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
Date: 2012-05-30
Institutions: European Commission
Subjects: Italy, budgetary equilibrium, corporate finance, dropout, educational reform, job creation, judicial reform, liberalisation of the market, pay policy, public debt, public expenditure, public service, tax evasion, tax reform, youth unemployment

EUROPEAN COMMISSION 

Brussels, 30.5.2012  
COM(2012) 318 final 

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 

{SWD(2012) 318 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 
policies1, 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  imbalances2, 
and in particular Article 6(1) thereof, 

Having regard to the recommendation of the European Commission3, 
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) 

(2) 

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2 
3 
4 

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 
to  boost  Europe’s  potential  for  sustainable  growth  and 
competitiveness. 

is  needed 

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 

OJ L 209, 02.08.1997, p. 1 
OJ L 306, 23.11.2011, p. 25 
COM(2012)318 final 
P7_TA(2012)0048 and P7_TA(2012)0047 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

Member States5, which together form the ‘integrated guidelines’. Member States were 
invited  to  take  the  integrated  guidelines  into  account  in  their  national  economic  and 
employment policies. 

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. 

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 Report6, in which it identified Italy as one of the Member States for which 
an in-depth review would be carried out. 

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. 

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. 

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  review7  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. 

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 

5 
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7 

Council Decision 2012/238/EU of 26 April 2012 
COM(2012) 68 final 
SWD(2012)156 final 

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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  deficit8,  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. 

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.  

(9) 

(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. 

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. 

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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 
full 
implementation  of  the  2010  university  reform,  and  a  stronger  link  between 
universities' performance and the allocation of public funding.  

including 

through 

the 

(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 

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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. 

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. 

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.  

In the light of this assessment, the Council has examined Italy’s stability programme, 
and its opinion9 is reflected in particular in recommendation (1) below. 

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. 

(18) 

(19) 

(20) 

(21) 

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

1. 

2. 

3. 

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. 

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. 

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.  

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

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4. 

5. 

6. 

7. 

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.  

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.  

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.  

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 

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