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Italy told to retain €200bn Covid recovery plan after Mario Draghi’s exit & More Breaking News

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Italy’s next government cannot expect Brussels to renegotiate the fundamentals of a €200bn EU-funded Covid-19 recovery plan and must stick firmly to the reform pledges that Rome has made, the EU’s economic commissioner has warned.

Paolo Gentiloni said it was in Italy’s interests to press ahead with reforms to reboot its underperforming economy, no matter who won snap elections in September after the collapse of prime minister Mario Draghi’s government.

“You know the Latin pacta sunt servanda — agreements must be kept,” Gentiloni, a former Italian prime minister, said in an interview. “The implementation of this plan is essential.”

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While European officials might approve adjustments to member states’ recovery plans to reflect the EU’s energy crisis or rising costs, Gentiloni said, Brussels would not agree to “reshape the plans from scratch or to reshape them substantially”.

Doing so could end up undermining a member state’s ability to deliver the plan on time, he said, adding: “If you fail to spend this money it would be a very, very bad signal for the European Union.”

The warning comes as investors and EU capitals warily watch political developments in Rome, after 18 months of relative political stability under Draghi. The former European Central Bank president resigned as prime minister last week, spelling the end of an 18-month unity administration and leaving parties vying to form the next government.

Markets fear an incoming administration might seek to redraw key reform or investment commitments settled by Draghi in a deal with Brussels last year, delaying or even jeopardising Italy’s receipt of grants and loans worth billions of euros.

Polls have indicated the far-right Brothers of Italy, which has been in opposition during Draghi’s tenure, is likely to emerge as the largest party in the new parliament, positioning it to form the core of a centre-right government.

Giorgia Meloni, the Brothers of Italy leader, told La Stampa newspaper over the weekend that she worried recovery funds were not being used in areas where “Italy is more competitive than others”, suggesting interest in re-examining the plan.

The EU funds are part of an €800bn plan to use grants and loans to help member states recover from the coronavirus pandemic. Italy’s programme involves cutting red tape, boosting competition in sectors including transport and energy, strengthening public administration and investing in health centres.

“It is in the interests of Italy to deliver — it’s not about a dictat from Brussels,” said Gentiloni. “It is a big opportunity for the country and I hope whatever government we have will stay on track.”

The spread between yields on Italian debt and German equivalent debt has widened since Draghi’s resignation, suggesting weaker confidence in Italy’s economic prospects.

“The European framework cannot be ignored by any Italian government — meaning also the fiscal rules and need to reduce debt. If there is a temptation to ignore this framework, this temptation would be very, very negative for any country,” Gentiloni said.

Gentiloni, from Italy’s centre-left Democratic party, said that while he regretted the confidence vote that pushed Draghi to resign, the fact that Italy was now heading to elections was not a concern, adding: “It is how things work.”

Gentiloni said he was anticipating talks with several member states this year or in early 2023 on whether disbursements by the European Commission might need to be reduced because of late investments or reforms not delivered on schedule, although he did not single out Italy.

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