How are European countries exploiting Next Generation EU opportunities? Spain vs Italy

Currently, all European countries are defining their plans for accessing the Next Generation EU funds, which must be submitted by 30 April. With almost a month to go before the deadline, it is an interesting opportunity to analyse what our neighbours are doing and compare their plans. The particular strategies are specific but the overall approaches are very similar, as they are all based on the European Commission’s instructions.

Starting point

To be eligible for the Recovery and Resilience Mechanism (RMM), Member States must submit draft recovery and resilience plans outlining the national investment and reform programmes adopted in line with the above-mentioned EU strategic criteria until 2026.

If you want to better understand the regulation you can download our Guide to the Recovery and Resilience Mechanism (RRM), the main funding instrument of Next Generation EU.

In line with the European Green Deal and the policy objectives for the Multiannual Financial Framework 21-27, defined before the pandemic, the European Commission’s recommendation for the drafting and development of the National Plans is based on 3 fundamental axes:

• Digital transformation
• Ecological transition
• Social/territorial cohesion

The distribution criterion ensures greater financial support to those countries whose economic and social situation has deteriorated the most as a result of the pandemic.

Italy, the second biggest beneficiary of Next Generation EU funds

Italy is the second largest beneficiary of the Next Generation EU funds due to the extremely high impact the pandemic has had on its economy. It will have access to €210 billion (€79.558 billion in grants), €13.5 billion from React-EU and €1.2 billion from the Just Transition Fund, in addition to part of the national funds dedicated to Cohesion and Development, to which it will add its own funds to reach a total of €311.9 billion.

The government crisis is disrupting the process, but the recovery plan, which has been in preparation since the end of 2020, is among the priorities of the new Italian government.

The Piano Nazionale di Represa e Resilienza (PNRR) was approved on 12 January 2021. Of the €210 billion of resources allocated to the PNRR, €144.2 billion finance “New Projects”, while the remaining €65.7 billion are allocated to “Existing Projects” under the MRR regulation, which will receive a significant acceleration of spending implementation.

In line with the priorities set by the Commission, the Italian recovery plan is linked to the three strategic priorities: digitalisation and innovation, green transition and social inclusion.

The Italian NRRP is divided into 6 MISSIONS and 16 clusters or components based on digitalisation, ecological transition, infrastructures for mobility, education, social and territorial inclusion and the Italian health system.

Main differences in approach and implementation

Both Spain and Italy submitted the draft plan in early 2021 and are working on the final NRP. Both countries are among those that have already approved the so-called own resources decision (a necessary step to raise the EU budget ceiling and issue the debt that will be used to finance the NRM).

But there are some variations between the Spanish and Italian NRPs, both in the way in which implementation is brought forward and in the strategic approach. While Spain has included in the PGE21 an advance of the NRM funds, in Italy the decision has been taken to incorporate €65.7 billion in existing projects, 21% of the resources allocated for the period 2021-26.

As for the priority reforms, in Spain they focus on the fiscal area, while in Italy the priorities are the reform of Justice and Public Administration, the reform of some components of the tax system. Both will have to work on the issue of pensions.

In terms of the thematic focus, there are coincidences and differences. Analysing lever policies (Spain) versus missions (Italy) beyond 10 versus 6 respectively, they are quite similar, although Italy has increased the item on Ecological Transition to 45% to the detriment of the social item, which remains at 21%.

Coincidences and budgetary differences

In terms of importance, we highlight 4 areas that in both cases account for more than 50% of the budget:

• Sustainable mobility both urban and in infrastructures and logistics account for almost 22% in both cases;
• Modernisation and improvement of education, with 12% compared to 7.5%;
• Support for the productive system in digitalisation and the green economy, important, but more so for the Italian government, with 15% of the budget compared to 9.6%, although, in the case of Spain, other measures could complement it, such as the artificial intelligence strategy.
• The last one is the rehabilitation of buildings, which for Italy accounts for 13.4% of the budget compared to 7.2% in Spain.

The fundamental differences are the limited presence of renewable energies in the Italian plan, which does not include any direct measures for the deployment of renewables or hydrogen, which is so important in the Spanish NRP, with a share of around 9.5%. Or the deployment of digital infrastructures and 5G, which also does not appear in the Italian plan, but accounts for 6.6% for Spain.

On the other hand, Italy will invest 8.8% of its budget in its health system compared to 1.8% in Spain, and will devote more budget to the management of water resources/restoration, with 7% compared to 4% in Spain.

It is important to look at all these points of convergence and divergence. We will see who can best move the pieces on this Recovery chessboard. Coming up, France.