Investments and fresh starts: the global post-Covid challenge

It isn’t just U.S. President Joe Biden who’s focusing on infrastructure investments as a Covid-19 counter-measure. Europe, through the Recovery Plan, and China are also working on similar plans, aiming to restart their economies. Does a period of major investments await us? Can infrastructure really be the most effective tool for economic recovery in the post-pandemic period?

“Without a doubt, the pandemic’s economic effects are pushing governments of all types and all political ideologies to intervene with massive stimulus packages.”

This will be a year of major investments; Marta Dassù is convinced of this. Dassù is Senior Advisor for European Affairs at the Aspen Institute, the prestigious international nonprofit founded in 1950 in Washington, aimed at supporting enlightened, equitable forms of leadership.

In an exclusive interview with “Webuildvalue”, Dassù, the Italian geopolitical expert, former undersecretary and deputy minister of Foreign Affairs, explains that “infrastructural investments will be key, given their growth multipliers, or at least their potential for them. Specifically, if we look at the structure of the European Recovery and Resilience Facility, investments in energy transition and digital transition (which will partially include infrastructural investments) will use more than than 50% of the funds.”

In what ways can infrastructure investments help facilitate fresh starts for economies?

“Infrastructure investments will certainly be an integral part of Covid-19 recovery, but particularly if we adopt a “transformative” vision for them. This means investments that are technologically more advanced in sustainability terms, which will help generate a “flywheel effect” on various productive sectors – energy, transport and logistics, and obviously digitalisation. It is essential that public investments can trigger the growth of private ones, too.

Additionally, there’s one factor that’s only partially tangible and quantifiable, yet will be decisive for the overall sustainability of economic recovery: quality of life. Quality of life ultimately makes a country (or an economic macro-area like the European Union) attractive, both for the citizens who live there and for those interested in investing over the long term. In other words, on a global scale, we have to think in competitive terms between organisational models, also supported by the great new-generation infrastructures.”

Let’s talk about the Recovery Plan. Can you help us understand its exceptional scope? What kind of opportunity will it be for growth and development across the continent?

“I think we should first remember how these European agreements are structured: last December, a two-sided approach was approved, which included the Multiannual Financial Framework 2021-2027 (the EU budget) and the so-called NextGenerationEU as a temporary economic recovery tool. The central pillar of NextGenerationEU, the Recovery and Resilience Facility, with its €750 billion endowment in grants and loans, has funds that will be available until December 31, 2023.

Financial contribution payments to member states will be made by 2026. At its core, this is a powerful transitional investment tool, and Italy its top beneficiary. For the first time [we’re seeing a plan] based on the issuance of common debt securities: through this, the EU has taken an initial step towards a European fiscal capacity and aims to support the economic recovery of the countries most affected by the crisis, avoiding imbalance tensions within the euro area.

Of course, now Italy’s task is to come up with credible investment projects, paired with any necessary reforms, so these funds can be spent wisely. We have to remember that [Italy] has one of the worst track records in Europe, in terms of making use of European funds. If we want public investment to move Italy onto a sustainable growth trajectory after two decades of stagnation, we have to eliminate those structural weaknesses that have long prevented our country’s recovery.

What we’re somewhat improperly calling the “Recovery Plan” should be seen as a first step in the right direction; it’s a great opportunity, but one that requires new organisational capacity at both the EU and the national levels.”

Naturally, Italy is struggling with the drafting of investment projects linked to the Recovery Plan. Considering the drafts that have been circulated, what weight is going to be given to infrastructural investments? Will the country be able to take advantage of this opportunity to restart large-scale works and, consequentially, employment?

“Firstly, the number of financial resources that Italy will be able to benefit from – around €200 billion – is unprecedented, much higher than even the Marshall Plan (which was, however, based on different logic and tools). Historically, the experience of the immediate post-war period holds an important lesson: the decisive factor is the leverage exerted by the financing rather than the amount itself.

Today, just like back then, we need to trigger positive dynamics for employment, productivity, and overall confidence among investors, yes, but also among consumers – who are also taxpayers and voters. With this kind of backdrop, infrastructure can become a true, tangible sign of positive change. As we know, all the National Plans have to be presented by the end of next April: the Treasury is overseeing revisions of the latest versions of the Plan, and it’s still too early to have detailed assessments of the final approach. But Italy will be able to take advantage of this opportunity if it effectively combines investments and reforms, which will ensure that spending is productive. I’ll say it again: since Italy had pre-pandemic weaknesses, combining investments and reforms is going to be key.”

Is Italy’s backwardness in terms of infrastructure, particularly in the South, one of the country’s weaknesses in competing with other European partners?

“We can’t deny that the problem exists and that the Italian economy is still “bifurcated” if we compare a substantial part of the North and a substantial part of the Center-South. The pandemic has both highlighted and accentuated the digital divide, for example. On a completely different note, but an essential one for the future of infrastructure, the development of port hubs continues to suffer from a lack of adequate interconnections.

On the other hand, we have to remember that many of the country’s structural weaknesses are not necessarily linked to the North-South divide: the fact that SMEs are the backbone of our production system creates risks for the industrial fabric of the North; the administrative machinery slows down entrepreneurship throughout the country; and higher education needs to be modernized everywhere, not just in the South. So, while some approaches specifically tailored to restarting Southern Italy are more than reasonable, the country’s system must be seen as an integrated network on a national scale.”

All countries are awaiting vaccine rollouts. Once the pandemic is over, what kind of world is in store for us? How will the balance between the great powers change?

“The pandemic and the subsequent competition for vaccines did not upset previous geopolitical balances so much as it accentuated certain trends, namely the rapidity of China’s rise. I have always thought, though, that geopolitical analyses made in 2020 tend to overestimate the relative strength of the Chinese model and underestimate the dynamism of the American economy. With this in mind, the latest estimates of U.S. recovery are telling: through the vaccine campaign and the massive stimulus package ($1.9 trillion) just passed in Congress, the US could see 7-8% growth by the end of 2021. This would mean that, for the first time in about fifteen years, the American economy, not the Chinese one, will become the major driver of world growth.

Europe will have the challenge of positioning itself in this scenario. Ursula von der Leyen has spoken of “geopolitical Europe”. And there is discussion of “strategic autonomy.” But beyond the formulas, the goals are not yet completely clear, in part because the main European countries don’t perceive things the same way. The problem is both simple and complex: Europe does not want to be dragged into growing tensions between China and the United States, due in part to the weight that the Chinese market holds for the major Eurozone economies, namely Germany. But it has to come to an agreement with Washington on how to effectively confront China’s rise. Otherwise, the anticipated new start for Transatlantic relations – something that’s going to be decisive for both security and for economies – cannot take place. At the same time, in the commercial, technological and industrial spheres, Europe is gunning to strengthen itself as a “pole” of the global system. These are the major issues of today and tomorrow.”

Today it seems that China’s Belt&Road Initiative is being put on the back burner in light of more immediate projects, such as the further development of the Greater Bay Area. What kind of strategy is China following in terms of investments and economic revitalization?

“The Chinese government seems to be aiming for greater strategic autonomy from the rest of the world and focusing on the development of its enormous internal market. Perhaps in some way this could reduce the momentum on projects like Belt&Road, which up to now has produced rather disappointing results. But China is its own occupier in a way, and the “dual circulation strategy” leverages the state component of the economy, thereby penalizing the dynamism of the rest. In a nutshell, this is China’s dilemma: massive infrastructure investments have made the People’s Republic an economic titan, but now, creating a welfare system for the rapidly aging population is the only thing that will allow the country to increase per capita wealth and quality of life on a continental scale. The latest five-year plan, which was just approved, confirms that infrastructural investments will be a priority, but with low environmental targets, if you consider the proclamations being made about climate change-related principles.”

How does the election of Joe Biden change the attitude of the United States on the world stage and. in particular, its relationship with the European Union, also inlight of the continent’s current challenges?

“The Biden administration ushers in a return to the idea that alliances are advantageous for the United States, rather than just costly. With Europe, there is a convergence on some goals that the EU sees as critical: the fight against climate change, management of international trade from a negotiation standpoint, regulation of the digital sector, and coordination on cybersecurity.

I’m still of the mind that the real potential tension will arise from the China issue: Europeans have called China a “systemic rival,” yet an “economy-first” logic nonetheless persists, while for the United States, this is the great geopolitical challenge of the century.”