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.”

 
 
 
 

17 things the proposed “Tulip” skyscraper that London mayor Sadiq Khan just scrapped definitely resembled

Artist's impression. See if you can guess which one The Tulip is. Image: Foster + Partners.

Sadiq Khan has scrapped plans to build a massive glass thing in the City of London, on the grounds it would knacker London’s skyline. The “Tulip” would have been a narrow, 300m skyscraper, designed by Norman Foster’s Foster & Partners, with a viewing platform at the top. Following the mayor’s intervention, it now won’t be anything of the sort.

This may be no bad thing. For one thing, a lot of very important and clever people have been noisily unconvinced by the design. Take this statement from Duncan Wilson, the chief executive of Historic England, from earlier this year: “This building, a lift shaft with a bulge on top, would damage the very thing its developers claim they will deliver – tourism and views of London’s extraordinary heritage.”

More to the point, the design was just bloody silly. Here are some other things that, if it had been built, the Tulip would definitely have looked like.

1. A matchstick.

2. A drumstick.

3. A cotton ear bud.

4. A mystical staff, of the sort that might be wielded by Gandalf the Grey.

5. A giant spring onion.

6. A can of deodorant, from one of the brands whose cans are seemingly deliberately designed in such a way so as to remind male shoppers of the fact that they have a penis.

7. A device for unblocking a drain.

8. One of those lights that’s meant to resemble a candle.

9. A swab stick, of the sort sometimes used at sexual health clinics, in close proximity to somebody’s penis.

10.  A nearly finished lollipop.

11. Something a child would make from a pipe cleaner in art class, which you then have to pretend to be impressed by and keep on show for the next six months.

12. An arcology, of the sort seen in classic video game SimCity 2000.

13. Something you would order online and then pray will arrive in unmarked packaging.

14. The part of the male anatomy that the thing you are ordering online is meant to be a more impressive replica of.

15. A building that appears on the London skyline in the Star Trek franchise, in an attempt to communicate that we are looking at the FUTURE.


14a. Sorry, the one before last was a bit vague. What I actually meant was: a penis.

16. A long thin tube with a confusing bulbous bit on the end.

17. A stamen. Which, for avoidance of doubt, is a plant’s penis.

One thing it definitely does not resemble:

A sodding tulip.

Anyway, it’s bad, and it’s good the mayor has blocked it.

That’s it, that’s the take.

(Thanks to Anoosh Chakelian, Jasper Jackson, Patrick Maguire for helping me get to 17.)

Jonn Elledge is editor of CityMetric and the assistant editor of the New Statesman. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites.

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