# EUR-Lex - 52013DC0362 - EN

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# 52013DC0362

**Recommendation for a COUNCIL RECOMMENDATION on Italy 2013 national reform programme and delivering a Council opinion on Italy’s stability programme for 2012-2017 /* COM/2013/0362 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on Italy 2013 national reform programme
and delivering a Council opinion on Italy’s stability programme for 2012-2017

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Articles 121(2) and 148(4)
thereof,

Having regard to Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1], and in particular Article 5(2)
thereof,

Having regard to Regulation (EU) No
1176/2011 of the European Parliament and of the Council of 16 November 2011 on
the prevention and correction of macroeconomic imbalances[2] and in particular Article 6(1)
thereof,

Having regard to the recommendation of the
European Commission[3],

Having regard to the resolutions of the
European Parliament[4],

Having regard to the conclusions of the
European Council,

Having regard to the opinion of the
Employment Committee,

After consulting the Economic and Financial
Committee,

Whereas:

(1)       On 26 March 2010, the
European Council agreed to the Commission’s proposal to launch a new strategy
for growth and jobs, Europe 2020, based on enhanced coordination of economic
policies, which will focus on the key areas where action is needed to boost
Europe’s potential for sustainable growth and competitiveness.

(2)       On 13 July 2010, on the
basis of the Commission's proposals, the Council adopted a recommendation on
the broad guidelines for the economic policies of the Member States and the
Union (2010 to 2014) and, on 21 October 2010, adopted a decision on guidelines
for the employment policies of the Member States[5],
which together form the ‘integrated guidelines’. Member States were invited to take
the integrated guidelines into account in their national economic and
employment policies.

(3)       On 29 June 2012, the Heads
of State or Government decided on a Compact for Growth and Jobs, providing a
coherent framework for action at national, EU and euro area levels using all
possible levers, instruments and policies. They decided on action to be taken
at the level of the Member States, in particular expressing full commitment to
achieving the objectives of the Europe 2020 Strategy and to implementing the
country-specific recommendations.

(4)       On 6 July 2012, the
Council adopted a recommendation on Italy’s national reform programme for 2012
and delivered its opinion on Italy’s updated stability programme for 2011-2015.

(5)       On 28 November 2012, the
Commission adopted the Annual Growth Survey[6],
marking the start of the 2013 European Semester of economic policy
coordination. Also on 28 November 2012, the Commission, on the basis of
Regulation (EU) No 1176/2011, adopted the Alert Mechanism Report[7], in which it identified Italy
as one of the Member States for which an in-depth review would be carried out.

(6)       On 14 March 2013, the
European Council endorsed the priorities for ensuring financial stability,
fiscal consolidation and action to foster growth. It underscored the need to
pursue differentiated, growth-friendly fiscal consolidation, to restore normal
lending conditions to the economy, to promote growth and competitiveness, to
tackle unemployment and the social consequences of the crisis, and to modernise
public administration.

(7)       On 10 April 2013, the
Commission published the results of its in-depth review[8] for Italy, under Article 5 of
Regulation (EU) No 1176/2011. The Commission’s analysis leads it to conclude
that Italy is experiencing macroeconomic imbalances, which require determined
policy action. In particular, the loss of external competitiveness as well as
high public indebtedness in an environment of protracted subdued growth
continue to be identified as Italy's main macroeconomic imbalances.

(8)       On 11 April 2013, Italy
submitted its 2013 stability programme covering the period 2012-2017 and its
2013 national reform programme. Following this submission, the new government appointed
on 28 April indicated the intention to strengthen the structural reform agenda,
while confirming the budgetary targets put forward in the stability programme. On
17 May, a decree law was adopted, containing new provisions on real estate
taxation and the extension of the wage supplementation scheme for
under-employed workers. In order to take account of their inter-linkages, the
two programmes and the new measures taken by the government have been assessed
at the same time.

(9)       Based on the assessment of
the Stability Programme 2013-2017 pursuant to Council Regulation (EC) No
1466/97, the Council is of the opinion that the macroeconomic scenario
underpinning the budgetary projections in the programme is optimistic for 2014,
when compared with the Commission 2013 spring forecast. It is plausible as from
2015, but this is under the assumption of the full implementation of the
adopted structural reforms, which remains challenging. The budgetary strategy
outlined in the programme was confirmed by the new government and endorsed by
Parliament. It aims to maintain the deficit below 3% of GDP throughout the
programme period, reach the medium-term objective (MTO) in 2013 and put the
debt to GDP ratio on a declining path as from 2014. The programme confirms the
MTO of a balanced budgetary position in structural terms, which is in line with
the Stability and Growth Pact. The deficit was brought to 3% of GDP in 2012
and, according to the Commission 2013 spring forecast released on 3 May, is
expected to remain below the reference value in 2013-14. The provisions adopted
by the Italian government on 17 May are assessed to have no significant impact
on the deficit, if consistently implemented. After improving by 2.7 percentage
points of GDP in cumulative terms between 2009 and 2012, and assuming no
further policy changes, the structural balance as a share of GDP is forecast to
improve by a further percentage point in 2013, to -0.5%, and then deteriorate
marginally in 2014. The structural primary balance would reach nearly 5% of GDP
in 2014. The forecast structural adjustment for 2013 is appropriate, also based
on an analysis of expenditure net of discretionary revenue measures, while for
2014 it shows a deviation from the adjustment path towards the MTO. The
programme projects the government debt ratio to peak in 2013 and to start
declining thereafter, also thanks to foreseen privatisation proceeds amounting
to 1 percentage point of GDP per year. In the forecast however, the debt to GDP
ratio continues increasing, also due to the settlement of commercial debt,
which adds around 2.5 percentage points over 2013-14, while no privatisation
proceeds are included as the details have not yet been specified. As from 2013,
Italy is in a three-year transition period regarding compliance with the debt
criterion and the debt trajectory in the stability programme ensures sufficient
progress towards compliance with it. However, the deficit and debt projections in
the programme are predicated upon full implementation of the budgetary measures
and structural reforms adopted, which are essential to anchor market confidence
and boost growth and jobs.

(10)     While important reforms
have been adopted to foster fiscal sustainability and to spur growth, their
full implementation remains a challenge and there is scope for further action.
Several key measures proposed have not yet been approved or still require
enacting legislation and there are risks that their concrete application is not
consistently followed up through all levels of government.
Public-administration efficiency in terms of the regulatory and procedural framework,
quality of governance and administrative capacity continue to suffer from
significant weaknesses that affect implementation of reforms and the business
environment.

(11)     Completing the civil-justice
reform by swiftly implementing the revision of courts' organisation and reducing
the excessive duration of case-handling, court backlogs and high level of
litigation is necessary to improve the business environment. Following the
Constitutional court ruling in October 2012 on mediation, action is needed to
promote the use of out-of-court dispute-settlement mechanisms. Corruption
represents a serious concern implying costs estimated at 4 % of GDP, which
severely hinders the potential for economic recovery. The Anti-Corruption Law
of November 2012 requires follow-up action and the effectiveness of the repression
of corruption could be further improved, in particular with regard to the statute
of limitations currently characterised by short
prescription terms.

(12)     The ambitious fiscal
consolidation strategy enacted so far has been accompanied by the introduction
of a balanced budget rule in the Constitution in April 2012 and action to
improve the efficiency and quality of public expenditure. However, gaps in
implementation have hampered the full effectiveness of the action taken, in
particular with regard to public-sector employment efficiency and to the
reduction of the number of provinces. The Cohesion action plan made it possible
to speed up the absorption of structural funds accounting for about EUR 12.1 billion
in three consecutive phases. Nevertheless, the improvement of the overall
management of funds continues to lack ambition especially in the South of Italy
raising serious concerns in view of the 2014-2020 programming period. This
leaves ample scope for enhancing the efficiency of public expenditure.

(13)     Banks traditionally play a
decisive role in supporting Italian economic activity, notably through lending
to small firms, but their ability to take on this role has been weakened due to
the prolonged economic recession. Increased credit risk, with a large and
rising stock of non-performing loans, has contributed to a contraction in
lending and exacerbates banks' low profitability. In response, the Bank of
Italy is assessing the adequacy of provisioning for impaired loans with on-site
inspections. Specific corporate governance features of Italian banks may limit
the effectiveness of their financial intermediation. Measures were adopted to
encourage the use of non-bank financing channels, in particular equity
financing, and foster innovation capacity, but their scope remains limited and
they have not yet been fully implemented. The transposition of the EU directive
on late payments in commercial transactions and the planned settlement of the
accumulated stock of commercial debt will contribute to improving the liquidity
of firms.

(14)     A wide-ranging labour-market
reform was adopted in June 2012 addressing the rigidities and segmentation of
the labour market. The reform needs to be completed by adopting pending implementing
legislation and its concrete operationalisation on the ground carefully
monitored. Moreover, the public employment services have yet to be integrated with
the unemployment-benefit administration to support the implementation of efficient
activation strategies. A new wage-setting framework was defined by social
partners in successive agreements over 2011-2013. It is supported by tax
incentives to foster better alignment of wages with productivity and with local
labour-market conditions. This framework should be effectively implemented and progressively
adjusted on the basis of the monitoring of results.

(15)     Youth unemployment and the
proportion of young people not in employment, education or training continued
to increase, reaching 37 % and 21.1% respectively by the end of 2012. Both
the tertiary education attainment and the employment rate for young tertiary
graduates are the lowest in the EU, which shows that the skills of young
graduates are of little relevance to the job market. Although moderately
declining, early school leaving remains high. This raises concerns as regards
the performance of the education system. One of the key elements is the
teaching profession, which is currently characterised by a single career
pathway and offers limited prospects in terms of professional development. The
participation of women in the labour market remains weak and the employment
gender gap is one of the highest in the EU. The risk of poverty and social
exclusion, and notably severe material deprivation, are markedly on the rise,
while the social protection system has increasing difficulties to cope with
social needs since it is dominated by pension expenditure and social transfers excluding
pensions are insufficiently focused on fighting poverty and promoting social
inclusion.

(16)     The structure of the tax
system remains complex and weighs heavily on labour and capital. After the
effort undertaken in 2010-2011, additional measures adopted to shift the tax
burden from the productive factors onto consumption, property and the environment
have been more limited. Action is still needed to simplify the tax system, streamline
tax expenditures, align the property tax base with market values, enhance
compliance and dissuade evasion. Pending a revision of cadastral values, the
envisaged reform of real estate taxation will aim at improving its fairness,
within the constraints of the budgetary strategy laid out in the stability
programme. Reducing the shadow economy and undeclared work can benefit public
finances and have positive implications for equity. The review of VAT
exemptions or reduced rates and of direct tax expenditures may require some
adjustment in social transfers to minimise its distributional impact.

(17)     Notable efforts have been
made towards liberalisation in the services sector. However, the reform of regulated
professions should be taken further to address remaining restrictions and its
key principles should be safeguarded against possible setbacks, particularly stemming
from the reform of the legal profession. Following the ruling of the
Constitutional Court in July 2012, action to open local public services to
competition is also important.

(18)     The reform of the network
industries is on-going in terms of opening market access and improving infrastructure
capacity but important challenges remain. The unbundling in the gas sector is
due to be completed by September 2013 and the March 2013 national strategy for
energy needs to be implemented. Opening telecommunications to competition is a further
potential field of action. The new transport authority responsible for
highways, airports, ports and railways has not yet been set up. It should be
independent, supplied with the resources it needs to function and have powers
to sanction. There is also a serious problem of internal and cross-border
infrastructure shortcomings, with North-South disparities, contributing to high
energy prices, low broadband penetration and transport bottlenecks.

(19)     In the context of the
European Semester, the Commission has carried out a comprehensive analysis of
Italy’s economic policy. It has assessed the stability programme and national
reform programme and presented an in-depth review. It has taken into account
not only their relevance for sustainable fiscal and socio-economic policy in
Italy but also their compliance with EU rules and guidance, given the need to
reinforce the overall economic governance of the European Union by providing
EU-level input into future national decisions. Its recommendations under the
European Semester are reflected in recommendations (1) to (6) below.

(20)     In the light of this
assessment, the Council has examined Italy’s stability programme, and its
opinion[9]
is reflected in particular in recommendation (1) below.

(21)     In the light of the Commission’s
in-depth review and this assessment, the Council has examined the national
reform programme and the stability programme. Its recommendations under Article
6 of Regulation (EU) No 1176/2011 on the prevention and correction of
macroeconomic imbalances are reflected in recommendations (1) to (6) below.

(22)     In the context of the
European Semester the Commission has also carried out an analysis of the
economic policy of the euro area as a whole. On this basis the Council has
issued specific recommendations addressed to the Member States whose currency
is the euro. Italy also should ensure the full and timely implementation of
these recommendations.

HEREBY RECOMMENDS that Italy should
take action within the period 2013-2014 to:

1.           Ensure that the deficit
remains below 3% of GDP in 2013, by fully implementing the adopted measures. Pursue
the structural adjustment at an appropriate pace and through growth-friendly
fiscal consolidation so as to achieve and maintain the MTO as from 2014. Achieve
the planned structural primary surpluses in order to put the very high
debt-to-GDP ratio (forecast to be 132.2% of GDP in 2014) on a steadily
declining path. Continue pursuing a durable improvement of the efficiency and
quality of public expenditure by fully implementing the measures adopted in
2012 and taking the effort forward through regular in depth spending reviews at
all levels of government.

2.           Ensure timely
implementation of on-going reforms by swiftly adopting the necessary enacting
legislation, following it up with concrete delivery at all levels of government
and with all relevant stakeholders, and monitoring impact. Reinforce the
efficiency of public administration and improve coordination between layers of government.
Simplify the administrative and regulatory framework for citizens and business
and reduce the duration of case-handling and the high levels of litigation in
civil justice, including by fostering out-of-court settlement procedures. Strengthen
the legal framework for the repression of corruption, including by revising the
rules governing limitation periods. Adopt structural measures to improve the
management of EU funds in the southern regions with regard to the 2014-2020
programming period.

3.           Promote corporate
governance practices in the banking sector conducive to higher efficiency and
profitability to support the flow of credit to productive activities. Take
forward the on-going work as regards asset-quality screening across the banking
sector and facilitate the resolution of non-performing loans on banks’ balance
sheets. Promote further the development of capital markets to diversify and enhance
firms' access to finance, especially into equity, and in turn foster their innovation
capacity and growth.

4.           Ensure the effective
implementation of the labour market and wage setting reforms to allow better
alignment of wages to productivity. Take further action to foster labour market
participation, especially of women and young people, for example through a
Youth Guarantee. Strengthen vocational education and training, ensure more
efficient public employment services and improve career and counselling
services for tertiary students. Reduce financial disincentives for second
earners to work and improve the provision of care and out-of-school services. Step
up efforts to prevent early school leaving and improve school quality and
outcomes, also by reforming teachers' professional and career development. Ensure
effectiveness of social transfers, notably through better targeting of
benefits, especially for low-income households with children.

5.           Shift the tax burden from
labour and capital to consumption, property and the
environment in a budgetary neutral manner. To this purpose, review the scope of
VAT exemptions and reduced rates and of direct tax expenditures, and reform the
cadastral system to align the tax base of recurrent immovable property to market
values. Pursue the fight against tax evasion, improve tax compliance and take
decisive steps against the shadow economy and undeclared work.

6.           Ensure the proper
implementation of the measures aiming at market opening in the services sector.
Remove remaining restrictions in professional services and foster market access
for instance in the provision of local public services where the use of public
procurement should be advanced (instead of direct concessions). Pursue
deployment of the measures taken to improve market access conditions in network
industries, in particular by setting- up the Transport Authority as a priority.
Upgrade infrastructure capacity with focus on energy interconnections,
intermodal transport and high-speed broadband in telecommunications, also with
a view to tackling the North-South disparities.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 2.8.1997, p. 1.

[2]               OJ L 306, 23.11.2011, p. 25.

[3]               COM(2013) 362 final.

[4]               P7_TA(2013)0052 and P7_TA(2013)0053.

[5]               Council Decision2013/208/EU of 22 April 2013.

[6]               COM(2012) 750 final.

[7]               COM(2012) 751 final.

[8]               SWD(2013) 118 final.

[9]               Under Article 5(2) of Council Regulation (EC) No
1466/97.