Why Italy’s coalition government needs to go all-in on infrastructure

Infrastructure from the good old days: the Claudio aqueduct, Rome. Image: Getty.

Italy’s draft budget as it stands is a collection of budget-busting campaign giveaways that will do little to support growth or fix Italy’s crumbling roads, bridges and schools. No wonder the EU is threatening financial penalties.

“As a political budget, most of the points were part of the manifesto that the new coalition government was elected on, so it was not a surprise,” says Nicola Beretta Covacivich, global head of infrastructure investments at Santander Asset Management in London.

The budget doesn’t exactly ignore infrastructure, which was thrust onto the national agenda after the collapse of the Morandi Bridge in Genoa last August. But it also includes €10bn for a program to provide temporary incomes for people looking for work and €7bn to fund early retirement programs. Beretta Covacivich believes that these populist policies won’t renew growth and instead will cause the budget’s additional spending on infrastructure to fall far short of what’s needed.

After suffering a triple-dip recession since 2008, Italy desperately needs to invest in growth if it is to have any hope of paying down its colossal public debt, which totals 131 per cent of GDP.

There are very strong macro-economic reasons for Italy to focus narrowly on infrastructure. Historically, the fiscal multiplier that results from these investments creates enormous value for the economy. In the short-term, new jobs provide incomes, get money circulating and boost tax revenue. Longer-term, the assets that are delivered – modern roads, railroads or better schools – boost productivity and attract new investment at home and from abroad.

There’s also an enormous amount of European multilateral and private sector funding available that could leverage government investments, allowing infrastructure to have a meaningful impact on Italy’s economy.

One useful model for tapping the private sector to finance public infrastructure projects is through competitively tendered Public Private Partnerships (PPPs), particularly where they qualify for European Investment Bank (EIB) financing. In addition to providing expertise and risk management, the EIB can provide funding for up to 50 per cent of a project, which takes much of the upfront cost burden off the government.


In 2017 alone, the EIB provided €18bn to support infrastructure projects, including PPPs. Yet Italy has barely used this facility. According to the EIB’s European PPP Expertise Centre (EPEC), between 2008 and 2017, Italy used EIB funding for only eight transportation projects for a total value of €8bn. France, which sits near the top of Europe’s transportation infrastructure quality index, has used EIB funding for transport infrastructure 32 times during that period for a total of €14.9bn.

Beretta Covacivich says that EIB support is essential to attracting private funding for infrastructure. But it isn’t automatic. “Those European funds come with stringent conditions, backed by legislation,” he notes. PPPs undertakings also require a lot of time to tender, evaluate, and finalise. Even countries with well-established PPP programs, such as Canada, require a process that averages between 16 and 18 months.

That is time that Italy’s government may not have. So nearer term solutions are likely to rely on ‘shovel-ready’ projects such as emergency repairs on existing infrastructure.

One idea that is under consideration is for the government to offer a 50-year-plus interest-free second lien mortgage bond to the owners of second properties. This is designed to cover future flat taxes that are due annually on those homes, and would give households greater flexibility around their future tax obligations, including the option to simply roll the tax liability into the price of the property when they sell.

The government for its part would be able to transfer a substantial piece of the public debt, perhaps as much as 20-30 per cent, off its books.

Beretta Covacivich acknowledges there are risks in forfeiting future tax receipts in favour of near-term investment, but he warns: “Italy needs some extraordinary measures to unlock cash flows that are currently being used to pay interest on the debt.”

 
 
 
 

In New Zealand, climate change is driving an eco-nationalist revival

The green and pleasant land of the South Island. Image: Getty.

“Ten years ago I would have called them settler f*****g land squatters,” Mike Smith, Maori-dom’s most tenacious activist, said last November as he reflected on the agriculture industry’s central role in driving climate change. “Now I have to try and get these people on board.”

Smith is infamous for taking a chainsaw to Auckland’s most prominent tree on a damp October night in 1994 in protest of the “Pākehā” – or white European –dominated government’s fiscal envelope restraining treaty settlements. Now he’s turned his hand to another cause close-to-home for the Maori, New Zealand’s indigenous population: the environment.

“We’re super vulnerable, like we are to anything,” Smith says. “When it comes to climate change it’s like the poorest people in the world are going to be hit the hardest first, and that’s a lot of us.”

Prime Minister Jacinda Ardern appears, at least rhetorically, the most sympathetic leader to his cause in a decade. In her campaign launch speech late last year, she made the future government’s position clear: “Climate change is my generation’s nuclear free moment.”

This message should resonate with followers of her Labour party: the NZ left has long nurtured an environment-orientated “culture-of-protest”. So Ardern’s call to arms was bound to gain her loyal support among children of the 1960s and ‘70s, who led the march against nuclear ship visits, spurring on the government of the time to wriggle out from the US nuclear umbrella, and place a ban on foreign nuclear ship visits.

Now, it is to the tycoons of deep sea oil exploration they aim to close NZ’s ports.

In this, Smith is not short of support locally, with marches run by grassroots organisations and international animal welfare funds beginning to gain traction with every day New Zealanders. In this, Ardern’s prediction is correct: the Coal Action Network Aotearoa (CANA), is reminiscent of the Campaign for Nuclear Disarmament (CND), an earlier cluster of left-wing pacifists and nature lovers who drove the creation of the nuclear free zone.  

In December, 15,000 passionate protesters marched through the capital. And with the government’s recent ban of offshore oil exploration projects, Jeanette Fitzsimons, former Green party co-leader and the head of CANA, is optimistic about similar change to the energy and farming sectors.

The Labour-NZ First-Green party coalition seems focused on setting a new global precedent, weaning NZ away from a United States which has jettisoned the Paris Agreement. The move replicates another 20 years ago, when New Zealand’s anti-nuclear movement was central to an upsurge in New Zealand nationalism. Now, the same sense of going it alone on foreign policy is apparent both locally and in Parliament.

Dr. Gradon Diprose, a senior lecturer at Massey University, argues that this echoes an older expression of colonial nationalism, that saw “New Zealand as a land of natural abundance”. This: “eco-nationalism” is centered on “protecting certain visions of picturesque landscapes and unspoiled natural beauty”. The slogan “Clean, green New Zealand” is prevalent in popular culture and tourism marketing. The public seems to have latched onto it too, and ranked keeping NZ’s waterways “clean and green” top of a recent survey of of kiwis’ top concerns.

Three decades ago, it was the 10 July 1985 sinking of the Greenpeace flagship Rainbow Warrior that thrust local activists’ fears into the public eye, resulting in an almost nation-wide expression of climate-protectionism.


The bombing, a French intelligence operation sparked by Greenpeace’s calls for an end to foreign nuclear testing in the Pacific, galvanised a great deal of change to New Zealand’s overseas defence policies. A lack of censure from New Zealand’s Western allies drove Wellington to distance itself from the United States, while the shock of seeing a friendly nation violate NZ’s sovereignty left many at home seething.

Thirty years on, the foreign policy split throughout the Anglosphere, regarding Russian-Western relations, globalism, and the old international rules-based order, is becoming wider. Climate change is just the tip of the iceberg.

Most Kiwis you talk to will shake their heads in disapproval at US president Donald Trump’s scandalous outing last year in Helsinki. But US defiance of internationally brokered climate resolutions is something they can see clearly reflected in rural communities across the country.

The country saw records broken at both ends of the extreme weather spectrum last year. As 2018 kicked off, Kiwis sweltered through the hottest summer on record, while in Golden Bay, a small inlet near the northern tip of the South Island, residents endured the largest flood in 150 years. So, when President Trump tweets “So much for Global Warming”, the majority of New Zealanders look back fondly on NZ’s 1985 decision to boycott the “ANZUS” treaty, putting New Zealand at odds with its war-time ally America on defence legislation.

Public calls to take the same track on environmental regulation have become louder in the wake of Donald Trump’s election. The former US Secretary of State, Rex Tillerson, received a frosty “unwelcome” while on a flyby to the capital in 2017, with the New York Times’ Washington correspondent, Gardiner Harris remarking: “I’ve never seen so many people flip the bird at an American motorcade as I saw today”. Protests against President Trump’s stance on climate change are beginning to gain greater traction further still, with the hundred-strong “march for science” setting the tone for the new government later that year.

New Zealand certainly isn’t afraid of radicalism, and its activists are persistent. It’s already banned single use plastics in supermarkets. Plenty more is to come, Smith says.

And yes, reform is going to inhibit sometimes vital industries: “It doesn’t matter which way you spin the dice on this, whatever’s being done is going to hurt. People who are looking for a painless way of mitigating climate change, [but] I don’t think there is one.”

But among Smith’s troupe of climate agitators, the feeling is that, without drastic change, “the land”, the heart of the Maori ethos, is going to be hurt far more.

Back in Auckland, NZ’s financial hub, an electric scooter craze is gripping the city. This, too, has gained the support of local environmentalists. In New Zealand, a national sense of pride is always coupled with a certain eccentricity. In a country this size, change always starts small.