For twenty-five years, Mauro Congedo has been exploring and restoring minor architectural gems in Salento, the southeast Italian peninsula known as the “heel” of the nation. He works with his father and brother to uncover and restore these treasures.
Now, purchasers from Germany and England are unexpectedly showing interest in the houses and apartments that Congedo restores in this somewhat isolated area. The fifty-year-old architect stated, “Everything is going well again.”
Almost all business ceased during the coronavirus pandemic. He drags out the “a” for a while, however, calling what transpired in the Italian business later “crazy”. Congedo isn’t the only person who is happy about Italy’s economic recovery, though, if you dig a little further.
Italy Transforms from Problem Child to Class Leader
After years of gloomy growth forecasts and dismal debt rankings, the government in Rome is now witnessing a remarkable transformation as the country emerges as Europe’s new growth engine.
During the last quarter, the Italian economy experienced a growth of 0.6%, whereas the German economy faced a contraction of 0.3% in the same period. In addition to this brief three-month snapshot, there are other impressive figures for Europe’s third-largest economy.
“The Italian economy has experienced a significant growth of 3.8% since 2019,” stated Jörg Krämer, the chief economist at Commerzbank. According to him, it is twice the size of the French economy and five times larger than the German economy, as he mentioned to DW.
In Germany, the outlook is certainly grim. Germany is expected to experience a growth rate of 0.3% this year, according to the Organization for Economic Cooperation and Development (OECD). German experts are predicting a modest growth of 0.1%. Italy, on the other hand, is projected to experience a growth rate of 0.7% this year, as stated by the OECD.
The Italian stock market is also experiencing positive gains, reflecting the overall optimistic sentiment. Last year, the FTSE MIB benchmark index, consisting of 40 major companies, experienced an impressive increase of approximately 28%, surpassing all other European stock market indices. Italy is poised for further economic expansion.
Trust in the Italian Government is Returning
It wasn’t always a sight that inspired optimism. Economists were initially cautious in their reaction to Giorgia Meloni’s appointment as prime minister in October 2022. Throughout the election campaign, Meloni and her Brothers of Italy party emphasized a nationalist economic approach centered around promoting “Made in Italy” products. They also expressed concerns about migration and did not explicitly distance themselves from Russia.
Following her election, the German weekly Stern referred to her as the “most dangerous woman in Europe.” However, when it comes to economic policy, Meloni has mostly followed the same path as her predecessor Mario Draghi. Italy is reaping the benefits of this course, particularly in the bond market. The interest rate at which the county borrows money has returned to the level before she assumed office.
During a press conference earlier this year, Meloni attempted to claim responsibility for the positive economic growth. According to her, the economy has been hindered by the previous lack of political stability. She confidently expressed her viewpoint.
Meloni’s Achievement Contributed to How Much Growth?
“Not a whole lot,” responded Krämer from Commerzbank. “Italy’s loose fiscal policy has contributed to the significant growth.” It can be inferred that Italy’s growth heavily relies on the accumulation of new debt. Before the COVID-19 pandemic, the Italian state’s debt as a percentage of gross domestic product (GDP) was 1.5%. However, in recent years, it has significantly increased and reached 8.3% of GDP in the first half of 2023.
The country’s debt burden is also increasing. In January, the EU Commission projected that it would surpass 140% of GDP this year and continue to increase in 2025. By way of comparison, the debt ratio in Germany stands at 66%, while in France it is nearly 100%.
Huge Construction Subsidies Inject the Economy
Since the end of 2020, the Italian state has been providing funding for a range of home renovation measures in an effort to boost the economy. They pay approximately 50% of the cost for certain measures, while for others, they receive an even greater amount. One of the most widely recognized options is the “Superbonus 110” program, which focuses on promoting energy-efficient renovations.
With this program, individuals who choose to renovate their house or apartment to improve energy efficiency will receive a full refund of their expenses, along with an additional 10% through a tax reduction scheme.
“Construction investments have seen a significant increase,” stated Krämer, an economist and expert on Italy. “This effect is responsible for the majority of the robust growth we are currently witnessing.”
Mauro Congedo, the architect, does not seem particularly enthusiastic about the Superbonus 110 program. Prices have increased across the board. In addition to inflation, the program caused an increase in the expenses related to materials and workers.
“If the state covers all expenses, individuals tend to be less concerned about the cost,” remarked Congedo. Furthermore, prices are not under anyone’s control. Construction companies from Naples, Bari, and the provincial capital Lecce have repeatedly requested him to increase his costs. “They requested that I increase the price by double.” I did not do it. “It feels like taking something that doesn’t belong to me,” he said.
In general, he believes that a bonus for energy-efficient renovation of buildings is a positive idea. However, it would be fair for owners to contribute to the costs instead of solely relying on the government. Congedo doesn’t have a high opinion of Giorgia Meloni either. According to him, the Superbonus 110 program was the only positive outcome of her actions.
Money from the European Union
Interestingly, the head of government from the ultra-right has caused a delay in the Superbonus program that was initially implemented by the left-wing Five Star Movement. In 2023, it covered a maximum of 70% of costs, and this year it will cover up to 65% of the renovation costs.
However, the tax credits resulting from the program will have a substantial impact on government revenue in the coming years. It is likely quite convenient for the government in Rome that billions are still flowing, primarily from Brussels. Italy is a significant beneficiary of the EU’s COVID recovery fund.
Italy is set to receive a staggering amount of almost €200 billion ($216 billion) in subsidies and loans by 2026. “The Italian state should aim to decrease its budget deficit, which is currently quite high, by the specified deadline,” stated Krämer. “If they begin saving at that point, the Italian growth miracle will likely come to an end due to the missed opportunity for implementing structural reforms.”
Mauro Congedo expresses concern about the long-lasting effects of the Superbonus 110 program. “The prices are exorbitant, and we find ourselves burdened with significant debt.”
Fortunately, he will have a steady stream of work for the foreseeable future. He is currently juggling eight projects simultaneously.
