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For 25 years, Mauro Congedo has been discovering and renovating small architectural treasures with his brother and father in Salento, a peninsula in southeastern Italy that constitutes the country’s “heel.”
The apartments and houses Conged has restored in this rather remote area are now suddenly finding buyers from Germany and Britain. “Things are going well again,” said the 50-year-old architect.
During the coronavirus pandemic, business came to a near standstill. But what happened in the Italian industry after that was “crazy” and dragged out the “a” for a long time, he says. But a closer look reveals that Mr. Congedo is not alone in his enthusiasm for Italy’s economic recovery.
Italy: From problem child to class president
In the years before the pandemic, Rome’s government was accustomed to issuing gloomy growth forecasts and poor debt rankings, but the country is now rapidly becoming Europe’s growth engine.
Italy’s economy grew by 0.6% last quarter, while Germany’s economy contracted by 0.3% in the same period. Beyond this brief three-month snapshot, other numbers from Europe’s third-largest economy are also impressive.
“The Italian economy has grown by 3.8% since 2019,” said Jörg Kremer, chief economist at Commerzbank. This is “twice the size of the French economy and five times the size of the German economy,” he told DW.
In Germany, the outlook is certainly bleak. The Organization for Economic Co-operation and Development (OECD) predicts Germany’s growth rate this year will be 0.3%. Leading German experts predict that the growth rate will remain at 0.1%. Meanwhile, Italy is expected to grow by 0.7% this year, according to the OECD.
The Italian stock market is also benefiting from an optimistic mood. The FTSE MIB benchmark index, made up of 40 large companies, rose about 28% last year, outpacing other European stock market indexes. Italy is aiming for further growth.
Confidence in the Italian government is returning
It wasn’t always so encouraging. When Giorgia Meloni took over as prime minister in October 2022, economists initially reacted very cautiously. During the election, Meloni and the Italian Brothers party announced a nationalist “Made in Italy” economic platform, stirred up opposition to immigration and made no clear attempt to distance themselves from Russia.
After her election, the German weekly stern He described her as “the most dangerous woman in Europe”. But when it comes to economic policy, Meloni has so far followed much the same path as her predecessor Mario Draghi. For Italy, this policy is working, at least in the bond market. The interest rate at which the county borrows money has returned to the level it was before she took office.
At a press conference earlier this year, Meloni sought to take credit for the economic turnaround. Above all, the lack of political stability in the past has slowed the economy, she said firmly from her position in the saddle.
But how much of the growth is due to Meloni’s success?
“Not that much,” Commerzbank’s Kramer said. “The strong growth can be explained by Italy’s accommodative fiscal policy.” This means that Italy’s growth is mainly based on new debt. Before the coronavirus outbreak, new debt in Italian states was 1.5% of gross domestic product (GDP), but it has rapidly increased in recent years and reached 8.3% of GDP in the first half of 2023.
The country’s debt pile is also increasing. In January, the European Commission predicted that GDP would exceed 140% of GDP this year and continue to increase in 2025. For comparison, Germany’s debt ratio is 66% and France’s is almost 100%.
Huge construction subsidies revitalize the economy
To support the economy, the Italian state has been funding various housing renovation measures since the end of 2020. Some measures cover about 50% of the cost, others much more. The most popular is what is called the “Super Bonus 110” of energy-saving retrofits.
Through this program, anyone who retrofits their home or apartment to make it more energy efficient will receive a 10% refund on the full cost plus 10% through a tax credit scheme.
“As you can imagine, construction investment has skyrocketed,” said Kramer, an economist and Italy expert. “This effect explains two-thirds of the strong growth we’re seeing.”
Architect Mauro Congedo isn’t too keen on the SuperBonus 110 program. Everything has become more expensive. In addition to inflation, the program increased the cost of materials and labor.
“People won’t care how much it costs if the state pays all the costs,” Congedo said. Moreover, no one controls the price. Construction companies in Naples, Bari and the regional capital Lecce repeatedly asked him to revise costs upward. “They wanted me to charge double the amount. I didn’t do that. I feel like I stole from them,” he said.
He thinks bonuses for energy-efficient retrofits of buildings are generally a good thing. However, owners will have to cover the cost rather than receiving the full amount from the government. Congedo also doesn’t think much of Giorgia Meloni. The only good thing she did, he says, was to put the Super Bonus 110 program under her control.
money from the european union
Indeed, far-right government leaders have delayed the super bonus program introduced by the left-wing Five Star Movement. It covered up to 70% of the cost in 2023 and up to 65% of the renovation cost this year.
Nevertheless, the program’s tax credits will significantly reduce government revenues in the coming years. It is probably very convenient for the Roman government that billions of dollars are still flowing in, mainly from Brussels. Italy is one of the biggest recipients of the EU’s coronavirus recovery funds.
By 2026, about 200 billion euros ($216 billion) will be paid to Italy in the form of grants and loans. “The Italian state must reduce its very high budget deficit by this time at the latest,” Cramer said. “If we start saving only then, this Italian growth miracle will probably end because we didn’t have time for structural reforms.”
Mauro Congedo is concerned that the remnants of the SuperBonus 110 program will remain for a long time. He said, “Prices are very high and we have a lot of debt.”
Fortunately, he won’t be out of work anytime soon. He is currently working on eight projects simultaneously.
This article was originally written in German.
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