While Germany's economy is stagnating, Italy is experiencing jumps in growth. But this has little to do with the economic policy of the far-right head of government Giorgia Meloni.

Mauro Congedo has been finding and renovating small architectural treasures with his brother and father for 25 years in Salento, a peninsula in the southeastern corner of Italy, in the heel of the Italian boot in the Apulia region, so to speak.

The apartments and houses that Congedo rehabilitates in this remote region also find buyers in Germany and England. “Everything is going well again,” the 50-year-old architect says by phone.

During the coronavirus pandemic, business almost came to a complete standstill. But what happened next in his industry in Italy was “crazy.” And time almost stops a little because it lengthens the “a” so much. But appearances are deceiving: Congedo is not only enthusiastic about Italy's economic recovery.

From problem child to growth engine

While governments in Rome were accustomed to announcing poor growth forecasts and reaching the top positions in debt rankings in the years before the pandemic, the country is now becoming Europe's growth engine. In the last quarter, the Italian economy grew by 0.6 percent, while the German economy contracted by 0.3 percent in the same period.

And even beyond the snapshot, you can see the figures for Europe's third largest economy. “The Italian economy has grown by 3.8 percent since 2019,” Jörg Krämer, chief economist at Commerzbank, said in an interview with DW. This is “twice that of the French economy and five times that of the German economy.”

In Germany, however, the outlook is bleak. The Organization for Economic Co-operation and Development (OECD) forecasts growth of 0.3 percent. Leading German experts expect only 0.1 percent growth this year. According to the OECD, Italy, on the other hand, will grow by 0.7 percent this year.

The stock market also benefits from optimism. The leading Italian index FTSE MIB , which lists the 40 largest companies, rose about 28 percent last year, more than all other European stock indexes. Italy on the way to growth: a success story.

Confidence in Meloni's government has increased again

Economists initially reacted very cautiously when Giorgia Meloni took office in autumn 2022. During the election campaign, the far-right head of government with her “Brothers of Italy” party announced a nationalist “Made in Italy” economic course, agitated against the immigrants and was not clearly differentiated from Russia. After her election, the weekly Stern described her as “the most dangerous woman in Europe.” But in terms of economic policy, Meloni has so far largely stayed on the same course as her predecessor Mario Draghi. This is paying off for Italy, at least in the bond market. The interest rate at which Italy borrows money has returned to the level before Meloni took office.

At a press conference earlier this year, Meloni attempted to take credit for the rally. Above all, the lack of political stability in the past has slowed the economy, says Meloni, who is currently firmly in charge in Italy.

But how much of the growth is due to Meloni's success? “Not much,” says Jörg Krämer of Commerzbank. “The strong growth can easily be explained by Italy's lax fiscal policy.” In other words: Italy's growth is mainly based on new debt. While the new debt of the Italian state before Corona was still 1.5 percent of gross domestic product (GDP), it has skyrocketed in recent years and was already 8.3 percent in the first half of 2023.

The mountain of state debt is also growing: in January, the EU Commission assumed that it would exceed 140 percent of GDP this year and continue to rise in 2025. For comparison: in Germany the so-called debt ratio is 66 percent, in France it is almost 100 percent.

Massive construction program boosts economy

Since the end of 2020, the Italian State has financed various renovation measures. Some measures with 50 percent, others with even more. But the so-called Superbonus 110 for energy efficient renovations is especially popular: whoever renovates their house or apartment to make it more energy efficient will obtain the full reimbursement of expenses plus ten percent, through a reduced tax burden, which can last several years. . “You can imagine that investments in construction have skyrocketed,” says Italian economist and expert Krämer. “This effect explains two-thirds of the strong growth we observed.”

Architect Mauro Congedo is not very enthusiastic about the superbonus. Everything has become more expensive. Inflation not only drove up prices, but the super bonus also raised material and personnel costs. “If the State pays everything, people don't care about the amount of the bill,” says Congedo. Furthermore, no one controls the prices. Construction companies in Naples, Bari and Lecce, the provincial capital, asked him on several occasions to adjust his costs upwards. “They wanted me to estimate double that. I didnot do that. “It's like stealing,” Congedo says.

In general, it is considered a good plus for the energy renovation of buildings. However, the owners would have to contribute to the costs and not receive everything from the State. Congedo has little opinion of his head of government, Giorgia Meloni. The only good thing he has is that his super bonus has run out.

Rain of money from Brussels

In fact, the far-right head of government has evaporated the superbonus introduced by the leftist Five Star Movement. In 2023 at 70 percent and this year at 65 percent of the renovation costs.

However, the tax credits derived from the superbonus will significantly reduce government revenue in the coming years. It is probably very convenient for the government in Rome that the billions flow mainly from Brussels. Like no other Member State, Italy receives money from the European Corona Reconstruction Fund.

Until 2026, almost €200 billion will be paid to Italy in the form of grants and loans. “The Italian State must reduce its very high budget deficit at the latest. Once you start saving, the miracle of Italian growth will probably end, because the years have not been used to make structural reforms,” ​​says Jörg Krämer in an interview with DW.

Mauro Congedo is also worried that the super bonus will stay with him for a long time. “Prices are very high and we have gone into a lot of debt.” For the moment he will not be left without work: he is currently working on eight projects at the same time.

Author: Nicolás Martín

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