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At a hearing last week, the Bank of Italy, while broadly favorable, suggested the government’s plan was too vague and optimistic. The question remains whether Italy can keep it up: Seven years is a long time, and future governments may think differently.
“Certainly I remain concerned about the underlying growth story,” said Balboni, noting among other problems Italy’s well-documented demographic decline. “But that’s a long term challenge.”
France, meanwhile, has benefited less from the NGEU funds. Around 60 percent of its €100 billion post-pandemic recovery plan came from national funds, not from the EU.
Slowly but surely, that borrowing has chipped away at the credibility that France has enjoyed in financial markets since the dawn of the euro. The bottom line is that France is now deemed a worse credit risk than Portugal or Spain, both of which were getting bailouts a decade ago. S&P cut its long-term sovereign rating earlier this year to AA-, and rival Fitch, which currently has the same rating, is now suggesting it may go even lower: It cut its outlook to ‘negative’ from ‘stable’ last week.
Michala Marcussen, chief economist at French bank Société Générale, notes that financial markets still “give France the benefit of the doubt.” But those doubts are visibly growing: At the start of the pandemic, France’s 10-year borrowing cost was only 0.25 percentage point above Germany’s and a full 1.25 points below Italy’s. Since then its premium over Germany has increased to 0.80 point, while its funding advantage over Italy has shriveled to only 0.50 point.
That dynamic too could still reverse: It depends to a large extent on whether the gains in Italy represent enduring change, or only a brief interlude. But for many it’s reflective of a real sea change, and heralds tougher times to come. Borghi points to the depressing fall in incomes in Italy over the last 20 years.
“It’s not a problem, it’s a necessity to stay competitive,” he lamented. “And that’s what’s going to happen in France if they don’t turn the tables.”
Ben Munster reported from Rome and Giorgio Leali from Paris.