Achi news desk-
Mauro Congedo has been discovering and renovating small architectural treasures with his brother and father for 25 years in Salento – a peninsula in the south-east of Italy that forms the “heel” of the boot-shaped country.
The flats and houses that Congedo restores in this rather remote region are now suddenly finding buyers from Germany and England.
“Things are going well again,” said the 50-year-old architect.
During the coronavirus pandemic, business almost came to a standstill. But what happened next in the Italian industry was “crazy” he said, dragging the “a” for a long time.
Congedo is not the only one who is enthusiastic about the economic recovery in Italy.
Italy goes from a problem child to the head of the class
Although governments in Rome were used to publishing dismal growth forecasts and bad debt rankings in the years before the pandemic, the country is now fast becoming Europe’s growth engine.
In the last quarter, the Italian economy grew by 0.6%, while the German economy contracted by 0.3% in the same period. Beyond this brief snapshot of three months, other figures for Europe’s third largest economy are also impressive.
“The Italian economy has grown by 3.8% since 2019,” Jörg Krämer, chief economist at Commerzbank, told DW. That is “twice the size of the French economy and five times the size of the German economy.”
In Germany, the outlook does indeed look bleak. The Organization for Economic Co-operation and Development (OECD) predicts growth of 0.3% this year for Germany. Leading German experts only expect growth of 0.1%. The Italian economy, on the other hand, is expected to grow by 0.7% this year, according to the OECD.
The Italian stock market is also benefiting from the optimistic mood. The benchmark FTSE MIB index, which includes 40 large companies, rose by around 28% last year, more than any other European stock market index. And Italy is on track for more growth.
Italy’s growth based mainly on new debt
It didn’t always look so encouraging. Economists initially reacted very cautiously when Giorgia Meloni became prime minister in October 2022. During the election campaign, Meloni and her party Brothers of Italy announced a nationalist economic course “Made in Italy”, agitated against migrants and not they were clearly distancing themselves from Russia.
After her election, Germany weekly Stern he described Meloni as “the most dangerous woman in Europe.”
But in terms of economic policy, Meloni has so far remained largely on the same course as her predecessor Mario Draghi. This course is paying off for Italy, at least on the bond market. The interest rate at which the county borrows money is back to the level before she took office.
In a press conference earlier this year, Meloni tried to take credit for the economic progress. Above all, the lack of political stability in the past had slowed down the economy, he said, speaking from a position firmly in the saddle.
But how much of the growth is the result of Meloni’s success?
“Not much,” said Commerzbank’s Krämer. “Italy’s loose fiscal policy may explain the strong growth.”
That means that Italy’s growth is mainly based on new debt. Although the new debt of the Italian state before COVID-19 was 1.5% of the gross domestic product (GDP), it has shot up in recent years and was 8.3% of GDP in the first half of 2023.
The country’s overall debt mountain is also growing. In January, the EU Commission estimated that it would exceed 140% of GDP this year and continue to rise in 2025. For comparison, in Germany the debt ratio is 66%, in France it is almost 100%.
Italians received huge state subsidies for construction projects
To help the economy, the Italian state has been funding various home renovation measures since the end of 2020. For some measures they pay around 50% of the cost, others get even more. The most popular is called “Superbonus 110” for energy efficient renovations. Through this program anyone who renovated their house or apartment to make it more energy efficient received a refund of all costs plus a 10% refund on top of that through a tax reduction scheme.
“You can imagine that construction investments have risen enormously,” said the Italian economist and expert, Krämer. “This effect explains two thirds of the strong growth we are seeing.”
The architect Congedo is not too enthusiastic about the program Superbonus 110. Everything has become more expensive. On top of inflation, the program increased material and labor costs.
“If the state pays for everything, then people don’t care how much it costs,” Congedo said. In addition, no one controls the prices. Construction companies from Naples, Bari and the provincial capital Lecce asked him several times to adjust his costs upwards. “They wanted me to raise twice as much. I didn’t. It feels like stealing,” he said.
He thinks a bonus for energy-efficient building renovations is generally a good thing. However, owners should have to contribute to the costs and not just get it all from the government. Congedo doesn’t think too highly of Giorgia Meloni either. The only good thing he did was get the Superbonus 110 program under control, he said.
Money from the European Union is still flowing
In fact, the head of the ultra-right government has slowed down the Superbonus program introduced by the left-wing Five Star Movement. In 2023, he paid a maximum of 70% of the costs and this year up to 65% of the renewal costs.
However, the tax credits resulting from the program will reduce government revenue significantly in the next few years. For the government in Rome it is probably very convenient that billions are still flowing – mainly from Brussels. Italy is one of the largest recipients of the EU’s COVID recovery fund.
By 2026, almost €200 billion ($216 billion) will be paid to Italy in the form of subsidies and loans.
“The Italian state must reduce its very high budget deficit by this time at the latest,” Krämer said. “If they only start saving then, this Italian growth miracle will probably end because they didn’t use the time for structural reforms.”
Congedo worries that the remnants of the Superbonus 110 program will remain for a long time: “The prices are very high, and we have gone into a lot of debt.”
Fortunately, it won’t be running out of work anytime soon. He is currently working on eight projects at the same time.
This article was originally written in German.
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