# EUR-Lex - 52011SC0810 - EN

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# 52011SC0810

**Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of Italyand delivering a Council opinionon the updated Stability Programme of Italy, 2011-2014 /* SEC/2011/0810 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on the National Reform Programme 2011 of
Italy
and delivering a Council opinion
on the updated Stability Programme of Italy, 2011-2014

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(3) thereof,

Having regard to the recommendation of the
European Commission[2],

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[3],
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 January 2011, the Commission adopted the
first Annual Growth Survey, marking the start of a new cycle of economic
governance in the EU and the first European semester of ex-ante and integrated
policy coordination, which is anchored in the Europe 2020 strategy.

(4) 
On 25 March 2011, the European Council endorsed
the priorities for fiscal consolidation and structural reform (in line with the
Council’s conclusions of 15 February and 7 March 2011 and further to the
Commission’s Annual Growth Survey). It underscored the need to give priority to
restoring sound budgets and fiscal sustainability, reducing unemployment
through labour market reforms and making new efforts to enhance growth. It
requested Member States to translate these priorities into concrete measures to
be included in their Stability or Convergence Programme and National Reform
Programmes.

(5) 
On 25 March 2011, the European Council also
invited the Member States participating in the Euro Plus Pact to present their
commitments in time to be included in their Stability or Convergence Programmes
and their National Reform Programmes.

(6) 
On 6 May 2011, Italy submitted its 2011
Stability Programme update covering the period 2011-2014 and its 2011 National
Reform Programme. In order to take account of the interlinkages, the two
programmes have been assessed at the same time.

(7) 
The Italian economy had been affected by
structural weaknesses long before the current global economic and financial
crisis. Between 2001 and 2007, average real GDP growth was around 1%, i.e. only
half the euro-area average, due mainly to sluggish productivity growth. As
these developments affected the whole country, the large regional economic
disparities were not reduced. Although the economy was not marked by large
private sector internal imbalances, it was seriously affected by the global
crisis. A collapse in exports, and subsequently in investment, produced a sharp
contraction of around 7% in real GDP between the second quarter of 2008 and the
second quarter of 2009. After having steadily fallen in the previous decade,
government gross debt increased to 119% by end-2010, also reflecting the sharp
decline in GDP. Employment declined much less, supported by a
government-sponsored scheme to reduce hours worked, and therefore the
unemployment rate increased only moderately over 2008-09. Led by exports, the
economy started to recover in the second half of 2009, albeit at a slow pace.
The labour market situation remained fragile in 2010, with the unemployment
rate stabilising at around 8.5% by the end of the year. Given the very high
government debt ratio, Italy kept an appropriately prudent fiscal stance during
the crisis, refraining from undertaking a large fiscal stimulus, and thus
keeping the government deficit below the euro-area average in 2009-10.

(8) 
Based on the assessment of the updated stability
programme pursuant to Council Regulation (EC) No 1466/97, the Council is of the
opinion that the macroeconomic scenario underlying the programme is plausible.
The programme plans to bring the general government deficit below 3% of the GDP
reference value by 2012, based on further expenditure restraint and additional
revenues from improved tax compliance. Following the correction of the
excessive deficit, the programme plans to achieve the medium-term objective
(MTO) of a balanced budgetary position in structural terms by the end of the
programme period (2014), backed by a commitment to further restrain primary
expenditure. The programme projects the government debt ratio to peak in 2011
and to decline at an increasing pace thereafter, as the primary surplus
increases. The planned average annual fiscal effort over the period 2010-2012
is above the 0.5% of GDP recommended by the Council under the EDP, and the
envisaged pace of adjustment after 2012 is well above the provisions in the
Stability and Growth Pact. Reaching the above deficit and debt outcomes will
require a strict budgetary implementation, while more information on the
planned consolidation measures is needed to increase the credibility of the
programme.

(9) 
Given the very high government debt, which
stands at around 120% of GDP in 2011, the pursuit of a durable and credible
consolidation and the adoption of structural measures to enhance growth are key
priorities for Italy. For the period until 2012, the achievement of the targets
for the general government deficit set in the stability programme, and thus the
correction of the excessive deficit by 2012, relies on the full implementation
of the measures already adopted. Additional action would be required if, for
instance, revenues from improved tax compliance are lower than budgeted or if
difficulties arise in achieving the planned restraint in capital expenditure.
For 2013-14, the new three-year budgetary framework prescribes that the
concrete measures underpinning the consolidation effort be adopted by October
2011. Although the budgetary framework has been strengthened considerably in
recent years, the introduction of binding expenditure ceilings and further
improvements to budgetary monitoring across all government sub-sectors would
foster fiscal discipline and strengthen the credibility of the medium-term
budgetary strategy.

(10) 
Despite relatively strong job creation in the
years preceding the crisis, Italy’s labour market exhibits some structural
weaknesses. Workers on open-ended contracts enjoy more protection than workers
with little work tenure or on temporary contracts, especially when they are
officially registered as self-employed, but are actually in a standard
subordinate working relationship. For the former, labour legislation allows
collective dismissals and dismissals for economic reasons in a very limited
number of cases. At the same time, not all workers who lose their job receive
adequate income support, as labour market segmentation is accompanied by a
fragmented system of unemployment benefits. The level of unemployment among workers below 25 years of age reached 27.8% in
2010, with an uneven distribution across the country, and youth unemployment in
southern regions was double that in northern regions. The role of
apprenticeships and vocational training is not sufficiently emphasised. Although
very useful and necessary, there is currently no single system of skill
certification and recognition of vocational and training standards that is
acknowledged across the country, thus hampering labour mobility and employment
opportunities throughout Italy. There is room to
strengthen the effectiveness of employment services, especially in regions with
high unemployment. Finally, undeclared work remains an important phenomenon in
Italy.

(11) 
Aligning wage developments with productivity
growth is important in view of Italy’s constant loss of competitiveness since
the late 1990s; in this regard, bargaining at firm level can play a significant
role, which may also help to address regional labour market disparities. The
2009 reform of the bargaining framework introduced, among other things, the
possibility of opening clauses (i.e. derogations from the sectoral wage agreed
at national level), but they have not yet been widely used.

(12) 
The employment rate of women lags behind that of
men by over 20 percentage points across the whole territory. Barely one third
of women between 20 and 64 were employed in the southern regions in 2009, due
to both relatively lower activity rates and higher unemployment. Italy’s
relatively high taxation of labour reduces incentives to labour supply,
especially for dependent spouses, and adversely affects labour demand by firms.
To help boost female employment, the National Reform Programme looks to the
plan adopted in 2010 to coordinate efforts across the layers of government to
promote the reconciliation of work and family life. The government recently
introduced a tax incentive for companies hiring disadvantaged workers,
including those who work in a sector or occupation where the gender imbalance
is particularly pronounced, in regions with high unemployment. The Programme
also announces a reform of the taxation system with a view to gradually
shifting the tax burden from labour to consumption, which might help increase
employment.

(13) 
Compared to EU standards, the cost of doing
business in Italy remains high, in particular in southern regions, despite
recent measures to improve the business environment and to enhance the
performance-orientation and accountability of the public administration. There
is still ample scope for removing regulatory and administrative barriers in
product and services markets, particularly in professional services. An Annual
Law on Competition was introduced in 2009 as a legislative tool to enhance the
competitive environment and consumer protection, but it has not yet been
adopted. Lengthy contract enforcement procedures are a further weakness of
Italy’s business environment. Non-banking channels for financing the growth of
firms are still comparatively rare in Italy, especially for SMEs. Equity
financing and venture capital, in particular, continue to play only a limited
role, despite their potential for promoting growth in firm size, outreach to
new global markets and improved corporate governance.

(14) 
R&D expenditure posted only a modest
increase over the past ten years. Consequently, R&D intensity remains low,
at around 1.27% of GDP, and well below the EU average (1.90%). This gap is
mainly due to a low level of industrial research, as business R&D intensity
stands at 0.64% of GDP compared to an EU-27 average of 1.23%. Venture capital
intensity also remains very low. A number of measures, including time-limited
tax breaks for companies investing in research projects carried out by
universities or public-sector entities, are presented in the NRP, but the
target of 1.53% of GDP set for R&D intensity is barely above current
levels.

(15) 
Italy is the third-largest beneficiary of EU
cohesion policy funds, having received around 8% of the total EU cohesion
policy budget during the period 2007-2013. Halfway through the programming
period, the share of EU funds actually mobilised is only 16.8% and it is much
lower in the southern Convergence regions.

(16) 
Italy has made a number of commitments under the
Euro Plus Pact[4]. The National Reform
Programme mentions some recently adopted measures and broadly outlines plans
for future reform to address public finance sustainability and financial
stability, foster competitiveness and increase employment, in line with the
principles of the Euro Plus Pact. A new major commitment specifically
undertaken to respond to the Pact is the government’s intention to amend the
Constitution in order to reinforce budgetary discipline. These elements have
been assessed and taken into account in the recommendations.

(17) 
The Commission has assessed the Stability
Programme and National Reform Programme, including the Euro Plus Pact
commitments for Italy[5]. It has taken into
account not only their relevance for sustainable fiscal and socio-economic
policy in Italy, but also their conformity 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. In this light, the
Commission considers that Italy’s consolidation plan for 2011-14 is credible
until 2012, whereas it should be underpinned by concrete measures for 2013-14,
so as to put the very high government debt on a steadily declining path. The
NRP outlines a comprehensive set of initiatives across all dimensions of the
Europe 2020 Strategy, but further measures are considered necessary in order to
address long-standing structural weaknesses exacerbated by the crisis. To
enhance Italy’s growth and job-creation potential, and promote the catching-up
of southern regions, further steps should be taken in 2011-2012 to improve the
functioning of the labour market, open up services and product markets to
greater competition, improve the business environment, strengthen research and
innovation policy and promote faster and better use of EU cohesion funds.

(18) 
In light of this assessment, also taking into
account the Council Recommendation under Article 126(7) Treaty on the Functioning
of the European Union of 2 December 2009, the Council has examined the 2011
update of the Stability Programme of Italy and its opinion[6]
is reflected in particular in its recommendation under (1) set out below.
Taking into account the European Council conclusions of 25 March 2011, the
Council has examined the National Reform Programme of Italy,

HEREBY RECOMMENDS that Italy should
take action within the period 2011-2012 to:

(1) 
Implement the planned fiscal consolidation in
2011 and 2012 to ensure correction of the excessive deficit. Fully exploit any
better-than-expected budgetary developments for faster deficit and debt
reduction and stand ready to prevent slippages in budgetary implementation.
Back up the targets for 2013-14 with concrete measures by October 2011 as
provided for in the new multi-annual budgetary framework. Strengthen the
framework by introducing binding ceilings on expenditure and improving
monitoring across all government sub-sectors.

(2) 
Take measures to combat segmentation in the
labour market, by reviewing selected aspects of
employment protection legislation and reforming in a comprehensive manner the
currently fragmented unemployment benefit system. Step up efforts to fight
undeclared work. In addition, take steps to promote greater participation of
women in the labour market, by increasing the availability of care facilities
throughout the country and providing financial incentives to second earners to
take up work in a budgetary neutral way.

(3) 
Take steps, based on the 2009 law reforming the
collective bargaining framework and in consultation with the social partners in
accordance with national practices, to ensure that wage growth better reflects
productivity developments as well as local and firm level conditions.

(4) 
Introduce measures to open up the services
sector to further competition, in particular in the field of professional
services. Adopt in 2011 the Annual Law on Competition, taking into account the
recommendations presented by the Anti-trust Authority. Reduce the length of
contract law enforcement procedures. Take steps to
promote the access of SMEs to capital markets by removing regulatory obstacles
and reducing costs.

(5) 
Improve the framework for private sector
investment in research and innovation by extending current fiscal incentives,
improving conditions for venture capital and supporting innovative procurement
schemes.

(6) 
Take steps to accelerate growth-enhancing
expenditure co-financed by cohesion policy funds in order to reduce the
persistent disparities between regions, by improving administrative capacity
and political governance. Respect the commitments made in the national
Strategic Reference Framework in terms of the amount of resources and quality
of expenditure.

Done at Brussels,

For
the Council

The
President

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

[2]               OJ C , , p. .

[3]               Maintained for 2011 by Council Decision 2011/308/EU
of 19 May 2011.

[4]               More details on the commitments made under the Euro
Plus Pact can be found in SEC(2011) 720.

[5]               SEC(2011) 720.

[6]               Foreseen in Article 5(3) of Council Regulation (EC)
No 1466/97.