Mezzogiorno, a chance for the European cohesion policies?

Mezzogiorno, a chance for the European cohesion policies?

by Pininvest Analysis

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We were pleased to learn that, according to Wikipedia, the braggadocio is a geometrically constructed sans-serif stencil typeface designed by W.A. Woolley in 1930 for the Monotype Corporation

more than pleased to discover that Braggadocio is an unincorporated municipal community of Missouri. Quoting Wikipedia, some say the community was so named on account a large share of the early settlers being braggarts, while others believe the name is an amalgamation of Bragg and Docio, the respective surname and given name of a local husband and wife

and enlightened because rappers use braggadocio in their lyrics to boast—to speak about themselves with great pride, which may include subjects such as physicality, fighting ability, financial riches, sexual prowess, or "coolness"

But the minor character of ‘the Faery Queene’, an English epic poem by Edmund Spenser, published in the 1590’s and honoring Queen Elizabeth I, seems of special relevance to our brief on Italian public finance

His name is also "Braggadocchio" – a comic character who is also an empty, vainglorious braggart


As summarized in our note on Italy’s short term outlook under a government eager to show its independent – braggadocio – streak, the September budget announcements will be a critical hurdle, considering the country’s high level of indebtedness (132 % of GDP) and the possible breach of the 3% budget deficit limit

Confrontational, up to a point, and laying the groundwork to gain the required EU approval for such a deficit, Italy’s far-right interior minister, Matteo Salvini, did not hesitate to make hay of the tragic collapse of the Genoa bridge in domestic politics

Referring to EU regulations, Mr. Salvini stated “If external constraints prevent us from spending to have safe roads and schools, then it really calls into question whether it makes sense to follow these rules,” as reported by the Guardian

Suggesting Brussels-induced budgetary constraints were the root cause played well with the Italian public and Mr. Salvini also managed to put the 5-Star movement, solidly opposed to infrastructure works as a matter of principle, on the back foot – two birds with one stone


Facts for empty braggarts

The response of the European Commission attempted to avoid political grandstanding by listing the fund allocations to Italian infrastructure and to its less developed South

The 2014-2020 EU structural and investment funds of “Cohesion Policy” for Italy, allocated over the period, are €42.77 billion

  • out of which €28 billion earmarked for the Mezzogiorno (Italian less developed South)
  • with an additional €30.96 billion committed to these structural programs by the national government for all of Italy
Cohesion Policy 2014-2020 Italy

Unfortunately, it is probable that the argument about broad based European infrastructure programs and related funding fell wide off the mark...and on deaf ears

When the OECD reports that spending on building and maintaining Italian roads fell by 62% between 2007 and 2015, politicians riding high on popular discontent will understandably shift the blame to predecessors and, always conveniently, to Europe


All the more so because the ‘cohesion policy’ – targeted by Mr Salvini - is an important part of the EU budget, financially as well as politically, and its extension critical for the implementation of the Italian coalition program

Unfortunately, the budgetary discussions for 2021-2027 are already at the nexus of conflicted challenges to the European ‘cohesion policy’

  • Currently, at almost €360 billion, it represents around a third of the 2014-2020 EU budget
  • With the departure of Great Britain from the Union, the budget expected shortfall will be of about €10 to €11 billion each year
  • The refusal to apply EU ‘solidarity’ during the 2015-2016 refugee crisis and concerns about the rule of law in Poland and in Hungry triggered a debate about European guiding principles for fund allocation, especially in Germany
  • Centralization of cohesion policy funds at the level of central governments might imply a reduced regional role in fund allocation, a shift Italy resists
Alberobello (Apulia) - two contiguous trulli 

Lending itself to much less political posturing – but much closer to the true concerns shared by European officials and both regional and national Italian representatives – is the enduring poverty of the South

  • The strong showing of the 5-star movement in Southern Italy, blighted by unemployment and lack of economic progress, was a vote of hope
  • Regional growth strategies combining private investment with funds committed by the EU and regional governments appear to be the most probable way ahead
  • Rather than getting bogged down in debates about budgetary commitments or about guiding principles, it is conceivable to reverse the process to unlock the growth potential of Southern Italy by prodding the region in opting for a clear and focused growth strategy


Are structural funds ineffective?

Drawing on our personal experience in matters of regional economic development, we share the observations of Prof. Francesco Aiello, of Conti Economici Regionali, Finanza, Istituzioni, Mezzogiorno and refer the interested reader to the full texts

Why EU regional policy has been ineffective in the Mezzogiorno of Italy, especially in Calabria
Growth in the South of Italy: with or without EU regional aid?

Prof. Aiello’s central thesis is both of deep concern and an opportunity


Wasted billions in Mezzogiorno

Broadly stated, EU regional policy aims to bridge the structural deficits in lagging regions in order to boost a development path without external aid

The European cohesion policies cast a wide net and multiple markers have been returning a positive image of the programs funded over 3 decades

Regional growth however is not one of them and it cannot be concluded that EU funds triggered endogenous growth mechanisms

Beyond Mezzogiorno, according to Prof. Aiello, the lack of self-sustained growth is in line with many other studies that analyze the impact of funds on the economic convergence across regions at EU or single state level (see, i.e., Boldrin and Canova 2001)

Failing on growth, the cohesion policies have recognized redistributive effects which, in a sense, are the mirror image of thematic allocations strategies that are at the same time of systematic uniformity and too thinly spread

The critique goes well beyond the fund allocation to the less developed Italian south where exceedingly precise allocation themes – such as planned for the future EU budget – are inducements to game the system instead of promoting economic growth

As noted by Carlo Triglia in "Why the Italian Mezzogiorno did not achieve a sustainable growth" (2012)

Local politicians have largely deployed financial aid to their own political and electoral ends, through transfers to the local population. Local politics has become, in other words, clientelistic, and large amounts of aid have thus been diverted away from the task of promoting investment in economic growth (e.g. through spending on infrastructure and efficient public services

In our view, systematic uniformity is one of the most disturbing observations because the European Union cannot at the same time push a forward looking macro-economic agenda for the Union at large and nurture promising growth industries at regional level

Because the two goals do not operate in compatible frameworks, and EU strategies may easily be perceived as supranational overreach, the facts on the ground observed by Prof. Aiello edge towards ‘make-believe’ implementation and empty commitments

On account of actual structural differences, regional strategies fitting in a broad EU growth mandate have the potential to engage in ways even braggadacios will support


Hard choices have to be made

At institutional level, we have no way of knowing if the very different levels of expertise across less developed regions are accounted for in Southern Italy (and elsewhere)

The issue has come into sharp focus

  • Given the key role of regional institutions in running the entire program and their responsibility in the efficient use of funds
  • Given the factual inability to use the allocated resources in the scheduled time, signaling their weakness  in managing the cohesion policy effectively (resulting in a concentration of spending in the last year of each programming cycle)
  • Given the use (and abuse) of "coherent-projects" at the end of each programming period, a practice of tacking EU programs onto existing projects, limiting strongly the catalyzing effect structural funds would hope to achieve

In terms of quality

  • Understandably, the EU is focused on improving the management of the volume of funds but a flexible approach, led on a test basis over one 5-year EU budgetary period, to the benefit of the South, might give priority to an evaluation of the quality of spending to boost development on a durable basis
  • With more flexibility on fund transfer time frames, again led on a test basis, a large number of minor projects with little or no durable productive impact would not be admitted for the sole purpose of spending the entitlements

Focus on durable economic growth would be an inflection of the broader goals set by European cohesion programs and has the potential to change the terms of the debate around fund allocation constructively

By forcing a discussion on the richest seams of regional development, of which the agro-industry in the Italian South is an outstanding example, and by combining private capital with public funds on the most promising initiatives, the terms of the conversation, even with braggadocios, would be refreshing