# EUR-Lex - 52012DC0318 - EN

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# 52012DC0318

**Recommendation for a COUNCIL RECOMMENDATION on Italy’s 2012 national reform programme and delivering a Council opinion on Italy’s stability programme for 2012-2015 /* COM/2012/0318 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on Italy’s 2012 national reform programme
and delivering a Council opinion on Italy’s stability programme for 2012-2015

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 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 European Commission’s proposal to launch a new
strategy for jobs and growth, 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, 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 12 July 2011, the
Council adopted a recommendation on Italy’s national reform programme for 2011
and delivered its opinion on Italy’s updated stability programme for 2011-2014.

(4)       On 23 November 2011, the
Commission adopted the second Annual Growth Survey, marking the start of the
second European Semester of ex-ante and integrated policy coordination, which
is anchored in the Europe 2020 strategy. On 14 February 2012, the Commission,
on the basis of Regulation (EU) No 1176/2011, adopted the Alert Mechanism
Report[6],
in which it identified Italy as one of the Member States for which an in-depth
review would be carried out.

(5)       On 2 March 2012, 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.

(6)       On
2 March 2012, the European Council also invited the Member States participating
in the Euro Plus Pact to present their commitments in time for their inclusion
in their stability or convergence programmes and their national reform
programmes.

(7)       On 30 April 2012, Italy
submitted its stability programme covering the period 2012-2015 and its 2012
national reform programme. In order to take account of their interlinkages, the
two programmes have been assessed at the same time. The Commission has also
assessed in an in-depth review, under Article 5 of Regulation (EU) No
1176/2011, whether Italy is affected by macroeconomic imbalances. The
Commission concluded in its in-depth review[7] that Italy
is experiencing imbalances, although not excessive. In particular, while the
public debt is already under close scrutiny in the Stability and Growth Pact,
macroeconomic developments in the area of export performance deserve attention
so as to reduce the risk of adverse effects on the functioning of the economy.

(8)       Based on the assessment of
the stability programme pursuant to Article 5(1) of Council Regulation (EC) No
1466/97, the Council is of the opinion that the macroeconomic scenario
underlying the programme is plausible, under the assumption of no further
worsening in financial market conditions. In line with the Commission's spring
2012 forecast, it expects real GDP to contract sharply this year and recover gradually
in 2013. In compliance with the Excessive Deficit Procedure (EDP), the
objective of the budgetary strategy outlined in the programme is to bring the
general government deficit below the 3% of GDP reference value by 2012, based
on further expenditure restraint and additional revenues. Following the
correction of the excessive deficit, the programme confirms the medium-term
budgetary objective (MTO) of a balanced budgetary position in structural terms,
which adequately reflects the requirements of the Stability and Growth Pact. It
plans to achieve it in 2013, i.e. one year earlier than targeted in the
previous stability programme. Based on the (recalculated) structural deficit[8], the planned average annual
fiscal effort over the period 2010-2012 is well above the 0.5% of GDP
recommended by the Council under EDP. The envisaged pace of adjustment in
structural terms in 2013 allows achieving the MTO in that year and the planned
rate of growth of government expenditure, taking into account discretionary revenue
measures would comply with the expenditure benchmark of the Stability and
Growth Pact. The programme projects the government debt ratio to peak in 2012
and to start declining at an increasing pace thereafter, as the primary surplus
increases. In 2013-14 Italy will be in transition period and its budgetary
plans would ensure sufficient progress towards compliance with the debt reduction
benchmark, as also confirmed in the Commission's 2012 spring forecast.
According to plans, the debt reduction benchmark will be met at the end of the
transition period (2015). Reaching the above deficit and debt outcomes will
require strict and full budgetary implementation of the corrective measures
adopted in 2010‑11. Finally, Italy appears to be at medium risk with regard
to the sustainability of public finances in the long term.

(9)       As regards the fiscal
framework, the Italian Parliament approved a bill introducing a balanced budget
rule in the Italian Constitution. Implementing legislation will be needed to
specify key features of the rule, i.e. the modalities of application and the
appropriate correction mechanisms and escape clauses as well as the necessary
coordination between the different levels of government. The government
committed to pursue a durable improvement of the efficiency and quality of
public expenditure through in-depth spending reviews at all levels of
government. The reviews should also allow prioritising expenditure items in
favour of growth. With the same aim, a reorientation of the use of structural
funds is underway through measures taken in March 2011 and with the 2011
November’s Cohesion Action Plan, which also aims at speeding up the absorption
of structural funds. However, important deficiencies in terms of administrative
capacity continue to hamper absorption and hence the implementation of the
Plan, notably in the convergence regions.

(10)     The structure of the tax
system and the high level of tax evasion and undeclared work have adversely
affected the economic performance of the country. Tax compliance and governance
are also affected by wide-ranging tax expenditures and complex and burdensome
administrative procedures. The partial shift in tax burden away from the
factors of production onto consumption and property already enacted is an important
first step to make the tax structure more growth friendly, but a further shift is
warranted, while keeping into consideration distributional effects.

(11)     The social partners’
agreement of June 2011 to reform the wage-bargaining framework has been
formalised in legislation. It should allow more extensive use of firm-level
contracts, taking better account of the needs of specific production
activities. However, to fully address the issue of more dynamic nominal unit
labour costs than its trade partners, which is a key factor for Italy’s
competitiveness loss, the wage-bargaining system should be reformed further by
allowing more flexible arrangements also at the national sectoral level. In
April 2012, the government proposed an ambitious labour market reform
addressing long-standing challenges in the Italian labour market, including its
segmentation. This reform needs to be adopted as a matter of urgency, ensuring
that its objective and level of ambition remains commensurate to the challenge
of the Italian labour market. The scale and effectiveness of the liberalisation
of employment services should be closely monitored.

(12)     Despite efforts made to
improve the employability of women, mainly through targeted fiscal incentives,
the employment rate of Italian women is significantly lower (46.5% in 2011)
than the EU 27 average (58.5% in 2011). Further action on childcare and elderly
care facilities is needed. The challenge is particularly big for older female
workers in the private sector, as the pensionable age for women will rise by
five years between 2012 and 2018.

(13)     Youth unemployment in Italy
reached 29.1% on average in 2011 and rose further in the first months of 2012.
In particular, the unemployment rate among tertiary graduates is high and there
is mismatch between the acquired skills and those that are needed in the labour
market. The promotion of apprenticeship as a main port
of entry into the labour market is welcome but still
requires enforcement of the appropriate instruments such as a new system of
occupational and training standards and skills certification schemes. The
Commission launched an Action Team to reprogramme cohesion funds towards
measures that support the employment of young people and the development of
SMEs.

(14)     The early school leaving
rate of 18.8% at national level, with strong regional variations, has adverse
effects on youth unemployment. More targeted and
coordinated action to address the challenge of early school leaving should be
taken by combining prevention, intervention and compensation measures. The underperformance of the tertiary-education system should be
addressed including through the full implementation of the 2010 university
reform, and a stronger link between universities' performance and the
allocation of public funding.

(15)     Italy has adopted important
measures to liberalise services, in particular professional services, and
improve competition in the network industries. However, multiple challenges remain in the energy and transport sectors, in
particular railways and ports, where infrastructure and market bottlenecks
remain significant.

(16)     Although some measures have
already been adopted to encourage administrative simplification, the business
environment in Italy remains complex. In particular, the
judiciary system suffers from a number of
inefficiencies in terms of resource utilisation, procedures and institutional
organisation that are reflected in the low performance of the Italian civil
justice, in particular as regards the excessive duration of case-handling and
the amount of backlogs.

(17)     Access to financing by SME is
difficult and venture capital intensity is weak. An Allowance for new Corporate
Equity (ACE) was introduced in December 2011 allowing companies to exclude the
notional return on new injections of equity capital from taxable income. This
is expected to facilitate the increase in firm size of SMEs and investment in
innovation. While some measures have been taken to foster private R&D,
notably the refinancing of the tax credit for business investment in research,
the intensity remains low and implementation of projects of an innovative
nature is weak.

(18)     Italy has made a number of
commitments under the Euro Plus Pact. These commitments, and the implementation
of the commitments presented last year, relate to fostering employment,
improving competitiveness, enhancing sustainability of public finances and
reinforcing financial stability. The Commission has assessed the implementation
of the Euro Plus Pact commitments. The results of this assessment have been
taken into account in the recommendations.

(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 (7) 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 results
of the Commission’s in-depth review and this assessment, the Council has
examined Italy’s national reform programme for 2012 and Italy’s stability
programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011
are reflected in recommendations (1) to (7) below.

HEREBY RECOMMENDS that Italy should
take action within the period 2012-2013 to:

1.           Implement the budgetary
strategy as planned, and ensure that the excessive deficit is corrected in 2012.
Ensure the planned structural primary surpluses so as
to put the debt-to-GDP ratio on a declining path by 2013. Ensure adequate progress towards the
medium-term budgetary objective, while meeting the expenditure benchmark and making
sufficient progress towards compliance with the debt reduction benchmark.

2.           Ensure that
the specification of the key features of the Constitutional balanced
budget rule, including appropriate coordination across
levels of government, is consistent with the EU framework. Pursue a durable improvement of the efficiency and quality of
public expenditure through the planned spending review and
the implementation of the 2011 Cohesion Action Plan leading
to improving the absorption and management of EU funds, in particular
in the South of Italy.

3.           Take
further action to address youth unemployment, including by improving the
labour-market relevance of education and facilitating transition to work, also through
incentives for business start-ups and for hiring employees. Enforce nation-wide
recognition of skills and qualifications to promote labour mobility. Take
measures to reduce tertiary-education dropout rates and fight early school
leaving.

4.           Adopt
the labour market reform as a priority to tackle the segmentation of the labour
market and establish an integrated unemployment benefit scheme. Take further
action to incentivise labour market participation of women, in particular
through the provision of child and elderly care. To boost cost competitiveness,
strengthen the link between wages set at sectoral level and productivity
through further improvements to the wage setting framework, in consultation
with social partners and in line with national practices.

5.           Pursue
the fight against tax evasion. Pursue the shadow
economy and undeclared work, for instance by stepping up checks and controls.
Take measures to reduce the scope of tax
exemptions, allowances and VAT reduced rates and simplify the tax code. Take further action
to shift the tax burden away from capital and labour to property and
consumption as well as environment.

6.           Implement the adopted
liberalisation and simplification measures in the services sector. Take further
measures to improve market access in network industries, as well as
infrastructure capacity and interconnections.

7.           Simplify further the
regulatory framework for businesses and enhance administrative capacity. Improve
access to financial instruments, in particular equity, to finance growing
businesses and innovation. Implement the planned reorganisation of the civil
justice system, and promote the use of alternative dispute settlement mechanisms.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 02.08.1997, p. 1

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

[3]               COM(2012)318 final

[4]               P7_TA(2012)0048 and P7_TA(2012)0047

[5]               Council Decision 2012/238/EU of 26 April 2012

[6]               COM(2012) 68 final

[7]               SWD(2012)156 final

[8]               Cyclically
adjusted balance net of one-off and temporary measures, recalculated by the
Commission services on the
basis of the information provided in the programme, using the commonly agreed
methodology.

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