Opinion and Editorial

Can Europe finally solve the ‘Southern Question’?

Jon Van Housen and Mariella Radaelli
Filed on August 2, 2021

The same is also true for Europe as a whole, with Spain, Greece and Italy the largest countries affected.

In Italy it’s even taught in high school: the so-called ‘Southern Question’, the vast gulf in development and economies between the north and south of the country.

The same is also true for Europe as a whole, with Spain, Greece and Italy the largest countries affected.

But now with unprecedented funding available through EU Covid-19 recovery programmes, can Europe finally begin to close the gap between north and the south in quality of life, opportunities and development?

The outlook is the most hopeful since the onset of the Great 2008 Recession and the subsequent sovereign debt crisis that crippled Greece, costing its citizens a fifth of their disposable income. Nearly half of the €800 billion recovery fund will head to the south of the continent where officials and business leaders might be beginning to believe that the long malaise could actually be lifted.

According to just-released analysis by financial services company Moody’s, the recovery funding could in fact provide a huge boost to economies in the southern region. It forecasts the approved EU funding to Greece, Italy, Portugal and Spain is equivalent to 1.9 per cent of their GDP annually from this year until 2027, doubling public investment over the period after a decade of low investment at the national, regional and local levels.

But can the southern tier effectively absorb the funds? Grid-locked bureaucracy and corruption have long been among the reasons the region has languished. According to a report by the Italian news agency ANSA, Italy was bottom of the table for absorption of EU investment funds in 2019, utilising just 30.7 per cent of its agreed funding.

And it is a bloc-wide problem. By the end of 2019, the penultimate year in the seven-year EU budget for the period, just 40 per cent, some €184 billion, of the agreed EU funding had been paid out after counties met recipient requirements.

“EU recovery funds will provide a significant economic boost to Greece, Italy, Portugal and Spain as their economies recover from a contraction of 8.9 per cent on average in 2020,” said Sarah Carlson, a Moody’s senior vice-president. “Assuming these countries realise this funding in full, we estimate a 0.7 percentage point boost to annual growth on average between 2021 and 2027, with Greece and Portugal benefitting the most.”

While the EU seems generous indeed in lavish funding, it is not wholly altruistic in the effort. The bloc recognises the southern malaise could threaten the entire effort. Without a unified fiscal administration for the Eurozone, the fragile economies of the south have long loomed over the entire ambitious project.

Those hurt worst were the youth. Nine of the Eurozone’s top 10 areas for youth unemployment are in southern Europe. In 2020, a staggering 39.4 per cent of youth in Spain were unemployed, followed by 34 per cent in Greece and 30.6 per cent in Italy. And the pandemic has piled on the economic woes. In real terms much of the southern region now has lower economic wellbeing than it enjoyed before member countries joined the unified currency 20 years ago.

As the EU’s third-largest economy and founding member fundamental to the entire initiative, Italy is a lynchpin in the bloc, a fact both the European Commission and Italian Prime Minister Mario Draghi know full well.

Draghi, a former head of the European Central Bank, declared that “the lives of Italians” are now at stake, is as “the fate of the country” and “its credibility and reputation as a founding state of the European Union and a protagonist in the Western world”. Italy will be the biggest recipient of EU recovery funding, a total of €220 billion in grants and loans.

Though smaller than Italy in population and economy, Spain has been a firm advocate for EU integration and its loyalty has paid off. The EU agreed to provide nearly €70 billion in non-repayable cash transfers from 2021 to 2023 as well as an equal amount in loans.

Greece stands to receive up to €30.5 billion by 2026, some 17.8 billion in grants and 12.7 billion in loans. The government conceded that implementing the plan is a major challenge and would require Greece to absorb double its usual annual rate of EU funds, and simultaneously increase private investment by 30 per cent. It also warned that Greece should guard against risks inherent in the exercise, including the danger of encountering “behaviours from the past”.

That indeed is the crux of the matter. The ‘Southern Question’ was long posed at least in part due to the behaviour, traditions and intrinsic values manifest in the region. So not only economic reform, but also human reform, is needed.

One has to wonder how possible that is after watching the response to the pandemic. Across the globe people were asked to help and cooperate through the simple act of wearing a mask. Most agreed, but a persistent portion refused, even when their very lives depended on it.

So it’s not unreasonable to question how much people can reform, especially when work and financial habits come into play. Some reassurance is provided by the fact most were willing to cooperate during the pandemic, both in wearing masks and getting vaccinated.

Europe as a whole is certainly hoping that the better angels prevail and the south can finally rise to match the quality of life in other regions.

On offer is the most auspicious group of cards that have been dealt for a long time. The key now is how well they’re all played.

Jon Van Housen and Mariella Radaelli are journalists based in Milan.

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