Paolo Gentiloni: “The EU must now talk about new instruments of public support”

The European Union's response to the pandemic – with the deployment of the Recovery and Resilience Fund, financed with its first joint debt issue to sustain activity in the most affected countries – is an economic success story that should be used to design “ new common instruments with which to respond to common challenges” and that discussion must be opened “as soon as possible,” defends the European Commissioner for the Economy, Paolo Gentiloni, in an interview with La Vanguardia and other European newspapers.

Oliver Thansan
Oliver Thansan
15 May 2024 Wednesday 10:21
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Paolo Gentiloni: “The EU must now talk about new instruments of public support”

The European Union's response to the pandemic – with the deployment of the Recovery and Resilience Fund, financed with its first joint debt issue to sustain activity in the most affected countries – is an economic success story that should be used to design “ new common instruments with which to respond to common challenges” and that discussion must be opened “as soon as possible,” defends the European Commissioner for the Economy, Paolo Gentiloni, in an interview with La Vanguardia and other European newspapers.

“I don't think we should wait to make the final evaluation of the fund to discuss new common financing instruments,” emphasizes the Italian social democrat. “If we want to act in this sense, we must do it now, in the second part of this year, not in 2028,” as some countries, in favor of waiting for the next EU budget, say.

After two decades on the front line of politics in Italy, where he was prime minister between 2016 and 2018, and five years at the head of the Economy portfolio in the Commission, Gentiloni (Rome, 1954) knows well the fractures that divide to the EU and knows from experience how these debates should not be approached in order to avoid them becoming stranded before they begin. For example, it is better not to propose that the new instruments be a “replica” of the NextGen EU funds, that they are “permanent” or to ask to create a “European fiscal capacity.”

On the other hand, he continues, if “common challenges” are identified, such as the need to invest more in defense in the face of the deterioration of the security climate, “you immediately see how the so-called frugal countries agree for geopolitical reasons. And you find that Finland and Greece, or Greece and Latvia, see things the same way.”

In view of the enormous investment needs of the EU to complete the energy transition and confront the war in Ukraine, if there are no decisions in this regard, “the only alternative would be for public financing to come only from the national level and that, a Once again, it would be very dangerous due to the great internal differences” between European economies, Gentiloni emphasizes. He also emphasizes that the bulk of financing must come from the private sector but warns that the level of non-public investment remains low.

The deployment of the European anti-crisis plan, which is based on a new model of aid in exchange for reforms, is being slower than expected. Of the total of almost 800,000 million in aid, 232,000 million have been disbursed so far. But these delays are partly explained because many countries revised their plans to adjust them to the challenges of the Ukraine war and the instrument has achieved its objectives, defends the commissioner. By the end of the year, some 300 billion euros will have been disbursed, almost half of the total; The rest of the funds are loans, not non-refundable aid and there have not been many applications. “Honestly, what worries me is not how disciplined we are with the calendar, but the strength of the commitment to the reforms and investments of the plan,” and there is “a world of differences” with what happened before with the recommendations of the EC.

With its economic response to the pandemic, the EU intended “not only to show solidarity” but also to avoid divisions and divergences, because otherwise “the countries with the most debt would not have been able to react and that would have created enormous problems.” “That risk was avoided,” says the commissioner and although it cannot be attributed “only” to the impact of the NextGen funds, “in recent years the famous PIGS (Portugal, Italy, Greece and Spain) have grown more than the countries of the north,” he slides.

The Commission and the Government are currently working on the review of the milestones and investments on which the payment of the fourth tranche of aid requested by Spain, 10,000 million euros, is conditional. Gentiloni is confident that it will be carried out shortly, but the difficulties in carrying out the unemployment benefit reform, one of the requirements included in this phase, have meant that Spain is no longer the EU's top student and is left behind in the execution of funds. So far it has received 38,420 million of the 163,000 allocated (79,850 million in direct aid and 83,160 in credits). The plans must be executed before the end of August 2026, but Gentiloni does not believe there will be an absorption problem.

"Yes, the calendar is ambitious but we must take into account that the Spanish political situation has not been completely normal in the last year and that inevitably produces delays." Furthermore, “the Spanish plan is one of the most controversial reforms (labor market, pensions...) and of course it is complicated” to move them forward, he says, citing the case of Belgium, which cannot agree on the reform of its benefits due to retirement.

Another Spanish peculiarity is the structure of the plan, which in his opinion could prove to be the most useful to maximize its impact. “Spain made the decision, different from all other countries, to leave the request for loans until very last and concentrate them in financial institutions, such as the ICO. It's interesting. In the end it may turn out to be the smartest way to do it, to work for a while with aid and then ask for the loans,” he concludes.