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Italy hopes to use EU funds to protect firms from U.S. IRA scheme

Spread of the coronavirus disease (COVID-19) in Rome

By Giuseppe Fonte, Angelo Amante and Crispian Balmer

ROME (Reuters) -Italy wants to use billions of euros of EU funds to shield domestic companies from the impact of massive subsidies being offered to firms based in the United States, a senior government official said on Tuesday.

European nations fear that the U.S. Inflation Reduction Act (IRA), which provides $430 billion of subsidies to spur investment in the U.S. for electric vehicles and other clean technologies, will disadvantage companies based in Europe.

The European Commission is loosening some state aid rules to help individual member countries stem a potential stream of European companies heading across the Atlantic.

However, Italy, whose public debt is proportionally the highest in the euro zone after Greece, does not have the budget leeway to provide significant support for its companies.

Instead, the official said Rome was looking to invest part of the European Union post-COVID funds it is expecting to receive by 2026 to help its national firms, including offering tax breaks for the ecological renovation of industrial plants.

Italy is due to receive some 200 billion euros ($220 billion) in EU loans and grants, but is falling behind schedule in terms of spending the cash it has already received and in meeting policy targets, which trigger the release of fresh payments.

Rome is renegotiating with Brussels its funding plans to drop projects that it will be unable to finalise by 2026 and replace them with others that can be completed on time. It is also selecting those eligible for the REPowerEU plan, which aims to wean the bloc off Russian gas and boost the green transition.

SPENDING STRUGGLES

Italy believes it can obtain at least 6 billion euros from this programme, and plans to shift part of the post-COVID funds as well as 3 billion euros from domestic programmes to boost the resources available for strategic energy projects.

The official said REPowerEU would be crucial to finance massive national energy infrastructure investments, which are being proposed by state-controlled majors such as Eni, Enel, Snam and Terna.

Part of the resources could be devoted to building a link to bring gas and hydrogen produced in north Africa to Europe.

European Affairs Minister Raffaele Fitto has said recently the government is also planning to use the REPowerEU money to help families hit by rising energy bills since the outbreak of the war in Ukraine.

Italy is earmarked to receive a significantly greater amount of money from the post-COVID fund than any other EU member state, but the official said the previous governments of Giuseppe Conte and Mario Draghi were naive to push for such a huge sum.

He said Italy, which has traditionally struggled to use up its quota of EU financing, was always going to find it hard to spend the new funds by the 2026 cut-off date. However, he said the government was determined not to lose any of the cash.

Italy is waiting to receive a third tranche of funds from Brussels worth 19 billion euros, which was initially due to be approved in February but was frozen pending clarification.

The official said the administration was confident it would unlock this money by May.

($1 = 0.9084 euros)

(Reporting by Giuseppe Fonte, Angelo Amante and Crispian Balmer; Editing by Bernadette Baum and Gavin Jones)