU funds. That would give the country until 2029 to spend that money.

Fitto has already admitted Italy won’t be able to spend all of the recovery money in time.

“The full amount of resources,” he told Italian lawmakers earlier last month, “will not find 100 percent of its final expenditure in June 2026.”

Meloni also sent jitters through Brussels when she recently yanked control of the recovery funds away from her own finance ministry, bringing that to the prime minister’s office — a move she said was meant to accelerate the process. But others feared this will result in those with less fiscal expertise now running the show.

Fitto defended the move, saying the new setup will help implement the plan.

High stakes

Meloni can ill-afford to stumble in the bureaucratic hallways of Brussels. Losing any of the recovery money earmarked for Italy would be a disaster for her standing back home, with polling already showing the prime minister slowly losing popularity.

“No Italian prime minister can afford to waste a lottery ticket,” said an Italian official who worked in Draghi’s government, speaking anonymously in order to candidly discuss internal politics.

Also the EU’s reputation is on the line. Even though Brussels doesn’t want to cave to Meloni’s revisions or spending plans it finds objectionable, EU officials know that their gamble to take on billions in debt will only pay off if countries actually benefit.

“If there’s the perception that the [recovery fund] fails,” said Redeker, there might not be another one. “This would make any political discussion about what happens after the recovery fund much harder.”

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