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Building on the successful energy-diversification talks, Prime Minister Giorgia Meloni recently launched an energy-cooperation agreement with Africa, dubbed the “Mattei Plan”, to use Italy’s storage capabilities to distribute gas from North Africa and the Mediterranean to the rest of Europe. More details on turning Italy into a central energy hub for Europe will be revealed in October; however, the first concerns have already come up. First, geopolitical risks could unsettle the plan as Northern African countries are often subject to political turmoil, which could complicate negotiations. Moreover, a “European” solution would be better to address the energy-supply challenge rather than multiple national solutions that tend to benefit bigger and more industrialized countries. However, Italian energy companies such as ENI – the national energy company – have a good track record in investing in African countries, and have recently signed important gas collaboration agreements.
Given that the Next Generation EU funds will also contribute to improve the country’s energy strategy, recent “spending fears” are justified. More than 30% of the resources allocated to Italy will support its green transition by investing in energy efficiency in residential and public buildings (EUR15.3bn); sustainable mobility (EUR34bn) and the development of renewable energies and the circular economy and improvement in waste and water management (EUR11.2bn). In the first two years of the program, activation of public investment was moderate, so a strong catch-up in spending capacity is needed over the horizon to make up for the lags. All eyes remain on Italy’s administrative ability to manage an unprecedented amount of resources.
Another important test for the government will be the medium-term fiscal dynamics in a context of higher interest rates, normalizing inflation and slowing economic growth (Figure 5). Italian government debt-to-GDP decreased by more than 5pps in 2022 to 144.4% (down from the 2020 peak at 155%) thanks to high inflation. But the government deficit has widened, given the new Eurostat accounting method for tax credits (“superbonus”). This scheme, in place since 2020, provides a 110% transferable tax credit to households for housing renovation works (of up to EUR200k) to improve the environmental efficiency of the housing stock. As a result, the fiscal deficit reached 8% in 2022, down from 9.0% in 2021 (-1.8% revision). But as the new methodology should have produced mainly backward revisions, we still expect a consolidation trend for the government balance in the coming years (our forecasts see the deficit at 4.7% in 2023 and 3.5% in 2024). Indeed, the new government is more fiscally prudent than previously expected, and some expensive and not-very-targeted measures (i.e. superbonus and universal income) have been tweaked in recent months.
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