The Public and Private Partnership That Also Works for Employment

In the crisis that engulfed Europe after the 2007 subprime crisis, and especially Italy, investment in public works and infrastructure also dropped, further contributing to the crisis of GDP and its stunted recovery. As the fiscal compact and the credit crunch continued to play their negative role in the infrastructure and public works industry, the Italian construction sector took a significant hit, with considerable job losses that are far from being recovered and a large number of business closures.

But the problem was not just that: with the stability pacts built into Italian budget laws since 2009-10, as soon as the crisis becomes virulent, the possibility for local authorities to resort to debt was virtually eliminated. Local authorities have always been an administrative power capable of spreading investment, bringing it closer to economic and social needs, with territorial communities being favorably affected, albeit not always in an efficient way.

➜ the role of the project companies
In terms of accounts, the debt of Italian local governments decreased from €111 trillion in 2007 to €89 trillion in 2016, against a 42% increase for the central government (from €1,490 trillion to €2,120 trillion), numbers that translate in a debt for Italian public administration equal 133% of GDP in 2016. Moreover, growing central government debt is not related to investments, which also fell from 4.5% (2008) to 3.4% (2015), as compared to a decline from 21.6% to 9.9% in the same years for municipalities (and the number of loans granted to local governments for local investment dropped from 4,184 in 2007 to 654 in 2016).

If this is the main problem of our country, namely that we had to weather the crisis with the highest public debt in the euro area, with the constraints of the fiscal compact leading to stability pact constraints and public investment being discontinued at the central level and above all the local level, economic relief could come from Public and Private Partnerships (PPPs), which after the Legislative Decree 50/2016 (Italian Code of Public Contracts) have taken a new configuration. In addition to new forms of development and revitalization of the measure, the new version also contains a plan to transfer public debt to private entities, such as project companies (SPV, the Italian acronym). The end remains the recovery of lost employment, and increase in the investment share of GDP and the partial recuperation of companies that are key in the construction industry and for the country's modernization of infrastructre (see my recent book on Public Private Partnerships published by Carocci, 2017).

➜ Italy's financial advantages
Italy has the highest public debt (132.8% of GDP), as compared to 96.5% for Spain, 97.4% for France, 64.7% for Germany, numbers which have led to the aforementioned budget restrictions, but things change if we take into account the private debt of non-financial corporations, where percentages of neighboring countries are much higher: in France 127.5%, Spain 102.3%, and Italy 76.6%, second only to Germany (53.4%). Italy compared to the other three major EU nations also has the lowest household debt as a percentage of GDP (41.7% vs. 65.2% in Spain, 57% in France, 53.4% in Germany). Such a situation is ideal to activate PPPs.

Everything urges Italy to undertake such a path before other nations, so that the country can pioneer the large-scale use of PPPs in public works and construction. Our country was the only one translating into national legislation the EU directive on PPPs, by creating an ad hoc partition within the legal code - the present author was proponent actor of the fourth partition on PPPs of the Italian code of public contracts. But are things really that simple? Is it enough to apply the new rules and regulations that have been in force for a year? No, the implementation of the PPP model is a great opportunity for our country, but it has its peculiarities and practical difficulties. You have to know it well and know how to assemble it properly and it's where the real difficulty lies.