COMMISSION STAFF WORKING DOCUMENT Assessment of the 2012 national reform programme and stability programme for ITALY Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Italy’s 2012 national reform programme and delivering a Council Opinion on Italy’s updated 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  
SWD(2012) 318 final 

COMMISSION STAFF WORKING DOCUMENT 

Assessment of the 2012 national reform programme and stability programme for  
ITALY 

Accompanying the document 

Recommendation for a  

COUNCIL RECOMMENDATION 

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

{COM(2012) 318 final} 

EN 

   EN 

 
 
 
 
  
 
 
 
CONTENTS 

EXECUTIVE SUMMARY ................................................................................................. 3 

1. 

INTRODUCTION....................................................................................................... 4 

2.  ECONOMIC DEVELOPMENTS AND CHALLENGES .......................................... 5 

2.1.  Recent economic developments and outlook .................................................... 5 

2.2.  Challenges ......................................................................................................... 6 

3.  ASSESSMENT OF POLICY AGENDA .................................................................. 10 

3.1.  Fiscal policy and taxation................................................................................ 10 

3.2.  Financial sector................................................................................................ 15 

3.3.  Labour market, education and social policy.................................................... 16 

3.4.  Growth and competitiveness structural measures ........................................... 19 

3.5.  Modernisation of public administration .......................................................... 23 

4.  OVERVIEW TABLE................................................................................................ 25 

5.  ANNEX ..................................................................................................................... 29 

2

 
 
 
 
EXECUTIVE SUMMARY 

In 2012, Italy's economic activity is expected to contract by 1.4%, and gradually recover 
in  2013.  The  unemployment  rate  is  foreseen  to  increase  further  to  9.5%  this  year  and 
9.7% in 2013. 

In the past few months, the policy response to ensure sound public finances and tackle 
Italy's long-standing structural weaknesses has been determined and wide-ranging. It has 
touched upon a whole range of areas including taxation, pensions, competition in product 
and  services  markets,  the  business  environment,  efficiency  of  the  public  administration 
and recently, the labour market.   

Italy  continues  to  face  important  and  serious  challenges  in  a  number  of  areas.  The 
dualism in terms of economic development between the North and the South remains an 
overarching concern. The full implementation of the bold fiscal consolidation strategy is 
a  pressing  need.  The  weak  external  competitive  position  requires  better  alignment  of 
wage  and  productivity  developments.  A  heavy  tax  burden  on  labour  adversely  affects 
labour  supply  and  demand.  Reducing  tax  evasion  and  improving  compliance  require 
further  determined  action.  Labour  market  participation  and  employment  rates  are  still 
low, in particular for young people, women and older workers. The overall quality of the 
education and training system is unsatisfactory, with high levels of early school leaving 
and  low  participation  in  lifelong  learning.  Significant  infrastructure  gaps  and  a  lack  of 
competition  in  the  network  industries,  in  particular  energy  and  transport,  are  hindering 
economic activity. The business environment is not growth-friendly due to administrative 
inefficiencies,  burdensome  regulations  and  significant  weaknesses  in  the  civil  justice 
system.  

3

 
 
 
 
1. 

INTRODUCTION 

Procedural aspects 

In June 2011, the Commission proposed six country specific recommendations1 (CSRs) 
for  economic  and  structural  reform  policies  for  Italy.  In  July  2011,  the  Council  of  the 
European Union adopted these recommendations2 which concerned the public finances, 
the labour market, competition, business environment, research, innovation and cohesion 
funds. 

In  November  2011,  the  Commission  published  its  Annual  Growth  Survey  for  20123 
(AGS 2012) in which it set out its proposals for building a common understanding about 
the priorities for action at national and EU level in 2012. It focused on five priorities — 
growth-friendly fiscal consolidation, restoring normal lending to the economy, promoting 
growth  and  competitiveness,  tackling  unemployment  and  social  consequences  of  the 
crisis,  and  modernising  public  administration  —  and  encouraged  Member  States  to 
implement them in the 2012 European Semester. 

Against  this  background,  in  April  2012  Italy  presented  its  2012  national  reform 
programme  and  stability  programme,  which  were  then  endorsed  by  the  Italian 
Parliament.  These  programmes  provide  details  on  progress  made  since  July  2011  and 
plans going forward. The national reform programme was prepared in consultation with 
the local authorities and the social partners. 

This Staff Working Document assesses the state of implementation of the 2011 country-
specific  recommendations  as  well  as  the  Annual  Growth  Survey  for  2012  in  Italy, 
identifies current policy challenges and, in this light, examines the country’s latest policy 
plans. 

Overall assessment 

The  policy  response  to  ensure  sound  public  finances  and  tackle  Italy’s  long-standing 
structural  weaknesses  has  been  determined  and  wide-ranging.  Italy  is  implementing  a 
bold  fiscal  consolidation  strategy  which  is  expected  to  correct  the  excessive  deficit  by 
2012 and enable the country to achieve the medium-term objective of a broadly balanced 
budgetary position in structural terms by 2013, i.e. one year earlier than recommended in 
the  country-specific  recommendations  issued  in  2011.  A  further  major  improvement  in 
fiscal governance, namely the introduction of a balanced budget rule in the Constitution, 
is another sign of Italy’s commitment to sound public finances. Italy has put in place a 
wide range of growth- and competitiveness-enhancing measures in the areas of taxation, 
pensions,  competition  in  product  and  services  markets,  the  business  environment,  
efficiency  of  the  public  administration  and,  more  recently,  the  labour  market.  These 
measures  address  most  of  the  country-specific  recommendations  issued  in  2011. 
Notwithstanding  these  important  achievements,  full  implementation  of  the  adopted 
measures  remains  challenging,  especially  when  it  requires  the  cooperation  of  many 
actors, and there remains scope to progress further in the reform agenda. 

Italy’s  most  pressing  challenges  remain  in  the  areas  of  the  public  finances,  the  labour 
market,  education  and  market  regulation,  while  there  is  scope  to  make  the  tax  system 
more growth-enhancing and to increase the efficiency of civil justice. In particular, there 
is a need to fully implement the ambitious fiscal consolidation strategy. Addressing the 

1   SEC(2011) 810 final of 7 June 2011 
2   OJ C 215 of 21 July 2011 
3   COM(2011) 815 final of 23 November 2011 

4

 
 
                                                 
vulnerable  situation  of young people on the labour market is another key challenge for 
Italy, especially in the light of the sharp increase in youth unemployment in the aftermath 
of  the  deep  economic  crisis.  There  is  also  scope  to  further  enhance  competition  in  the 
network industries. 

Overall,  the  reform  agenda  set  out  in  the  national  reform  programme  is  relevant  and 
ambitious  to  address  Italy’s  challenges.  If  properly  implemented,  it  would  make  a 
significant  contribution  to  increasing  the  sustainability  of  the  public  finances  and 
enhancing Italy’s growth potential. 

2.  ECONOMIC DEVELOPMENTS AND CHALLENGES 

2.1.  Recent economic developments and outlook 

Recent economic developments 

The  Italian  economy  entered  recession  again  in  the  second  half  of  2011.  The  acute 
tensions  recorded  in  the  sovereign  debt  markets  in  the  final  months  of  2011  and  the 
resulting  loss  in  economic  agents’  confidence  led  to  a  sharp  fall  in  demand. 
Consequently,  real  GDP  growth  over  2011  as  a  whole  was  only  0.4 %,  after  1.8 %  in 
2010. 

The  rise  in  employment  that  began  in  the  last  quarter  of  2010  came  to  a  halt  in  the 
closing  months  of  2011.  The  unemployment  rate  is  estimated  to  have  risen  to  9.8 %  in 
March 2012, the highest rate since July 2000, with more than one in three active young 
people  being  jobless.  Inflationary  pressures  were  relatively  strong  in  the  first  half  of 
2011, then abated in the following months thanks to cost moderation and slack demand. 
In  the  last  months  of  2011,  however,  the  increase  in  indirect  tax  rates  contributed  to 
driving up consumer prices. 

Given  the  very  high  public  debt  ratio,  Italy  refrained  from  undertaking  a  large  fiscal 
stimulus during the crisis, allowing the government deficit-to-GDP ratio to remain below 
the euro-area average in 2009-11. Still, the debt ratio climbed to 120 % of GDP by the 
end of 2011, mainly reflecting the severe fall in GDP. The sharp increase in the cost of 
borrowing in the last months of 2011 as a result of the aggravating sovereign debt crisis 
signalled the risk of a liquidity crisis due to the large debt rollover scheduled for the first 
months of 2012. 

Outlook 

According  to  the  Commission  services’  spring  2012  forecast,  real  GDP  is  expected  to 
contract  by  1.4 %  in  2012  and  then  gradually  recover  in  2013.  Real  GDP  is  set  to 
continue falling in the first half of 2012, as spending and investment plans of consumers 
and  firms  are  held  back  by  poor  labour  market  prospects  and  persistently  high 
uncertainty in financial markets. Economic activity is expected to stabilise in the second 
half of the year, assuming no further worsening in financial market conditions and yields 
on 10-year Italian sovereign slightly below 6 %. 

The  current  account  deficit  is  expected  to  narrow  in  2012-13  from  the  3.2 %  of  GDP 
deficit  recorded  in  2011,  on  the  back  of  depressed  domestic  demand  and  declining 
imports. By contrast, exports are set to continue increasing in line with sustained demand 
from extra-EU trade partners. No major improvement is expected in cost competitiveness 
as nominal unit labour costs are projected to rise broadly in line with the rest of the euro 
area: wage increases in the private sector are expected to be moderate, and public sector 
wages have been frozen for the entire 2011-14 period, while overall productivity is set to 
stagnate. Harmonised Index of Consumer Prices inflation is set to rise to 3.2 % in 2012, 

5

 
 
driven by higher oil prices and further indirect tax increases and then fall back below 2 % 
at the end of the forecast period. 

Employment is projected to decline. At the same time, labour force participation is set to 
continue recovering, driven by gradually rising participation by the older age groups — 
due  to  the  recently  adopted  pension  reforms  —  and  a  return  to  the  labour  market  of 
inactive  workers  that  are  now  pushed  back  to  job  seeking  by  the  fall  in  households’ 
disposable income. As a consequence, the unemployment rate is projected to rise further 
in 2012-13. 

Consistency across the stability programme and the national reform programme, notably 
in  terms  of  macroeconomic  scenario  and  inter-linkages  between  fiscal  and  other 
macroeconomic  areas,  is  ensured  by  the  integration  of  the  two  documents  within  the 
Document on the Economy and Finance (Documento di Economia e Finanza) which also 
includes,  in  a  third  section,  the  analysis  of  trends  in  public  finances.  The  stability 
programme and the national reform programme are consistent respectively with the Code 
of conduct and the guidance provided by the Commission. 

2.2.  Challenges 

Italy  is  faced  with  the  twin  challenges  of  a  very  high  public  debt  and  persistently  low 
growth.  These  challenges  long  pre-date  the  global  financial  crisis  and  largely  explain 
investors’  mounting  concerns  with  the  sustainability  of  Italy’s  public  debt  in  an 
environment characterised by high risk aversion. There is a feedback loop between low 
growth  and  concerns  about  sustainability  that  works  both  ways:  low  growth  makes  it 
more difficult to achieve and maintain the large primary surplus that is needed to drive 
down  the  debt  ratio,  while  concerns  about  debt  sustainability  increase  pressure  on 
interest  rates  and  dampen  economic  agents’  confidence,  with  negative  impact  on 
domestic  demand  and  overall  economic  activity.  Therefore,  although  the  large  fiscal 
consolidation effort may depress domestic demand and growth in the short term, it is a 
pre-requisite for restoring confidence and successfully putting in place a strategy to boost 
growth.  There  is  also  scope  to  improve  the  quality  of  the  public  finances  in  a  growth-
enhancing way by increasing the effectiveness and efficiency of public spending, further 
shifting  the  tax  burden  away  from  the  factors  of  production  and  improving  tax 
compliance  and  tax  governance.  The  Italian  tax  system  is  still  characterised  by 
significant tax evasion and the administrative costs of revenue collection are in the upper 
range of the EU spectrum. 

Over  1999-2007,  Italy’s  real  annual  GDP  growth  averaged  only  1.5 %,  around  ¾ 
percentage  point  (pp)  below  the  performance  of  the  euro  area  as  a  whole.  This  mainly 
reflects  low  productivity  growth,  in  particular  as  total  factor  productivity  growth 
dramatically  declined.  Following  the  deep  recession  recorded  in  2008-09  and  the 
temporary mild recovery of 2010-11, the level of real GDP is projected to be around 6 
pps lower in 2012 than in 2007. Low productivity growth largely explains the significant 
loss  in  external  competitiveness  that  Italy  has  recorded  for  over  a  decade.  An 
unfavourable  product  specialisation  and  geographical  orientation  of  its  exports  also 
contribute to this development (see Box 1). 

Finally,  Italy  still  suffers  from  significant  dualism  in  terms  of  economic  development 
between the North and the South, with the South’s dismal performance largely due to its 

6

 
 
inability  to  unlock  its  labour  potential.4  This  remains  an  overarching  concern  for  Italy 
that intensifies the challenges across most policy areas. 

Despite considerable progress over the past decade, participation and employment rates 
are still very low, particularly among women, young people and older workers, and long-
term  unemployment  is  high  among  young  workers,  especially  in  the  South.  The  heavy 
tax  burden  on  labour  has  a  negative  impact  on  labour  supply  and  demand,  and  the 
provision  of  adequate  and  affordable  childcare  and  elderly  care  facilities  remains 
insufficient. The creation of new permanent jobs is chronically weak. Piecemeal labour 
market  reforms  in  the  past  eased  labour  market  entry  conditions  by  increasing  the 
number  of  non-standard  employment  contracts,  but  they  did  not  alter  the  traditional 
configuration of the Italian labour market, based on the protection of insiders by means 
of  tight  conditions  for  individual  dismissals  and  preferential  access  to  a  system  of 
unemployment  benefits  that  hampers  occupational  and  sectoral  mobility.  As  a  result, 
employment has increased, but at the cost of increased segmentation. Many outsiders – 
notably young and female workers – suffer from both job precariousness and inadequate 
income  support  when  out  of  work.  During  the  2008-09  crisis  the  coverage  of 
unemployment  benefits  was  extended  to  categories  of  workers  previously  ineligible 
because  of  sector,  firm  size  or  type  of  employment  contract  but  the  system  is  still 
fragmented  and  benefits  are  often  provided  on  a  discretionary  basis.  Finally,  income 
inequality is high by international standards and low-skilled workers, children and large 
households are particularly exposed to the risk of poverty and social exclusion.5 

Wage  increases  do  not  adequately  reflect  local  labour  market  conditions  and 
productivity. This is particularly relevant in the context of the weak productivity growth, 
which has gradually eroded the cost competitiveness of the Italian economy as a whole, 
while  contributing  to  the  persistence  of  regional  disparities  in  labour  market 
performance. 

Italy lags behind other EU countries in terms of human capital formation. Italian pupils 
have a mixed score on the OECD Programme for International Student Assessment, with 
performance  in  the  northern  regions  in  line  with  or  above  the  EU  average  but 
significantly  worse  in  the  South.  Despite  various  educational  reforms,  early  school 
leaving remains a major challenge. Tertiary education attainment and adult participation 
in  lifelong  learning  are  also  low,  hampering  the  upskilling  of  the  labour  force.  A 
production specialisation model still focused on traditional labour-intensive sectors with 
limited intensity of research, development and innovation, together with the small size of 
Italian firms, tend to limit the demand for high-skilled workers and the development of 
research and development capabilities. 

Capital  accumulation  is  also  hampered  by  a  series  of  factors,  including  relatively  high 
corporate taxation and a complex tax system, as well as a corporate governance culture 
and  institutional  features  that  contribute  to  maintaining  a  highly  fragmented  economic 
structure with a prevalence of small-sized firms that highly rely on banks to raise funds. 
Infrastructure  gaps  also  hinder  economic  activity  and  limit  the  attractiveness  of  the 
country  for  foreign  investment.  To  start  with,  Italy  suffers  from  a  severe  energy 
infrastructure  gap  and  the  use  of  existing  structures  is  sub-optimal.  Facilities  to  import 

4  Regional  imbalances  in  Italy  are  quite  large.  Unemployment  and  low  female  participation  are 
concentrated  in  the  southern  regions.  The  employment  rate  varies  greatly,  with  more  than  21 pps  of 
difference between north-eastern (67.6 %) and southern regions (46.5 %). 

5  According  to  Eurostat,  in  2010  24.5 %  of  Italian  population was at risk of poverty or social exclusion, 

compared with an EU average of 23.5 %. 

7

 
 
                                                 
and store gas struggle to cope with extreme events and are inadequate to meet the needs 
of a country that aims to be a ‘gas hub’ for the EU. The high share of imported gas in 
electricity  generation  means  that  the  security  of  electricity  supply  ultimately  relies  on 
secure gas supply.6 Despite recent progress, competition in the gas sector remains limited 
and the electricity sector is still highly concentrated in some areas of the country. Lack of 
adequate  infrastructures  determines  an  often  suboptimal  use  of  generation  capacity 
which, combined with market shortcomings, results in high energy prices for consumers. 
Italy is heavily dependent on imported energy and the further development of renewables 
could  play  an  important  role  in  sheltering  the  country  from  external  energy  supply 
shocks. The transport sector also faces a number of challenges, mainly in the railway and 
maritime transport sectors. In spite of increased competition in high-speed services, the 
degree  of  market  opening  in  the  railway  sector  is  still  suboptimal.  The  Italian  National 
Railways  Company  still  controls  both  the  Infrastructure  Manager  and  the  main 
incumbent  operator  for  passenger  and  freight  transport,  which  undermines  the 
functioning  of  the  sector.  In  the  area  of  maritime  transport,  poor  interconnections  with 
inland transport and limited competition are other important challenges for Italy.  

Infrastructure development in Italy would benefit from an improved use of EU cohesion 
funds,  better  focused  on  growth-enhancing  projects.  The  absorption  capacity  of  these 
funds remains particularly low in the southern regions. 

Italy’s regulatory environment is weighed down by public administration inefficiencies, 
burdensome  business  and  labour  regulations,  a  complex  tax  system  and  costly 
enforcement  of  contracts  due  to  crucial  weaknesses  in  the  Italian  civil  justice  system. 
Furthermore, the still incomplete implementation of the Services Directive at local level 
contributes to the difficult business environment. 

Box  1.  Summary  of  the  results  of  the  in-depth  review  under  the  macroeconomic  imbalances 
procedure 

On 14 February 2012, the European Commission presented its first Alert Mechanism Report, prepared in 
accordance  with  Regulation  (EC)  No  1176/2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances.  The  report  identifies  Italy  as  one  of  the  12  Member  States  whose  macroeconomic  situation 
needs  to  be  scrutinised  more  in-depth  in  order  to  identify  actual  or  potential  imbalances  and  the possible 
macroeconomic risks which they may entail. 

The  main  imbalance  affecting  the  Italian  economy  is  the  high  government  debt.  Combined  with  the 
unsatisfactory growth prospects, it represents the main vulnerability of the Italian economy, with negative 
impact on the banking sector and the real economy and potential negative spillovers to the euro area as a 
whole.  In  addition,  Italy  has  been  losing  external  competitiveness  since  euro  adoption,  mainly  due  to 
stagnant  productivity  growth  and  an  unfavourable  export  structure.  While  the  current  account  deficit 
remains  contained,  its  negative  trend  could  entail  significant  macroeconomic  risks  for  Italy  and  the  euro 
area as a whole. The main observations of this review are: 

• The high government debt represents a major imbalance of the Italian economy, with negative effects on 
the  real  economy  and  potential  spillovers  to  the  euro  area  as  a  whole.  The  high  taxation  -  present  and 
expected  -  needed  to  service  it  and  put  it  on  a  sustainable  path  weighs  on  labour  and  capital  costs.  In 
addition,  the  higher  risk  premia  associated  with  a  high  public  debt  affect  the  cost  of  capital  also  for  the 
financial sector and the real economy. Other channels are the increased macroeconomic uncertainty and a 
reduced  margin  for  countercyclical  fiscal  policies.  Finally,  the  euro-area  sovereign  crisis  has  shown  the 
potential  negative  spillovers  from  debt  accumulation  in  a  monetary  union.  Although  during  the  crisis  the 
increase in the debt ratio was more moderate than in the rest of the euro area, its high level has exposed the 

6  Italy  is  the  biggest  net  importer  of  electricity  in  the  EU,  covering  almost  15 %  of  its  electricity  needs 

through imports. 

8

 
 
 
 
                                                 
country to investors' concerns about sustainability, especially against the background of a lacklustre growth 
performance and amid high risk aversion. 

•  Italy  has  been  recording  declining  competitiveness  since  the  end-1990s,  due  to  both  cost  and  non-cost 
factors. This is most evident in Italy's world market share losses, while it is only partly reflected in Italy's 
external  position,  given  the  relatively  subdued  growth  of  domestic  demand.  While  the  current  account 
deficit  does  not  breach  the  scoreboard  threshold,  its  negative  trend  needs  to  be  reversed  to  continue 
ensuring the sustainability of Italy's external position. 

•  Stagnation  in  productivity  is  the  key  factor  behind  Italy's  loss  of  cost  competitiveness  since  the  euro 
adoption. Cost competitiveness, measured by the real effective exchange rate (REER) based on unit labour 
costs (ULC), worsened against the main euro area competitors in the first years of euro area membership. 
While Italy's productivity has lagged relative to the euro area average, wages have grown broadly in line, if 
not  somewhat  faster,  resulting  in  more  sustained  ULC  dynamics.  The  most  recent  estimates  point  to  a 
relatively  small  overvaluation  of  Italy's  REER  and  thus  to  a  still  manageable  adjustment  if  wage 
developments are consistent with the need to regain cost competitiveness and if the implementation of bold 
structural reforms is successful in boosting productivity growth.  

•  An  unfavourable  product  specialisation  and  geographical  destination  of  exports  also  explain  declining 
competitiveness. With an export product mix that is rather similar to that of emerging economies, Italy has 
been exposed more than other euro area countries to increasing global competition. As a partial response to 
these  competitive  pressures,  restructuring  had  started  in  the  tradable  sector  before  the  crisis:  while 
maintaining its specialisation in labour-intensive sectors, Italy's exports moved up the quality ladder. Italy's 
exports  are  also  held  back  by  their  still  relatively  low  penetration  into  fast-growing  emerging  markets, 
especially in Eastern Asia. The small size of the Italian firms plays a key role in hindering the reorientation 
of exports towards distant markets. 

9

 
 
 
3.  ASSESSMENT OF POLICY AGENDA 

3.1.  Fiscal policy and taxation 

Budgetary developments and debt dynamics 

The  stability  programme  update  confirms  the  main  goal  of  Italy’s  fiscal  consolidation 
strategy, presented by the government in September and renewed in December 2011, to 
reach  a  balanced  budgetary  position  in  structural  terms,7  i.e.  Italy’s  medium-term 
objective, by 2013. The medium-term objective adequately reflects the  requirements  of 
the  Stability  and  Growth  Pact.  The  plan  to reach it in  2013 is  more ambitious than  the 
one presented in the April 2011 programme update and on which the July 2011 Council 
recommendation was based, which aimed at narrowing the structural deficit to ½ pp of 
GDP by 2014. The plan incorporates the measures taken in the summer and December 
2011 in response to the sovereign debt crisis and high risk aversion in financial markets.  

In nominal terms, the programme plans to reduce the headline deficit to 1.7 % of GDP in 
2012,  i.e.  the  deadline  for  correcting  the  excessive  deficit,  and  achieve  a  broadly 
balanced  headline  budget  in  2014.  The  targets  are  backed  by  the  measures  adopted  in 
2010  and  2011  for  the  years  2012-14  (see  Table  in  Box  2).  The  consolidation  effort  is 
frontloaded in 2012, when the programme projects a (recalculated) structural adjustment 
of 3.2 pps of GDP, followed by a further 1 pp of GDP in 2013 which would enable the 
country to achieve the medium-term objective in that year. 

In  2011,  Italy’s  budgetary  position  improved  in  line  with  the  target:  the  general 
government deficit fell to 3.9 % of GDP (from 4.6 % in 2010 and 5.4 % in 2009) and the 
primary balance moved to a surplus of 1 % of GDP (after 0.0 % in 2010 and -0.9 % in 
2009). Deficit-improving one-off measures contributed to the outcome, compensating for 
the  lower-than-planned  current  revenues.  Interest  expenditure  rose  by  0.3  pp  of  GDP, 
while the deficit reduction was almost entirely due to primary expenditure that fell by 1 
pp of GDP (to 45.1 %). Current primary expenditure grew moderately, mainly thanks to 
the  freeze  in  public  wages  and  recruitment,  while  capital  spending  fell  significantly  on 
the  back  of  both  further  reductions  in  subsidies  to  investment  and  the  one-off  sale  of 
broadband licences, recorded as negative expenditure. Total revenues rose by 0.1 pp of 
GDP (to 46.1 %), mainly owing to the one-off capital tax on the revaluation of corporate 
assets. Indirect taxes also rose, while income taxes remained flat. 

In 2012 the programme projects the deficit to decline to 1.7 % of GDP and the primary 
surplus  to  further  improve  to  3.6 %  of  GDP,  thanks  to  the  sizeable  budgetary 
consolidation  measures  adopted  in  2010-11  and  despite  the  underlying  lower  growth 
prospects  compared  to  the  2011  programme  update.  The  programme’s  macroeconomic 
outlook for 2012 is broadly in line with the spring forecast. It includes a more moderate 
fall  in  domestic  demand,  almost  entirely  offset  by  a  less  positive  contribution  of  net 
exports.  This  implies  a  more  tax-rich  GDP  composition  in  the  programme  than  in  the 
spring  forecast,  which  explains  most  of  the  0.3  pp  of  GDP  difference  in  the  deficit 
projection.  On  the  back  of  the  freeze  of  wages,  career  developments  and  recruitment, 
plus  the  partial  de-indexation  of  pensions,  in  2012  the  programme  projects  current 
primary  expenditure  to  rise  marginally  in  nominal  terms  and  remain  flat  as  a  share  of 
GDP,  broadly  in  line  with  the  spring  forecast.  The  latter  expects  a  somewhat  steeper 
growth in interest expenditure, counterbalanced by a slight fall in capital spending, which 

7  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. 

10

 
 
                                                 
is instead projected to stagnate in the programme. Thanks to the several revenue-raising 
measures adopted in 2011, current tax revenues are projected to grow by more than 10 % 
and  increase  sizeably  as  a  share  of  GDP,  i.e.  considerably  more  than  expected  in  the 
spring forecast, mainly due to the different composition of growth. In both projections, 
capital taxes are set to decline sharply in 2012. Taken at face value, the deficit target for 
2012  is  well  below  the  3 %  reference  value.  In  structural  terms,  the  projected 
(recalculated)  annual  adjustment  of  3.2  pps  of  GDP  goes  beyond  the  0.5  pp  minimum 
average annual adjustment required under the excessive deficit procedure. The structural 
primary balance is projected to rise by 3.5 pps to 4.8 % of GDP. Risks stem from both 
the  implementation  side,  as  some  measures  need  strict  enforcement  to  produce  the 
budgeted  expenditure  savings,  and  the  macroeconomic  side,  as  growth  could  turn  out 
lower  and  interest  expenditure  higher  than  projected  should  the  sovereign  market 
tensions escalate again. 

The  programme’s  growth  outlook  for  2013  is  quite  close  to  the  spring  forecast’s,  the 
main  difference  being  the  more  favourable  outlook  for  domestic  demand  in  the 
programme,  against  the  still  negative  contribution  expected  in  the  spring  forecast.  This 
has visible implications for the dynamics of revenues, which are projected to increase by 
almost ½ pp of GDP in the programme, whereas they remain flat as a share of GDP in 
the spring forecast. Total expenditure projections are very similar, with somewhat higher 
interest  expenditure  expected  in  the  spring  forecast,  only  partly  compensated  by  lower 
capital spending. 

Overall,  the  headline  deficit  projection  of  0.5 %  of  GDP  in  the  programme  appears 
optimistic when compared to the 1.1 % of GDP in the spring forecast. The programme 
projects a higher primary surplus (4.9 % of GDP) than the spring forecast (4.5%). In the 
latter, the expected increase in the structural primary surplus in 2012-13 is around 4 pps 
of  GDP,  with  structural  revenues  increasing  by  2½  pps  of  GDP  and  structural  primary 
expenditure falling by 1½ pps of GDP. Still, the spring forecast expects the budget to be 
balanced in structural terms in 2013. 

According  to  the  information  provided  in  the  programme  and  to  the  Commission 
services’  forecast,  the  growth  rate  of  government  expenditure,  net  of  discretionary 
revenue  measures,  over  2013  will  not  exceed  a  rate  which  is  lower  than  the  reference 
medium-term  rate  of  potential  GDP  growth  (-0.8 %)  and  which  ensures  an  annual 
structural adjustment towards the medium-term objective by 0.5% of GDP. 

Over 2014-15, the growth rate of government expenditure, net of discretionary revenue 
measures, planned in the programme does not exceed the reference medium-term rate of 
potential GDP growth  (0.3 %). It should be noted that the programme’s projections for 
2014-15 do not include any further adjustment in structural terms: the achievement of a 
balanced  headline  budget  in  those  years  depends  on  the  materialisation  of  the  benign 
growth outlook forecast in the programme (real GDP growth of 1.0 % in 2014 and 1.2 % 
in 2015). 

11

 
 
 
Box 2. Main measures 

Main budgetary measures adopted in 2010-11 

Revenue 

Expenditure 

2011 

  Measures to improve tax compliance (0.1% of GDP) 

Lower transfers to sub-national governments 

Increase in standard VAT rate (0.3% of GDP) 

(-0.4% of GDP) 

Freeze  of  public  sector  wages  and  re-
strictions on recruitment (-0.1% of GDP) 

Cuts  to  non-obligatory  ministerial  spending 

(-0.1% of GDP) 

2012 

  Re-introduction  of  owner-occupied  dwelling  taxation 
and rise in tax rates on other property (0.7% of GDP) 

Lower transfers to sub-national governments 

(-0.2% of GDP) 

Excise duties (0.5% of GDP) 

Cuts  to  non-obligatory  ministerial  spending 

Stamp duties on financial assets (0.3% of GDP) 

(-0.4% of GDP) 

Partial  de-indexation  of  pensions  (-0.1%  of 

GDP) 

Other  current  expenditure  (local  authorities, 
military missions abroad) (0.2% of GDP) 

VAT rates (0.2% of GDP) 

Harmonisation  of  personal  withholding  tax  rate  on 

interests and dividends (0.1% of GDP) 

Regional surtax on personal incomes (0.1% of GDP) 

Tax compliance improvement and recovery of unpaid 

taxes (0.5% of GDP) 

ACE and deductibility of labour costs (-0.15% of GDP) 

2013 

• VAT rates (0.6% of GDP) 

• Stamp duties on financial assets (0.2% of GDP) 

• Solidarity tax on high public wages (0.1% of GDP) 

• Savings  from  higher  retirement  age,  de-
indexation of pensions and postponed end-
career payments (-0.4% of GDP) 

• Smaller  cuts  to  non-obligatory  ministerial 

• Higher social contributions on self-employed (0.1% of 

spending (0.2% of GDP) 

GDP) 

Tax compliance improvement and recovery of unpaid 

taxes (0.1% of GDP) 

• Deductibility of labour costs (-0.2% of GDP) 

• ACE and deductibility of labour costs (-0.15% of GDP) 

2014 

• ACE and deductibility of labour costs (-0.1% of GDP) 

•  Savings  from  higher  retirement  age,  de-
indexation of pensions (-0.1% of GDP) 

  Notes: The budgetary impact in the table is the incremental annual impact reported in the programme, i.e. 
by the national authorities. A positive sign implies that revenue / expenditure increases as a consequence 
of  this  measure.  Permanent  measures  are  not  repeated  in  successive  years,  unless  the  budgetary  impact 
changes significantly. The no-policy-change baseline excludes any wage contract renewals until 2015. 

The degree of detail reflects the type of information made available in the stability programme and the 
multi-annual budget. 

12

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Italy  also  adopted  several  macro-structural  measures  that  are  meant  to  increase  the  growth 
potential, without directly impacting the budgetary balance. They are described and assessed 
in the subsequent sections. 

As from 2008, the general government gross debt as a share of GDP started increasing 
again mainly due to negative real GDP developments. It reached 120.1% in 2011 (from 
103.1% in 2007). The programme plans the debt ratio to peak in 2012 – also given the 
significant contribution to the euro-area firewalls sustained by Italy – and start declining 
as from 2013, thanks to large and increasing primary surpluses. 

At end-2011,  the  average maturity of State securities was 7 years, while their financial 
duration  was  around  4.7  years,  i.e.  somewhat  below  the  corresponding  values  at 
end-2010  (7.2  and  4.9  years  respectively).  Thanks  to  these  relatively  long  durations, 
according to the sensitivity analysis presented in the programme, a permanent increase of 
1  pp  in  the  entire  yield  curve  as  from  end-March  2012  would  increase  interest 
expenditure by only 0.19 % of GDP the first year, 0.36 % in the second year and 0.44 % 
in  the  third  year.  These  increases  are  slightly  lower  than  estimated  in  the  previous 
programme,  as  now  the  planned  cash  borrowing  requirement  to  be  financed  is  much 
lower. 

Over 2012-13, the debt projections in the programme are similar to those of the spring 
forecast. The debt-increasing impact of the difference between the real interest rates paid 
on  debt  and  real  GDP  growth  is  slightly  higher  in  the  latter,  while  the  debt-reducing 
primary  surpluses  are  somewhat  larger  in  the  programme.  Achieving  the  targeted  large 
primary  surpluses  would  put  the  debt-to-GDP  ratio  on  a  steadily  declining  path.  This 
would help improve financial markets’ perception of the debt sustainability and create a 
virtuous circle by reducing yields on Italy’s sovereign securities. 

In  2013-14  Italy  will  be  in  transition  period  and  its  budgetary  plans  would  ensure 
sufficient  progress  towards  compliance  with  the  debt  criterion.  According  to  plans,  the 
debt benchmark will be met at the end of the transition period (2015).  

Long-term sustainability 

Over the long term, the change in age-related expenditure is below the EU average, also 
thanks to recent measures which contribute to more than stabilising pension spending as 
a share of GDP. In addition, the initial budgetary position is already sufficient to put the 
debt  on  a  steadily  declining  path  as,  assuming  no  further  policy  measures  are  taken,  it 
would fall to 95.9 % of GDP by 2020. Achieving the budgetary targets in the programme 
would help reduce the debt even faster by 2020, though it would still be above the 60 % 
of GDP reference value. Ensuring sufficient primary surpluses over the medium term, as 
planned in the programme, would thus significantly improve the sustainability of public 
finances. 

Fiscal frameworks 

On  17  April  2012,  the  Italian  Parliament  adopted  a  law  introducing  a  balanced  budget 
rule  in  the  Italian  Constitution,  with  effect  from  2014.  The  amended  Constitution 
stipulates  that  all  government  subsectors  must  contribute  to  ensuring  the  budgetary 
equilibrium  of  the  whole  general  government,  consistently  with  the  EU  legislation.  It 
thus entrusts regions with the responsibility to maintain a balanced budget at the regional 
level,  while  still  allowing  local  governments  to  borrow  to  finance  investment.  The 
implementing  legislation  will  need  to  specify  key  features  of  the  new  rules,  including 
correction  mechanisms  to  compensate  for  temporary  deficits  during  cyclical  downturns 

13

 
 
 
or  exceptional  circumstances,  coordination  mechanisms  between  the  different  levels  of 
government  and  guarantees  for  the  independence  of  a  monitoring  body  attached  to 
Parliament. 

Part  of  the  consolidation  effort  enacted  in  legislation  passed  in  2011  relies  on 
expenditure  savings  by  central  and  local  administrations.  The  process  of  expenditure 
rationalisation will be facilitated by the planned in-depth spending review. In the short-
term,  the  government  plans  to  achieve  savings  of  0.3 %  of  GDP  in  2012,  with  the 
cooperation of all ministers. In the meantime, a broader review of expenditure is under 
preparation. The government is appropriately prudent in its expectations of the amount of 
immediate savings that the spending review will yield, and is placing more emphasis on 
ensuring  permanent  mechanisms  that  promote  efficiency  and  effectiveness  of  public 
spending. In this review, however, growth-enhancing expenditure items (e.g. education, 
innovation) should have the priority. 

Fiscal  de-centralisation  in  Italy  remains  incomplete,  with  transfers  from  the  central 
government continuing to fund a large share of regional and local expenditure. This has 
resulted in major vertical fiscal imbalances, with sub-central governments spending more 
than  one  third  of  total  general  government  expenditure  in  2009,  despite  having  limited 
revenue autonomy. The completion of fiscal federalism can be an important complement 
to  structural  reforms  and  budget  consolidation  in  Italy.  By  empowering  sub-central 
governments and making them more accountable to citizens in their use of public money, 
it can improve the allocation of public resources and the relationship between taxpayers 
and the government. However, strong fiscal de-centralisation clearly requires an equally 
strong framework for budgetary coordination across government levels. In the short term, 
reinforcing control on sub-central expenditure through strict enforcement of the domestic 
stability and health pacts remains a priority. In the longer term, detailed rules governing 
implementation  of  fiscal  federalism  must  be  designed  in  a  way  that  fosters  fiscal 
discipline.  

Tax system  

The  additional  fiscal  consolidation  effort  made  since  summer  2011  in  response  to  the 
sovereign  debt  crisis  mainly  focuses  on  revenues,  entailing  a  further  increase  in  the 
already  high  overall  tax  burden.  However,  as  announced  under  the  Euro  Plus  Pact 
commitments,  the  new  measures  somewhat  rebalance  the  tax  burden  from  labour  and 
capital to consumption and property, which is appropriate given Italy’s strong reliance on 
direct taxes and the growth-enhancing potential of such a shift, while the design of the 
measures  increases  the  overall  fairness  of  the  system.  They  include  the  increased 
deductibility  of  labour  costs  from  firms’  tax  bases,  particularly  for  women  and  young 
workers; increased taxation of real estate with a revaluation of the taxable base; higher 
taxes  on  financial  assets  and  specific  luxury  goods.  The  government  is  also  planning  a 
wide-ranging reform of tax expenditures which should help simplify the tax system and 
could impact on other spheres of the economy. For instance, the subsidy associated to the 
tax treatment of the private use of company cars has negative effects on the environment. 

Besides, a new enabling law on the tax reform adopted by the government on 16 April 
aims  at  (i)  simplifying  the  tax  system  through  the  revision  and  streamlining  of  tax 
expenditures;  (ii)  making  it  more  environmentally  friendly;  (iii)  improving  tax 
compliance and stepping up the fight against tax evasion, (iv) replacing personal income 
tax  for  micro  businesses  and  the  self-employed  with  a  flat  corporate  tax  and  (v) 
improving  fairness  through  a  revision  of  cadastral  values  so  as  to  bring  them  closer  to 
market values. 

14

 
 
Tax reforms recently undertaken and planned are an important step towards making the 
tax  structure  more  growth-friendly.  The  increased  tax  deductibility  of  labour  costs  for 
women  and  young  people  is  bound  to  support  access  of  these  two  particularly 
disadvantaged groups to permanent employment, especially in the South. The increased 
emphasis  on  property  taxation,  including  the  planned  revaluation  of  cadastral  values, 
should  increase  the  fairness  as  well  as  the  growth-friendliness  of  the  tax  system. 
Recurrent taxes on property are indeed less distortive than other types of taxes, they offer 
a more predictable source of revenue and are consistent with the goal of decentralising 
fiscal  powers  in  Italy.  From  a  distributional  point  of  view,  the  higher  tax  rate  on  non-
principal dwellings and the basic allowance on principal ones will ensure some degree of 
progressivity.  There  remains  scope  for  further  shifting  taxation  away  from  labour  and 
capital  onto  property  and  consumption,  also  with  a  view  to  favouring  second  earners’ 
participation. Lastly, improving the recovery of unpaid taxes remains a key challenge for 
Italy. 

3.2.  Financial sector 

Concerns  about  sovereign  risk  and  increased  investor  aversion  for  peripheral  euro  area 
sovereign debt coupled with subdued macroeconomic prospects for the Italian economy 
put  additional  pressure  on  the  funding  costs  and  profitability  of  Italian  banks  in  the 
second half of 2011. Banks struggled with severe stress in the euro-area interbank market 
and sharply increased retail and wholesale funding costs. This, coupled with the increase 
in loan-loss provisions as asset quality deteriorated, has contributed to a fall in banking 
sector profitability. 

Concerns over sovereign debt markets and difficulties on the interbank market resulted in 
a call by the European Council on 27 October 2011 for a temporary increase in banks’ 
Core Tier 1 capital ratio to 9 % by mid-2012 (above the threshold laid down as part of 
the Basel III package); this increase is coordinated by the European Banking Authority. 
In December 2011, the European Banking Authority established the need for four Italian 
institutions8  to  further  increase  capital  by  a  total  of  EUR  15.37  billion.  Unicredit  was 
among the first banks to raise new capital (via a rights issue in December 2011) and by 
February  2012  all  banks  concerned  submitted  to  the  European  Banking  Authority 
compliance  plans,  on  which  the  Authority  expressed  an  overall  favourable  opinion.  In 
addition,  the  funding  pressure  on  Italian  banks  was  alleviated  by  the  two  long-term 
refinancing operations by the European Central Bank, first in December 2011 and then 
again in February 2012. This initially led to a substantial improvement of the financing 
conditions for banks. 

As  regards  small  and  medium  enterprises’  access  to  finance,  which  is  covered  by  the 
2011 recommendation on competition and business environment and the 2012 AGS, the 
situation  has  worsened  over  the  last  few  months.  The  Bank  of  Italy  and  business 
organisations report substantial tightening in credit supply to non-financial corporations. 
Measures  recently  adopted  by  the  government  can  improve  firms’  financial  conditions 
and  avert  the  risks  of  credit  crunch.  First,  an  allowance  for  new  corporate  equity  was 
introduced,  which  allows  companies  to  deduct  part  of  the  notional  return  on  new 
injections of equity capital from taxable income. Second, the Guarantee Fund for small 
and medium enterprises was refinanced. Finally, EUR 5.7 billion were made available to 
accelerate the payment of old trade credits (above two years) to suppliers of goods and 
services to the central public administration. 

8 Unicredit, Banca Monte dei Paschi di Siena, Banco Popolare, Unione di Banche Italiane. 

15

 
 
                                                 
These measures are clearly relevant. In particular, the allowance for new corporate equity 
is expected to encourage firms, including small and medium enterprises, to increase their 
capital  base,  while  overcoming  the  debt  bias  of  the  tax  system  regarding  investment 
financing  decisions  (i.e.  v-à-v  equity).  This  appropriately  tends  to  favour  more 
innovative  firms.  Overall,  however,  the  development  of  further  alternative,  non-bank, 
financing options for companies is still insufficient. 

3.3.  Labour market, education and social policy 

Labour  force  participation  and  employment  rates  are  well  below  EU  averages, 
particularly  among  young  people,  and  Italy  is  still  far  from  achieving  the  67-69 % 
national  target  set  for  2020  as  regards  the  employment  rate.  This  reflects  a  number  of 
factors,  including  the  high  tax  burden  on  labour,  an  education  system  that  does  not 
effectively  respond  to  labour  market  needs  and  insufficient  focus  on  adequate  active 
labour  market  and  work-life  balance  policies.  A  segmented  labour  market  hampers 
labour market dynamism and generates inequality. 

Measures  adopted  in  2011  and  detailed  in  the  national  reform  programme  go  towards 
meeting  the  2011  recommendation  on  the  labour  market  and  the  2012  Annual  Growth 
Survey  priorities.  In  addition  to  the  above-mentioned  increased  deductibility  of  labour 
costs from firms’ tax bases, particularly for women and young workers, incentives were 
introduced  to  promote  the  hiring  of  unemployed  women  in  disadvantaged  areas.  These 
measures help stimulate labour demand, in particular for two critical segments of Italy’s 
labour  market,  and  thus  they  are  relevant.  Yet,  increasing  female  employment  remains 
one  of  the  most  important  priorities  for  the  Italian  labour  market.  The  female 
participation  rate  in  Italy  is  significantly  lower  than  the  EU27  average,  and  the  female 
unemployment  rate  is  rising.  While  the  employment  rate  among  childless  women  of 
prime  working  age  is  already  considerably  lower  than  for  the  euro  area  average  —  by 
almost  12  pps  in  2010  —  particularly  among  the  low  skilled,  the  gap  opens  up  for 
women  with  at  least  two  children.  Increasing  the  availability  and  affordability  of 
childcare services remains an important challenge for Italy. 

On 4 April, following consultation with the social partners and other main stakeholders, 
the  Italian  government  adopted  a  draft  ordinary  law  with  a  view  to  reforming  labour 
market functioning. The reform is sufficiently ambitious to comprehensively address the 
rigidities  and  asymmetries  of  employment  protection  legislation  while  better  regulating 
flexibility  at  entry  and  moving  towards  a  more  integrated  social  safety  net.  As  such,  it 
addresses  labour  market  segmentation,  as  recommended  in  the  country-specific 
recommendations issued in 2011. The reform introduces disincentives against temporary 
contracts  and  measures  to  combat  the  abuse  of  non-dependent  work  by  firms.  Exit 
flexibility is improved by revising Article 18 of the Workers’ Statute regulating wrongful 
individual  dismissals  in  firms  with  more  than  15  employees.  For  collective  dismissals, 
the  draft  law  aims  to  simplify  procedural  obligations  and  reduce  costs  to  employers. 
Lastly, an integrated and more comprehensive insurance-based system of unemployment 
benefits will be introduced as from 2017. Wage supplementation and short-term working 
schemes  will  no  longer  apply  to  workers  that  lose  their  job  as  a  result  of  a  firm’s  or 
plant’s closure but will be extended to sectors that are currently not covered. 

Reform of the dismissal regulation potentially reduces the uncertainty and overall costs 
for employers linked to dismissals, by limiting the scope for reinstatement and capping 
back-wages  due  in  case  of  unfair  dismissal,  and  by  accelerating  the  dispute  settlement 
process. The effectiveness of the reform will also depend on the interpretation of the new 
rules by the labour judges. The constraints introduced to the use of fixed-term contracts 
and to combat the abuse of non-dependent work aim to promote permanent contracts as 

16

 
 
the "common form of employment relationship", however the risk of a negative impact 
on  overall  labour  demand  cannot  be  neglected.  The reform  of  the  social  safety  net  is  a 
positive  step,  but  the  provision  of  effective  activation  policies  will  be  critical  to  avoid 
any negative impact on labour supply incentives and public finances. 

Undeclared work remains a major issue in Italy. The national statistical institute (ISTAT) 
estimates that the shadow economy accounts for between 16 % and 18 % of GDP, with 
peaks  in  six  southern  regions  (Molise,  Basilicata,  Campania,  Puglia,  Calabria  and 
Sicilia). It represents around 12 % of total full-time equivalent employment. The national 
reform  programme  reports  on  the  intensification  of  control  activities  and  the  positive 
effects expected from the liberalisation of employment services. 

Regarding  the  2011  recommendation  on  wage  bargaining  (also  reflected  in  the  2012 
Annual  Growth  Survey  priorities  on  wage  setting/productivity),  on  28  June  2011  the 
social partners reached an agreement to reform the bargaining framework with a view to 
increasing  the  use  of  firm-level  contracts.  A  provision  in  the  September  2011  package 
allowed firm-level bargaining to derogate also from labour law on various aspects of the 
employment relationship, including dismissal procedures and type of contracts to be used 
in firms. Tax incentives on performance-related pay, which are negotiated at firm level, 
were extended to 2012. These initiatives support decentralised bargaining by decreasing 
its degree of subordination from the first tier of bargaining and removing the constraints 
to  locally  negotiated  trade-offs  between  job  security/work  conditions  and  wage 
developments, thereby better taking into account the needs of specific production sectors. 
Therefore, 
the  country-specific 
recommendation  issued  in  2011  on  wage  bargaining  but  they  still  need  proper 
implementation,  which  largely  depends  on  the  extent  to  which  the  social  partners  will 
effectively apply them. Thus, it will be important to closely monitor the implementation 
process.  As  argued  in  the  in-depth  review  under  the  macroeconomic  imbalances 
procedure, there is also scope to further improve the wage setting framework with a view 
to quickly regaining external competitiveness. 

important  steps  have  been 

to  address 

taken 

Longer working lives are among the 2012 Annual Growth Survey priorities regarding the 
labour market. The latest pension reform adopted in December 2011 aims to accelerate 
the steps to make the pension system sustainable, while increasing its fairness and labour 
market  participation.  In  particular,  the  retirement  age  is  raised,  especially  for  women.9 
The  reform  is  relevant  and  ambitious  as  it  addresses  the  main  weaknesses  of  Italy’s 
pension system. The main remaining challenge is now to put in place an effective active 
ageing  strategy  to  provide  suitable  job  opportunities  for  older  workers,  in  particular 
women, and to strengthen occupational pension schemes, so as to enable people to build 
up entitlements to adequate pensions. 

Public Employment Services are not always up to the challenge of high unemployment in 
certain  regions,  especially  in  the  South,  and  are  poorly  integrated  with  active  labour 
market policies. The recently adopted labour market reform contains enabling acts to put 
in place efficient mechanisms in these fields, mainly intended to achieve a better match 
between labour supply and demand and to facilitate the integration of young people and 

9 The statutory retirement age of women in the private sector increased from 61 to 62 for employees and 
63½  for  the  self-employed  in  2012.  Further  increases  in  the  retirement  age  are  envisaged  over  the 
following  years  until  full  equalisation  between  men  and  women  in  the  public  sector  as  of  2018,  eight 
years earlier than planned in the summer package. Meanwhile, the statutory retirement age for men and 
for women working in the public sector is immediately increased from 65 to 66. 

17

 
 
                                                 
the reintegration of unemployed workers in the labour market. The full specification of 
the planned measures and their subsequent implementation is crucial.  

Finally,  the  economic  crisis  is  having  serious  consequences  for  youth  unemployment. 
Following  the  European  Council  of  30  January  2012,  the  Italian  authorities  and 
Commission  examined  measures  for  reducing  youth  unemployment.  They  include  a 
reprogramming  and  better  use  of  European  structural  funds  towards  supporting 
education,  apprenticeship,  mobility,  as  well  as  extending  the  tax  credit  to  favour  the 
employment  of  young  people.  Besides,  as  also  announced  under  the  Euro  Plus  Pact 
commitments,  a  reform  of  the  apprenticeship  system  aimed  at  facilitating  the  entry  of 
young people (aged up to 29 years) into the labour market entered into force in October 
2011,  with  large  support  from  the  social  partners.  Fiscal  incentives  for  the  use  of 
apprenticeship contracts were also introduced in November 2011 (with co-financing by 
the  European  Social  Fund).  Following  up  on  these  initiatives,  the  draft  labour  market 
reform  has  the  ambition  of  making  the  apprenticeship  contract  a  major  port  of  entry 
towards  stable  jobs.  On  19  April,  the  government  concluded  an  agreement  with  the 
regional  authorities  to  set  up  a  system  for  the  certification  of  skills  and  vocational  and 
training standards. The implementation of this new framework, with a view of having the 
competences recognised across the country and not only at regional level, is crucial.  

Italy still underperforms the EU average in terms of early school leaving, especially as 
regards young immigrants. The national targets to reduce early school leaving rates – to 
15-16 % in 2020 – are realistic but not sufficiently ambitious to have an impact on youth 
unemployment and the share of youth Not in Education, Employment or Training. 

The  recently  adopted  measures  aim  to  curb  early  school  leaving  in  general,  reduce 
disparities  between  the  North  and  the  South  and  improve  the  quality  of  education,  e.g. 
through  more  flexible  education  paths,  easier  transitions,  improved  guidance  and  focus 
on basic skills and key competences. Italy also drew up a new National Pupils Registry 
to  monitor  compliance  with  compulsory  education  and  keep  track  of  early  school 
leaving, absenteeism and irregular attendance, with a view to adopting ad hoc preventive 
measures.  These  measures  are  relevant,  but  there  is  no  evidence  of  a  comprehensive 
strategy  to  combat  early  school  leaving  involving  prevention,  intervention  and 
compensation measures. Lasting results will depend on efficient implementation. 

headings: 

governance, 

Improving  the  quality  and  performance  of  tertiary  education  is  another  priority,  also  to 
reach  the  national  target  of  a  26-27 %  tertiary  attainment  rate,  from  19.8 %  in  2010, 
which is well below the EU average. The university system was reformed in 2010 under 
three 
particular, 
recruitment 
financial/administrative  management  is  now  clearly  separated  from  the  management  of 
teaching and research work. Furthermore, recruitment and career mechanisms are to be 
made more transparent and merit-based. Lastly, an increasing share of public funding to 
universities  is  to  be  allocated  on  the  basis  of  teaching  and  research  performance. 
However,  the  share  of  public  funding  allocated  according  to  these  principles  only  rose 
from 7 % in 2009 to 13 % in 2012. Reducing the drop-out rate10 and adapting the supply 
of  skills  to  labour  market  needs  remain  significant  challenges,  given  the  high 
unemployment rate among tertiary graduates. 

funding. 

and 

In 

Finally,  the  vocational  education  and  training  system  is  rather  fragmented,  and 
participation  of  adults  in  lifelong  learning  remains  low  in  comparison  with  the  EU 

10 According to the most recent available data published in OECD Education at a Glance 2008, the drop-

out rate in Italy was 55 % in 2005. 

18

 
 
                                                 
average.  This  is  especially  the  case  for  the  low-skilled  (1.1 %),  who  would  benefit  the 
most from further education. 

Italy committed to reducing the number of people at risk of poverty or social exclusion 
by 2 200 000 by 2020. According to Italy’s 2012 national reform programme, the Italian 
government plans to concentrate poverty-reducing action on materially deprived persons 
and  low  work-intensity  households.  The  experimentation  with  the  ‘new  social  card’ 
remains  the  main  measure.  Other  measures  concern  non-EU  nationals  and  the  fight 
against  undeclared  work.  According  to  Italy’s  national  reform  programme,  the  Italian 
government  is  going  to  revise  its  poverty-reducing  objectives  and  the  applicable  
measures.  Expenditure  on  social  policy, 
in  particular  sub-central  government 
expenditure, is likely to be affected by the cuts in public spending made by the various 
consolidation  packages  adopted  in  2010-2011,  with  potentially  negative  effects  on  the 
provision of welfare services to people in need and families as from 2012. Moreover, low 
labour  market  integration  is  one  of  the  main  obstacles  preventing  poverty  reduction  in 
Italy. Consequently, the creation of a more inclusive labour market is a key objective to 
achieve in the next years. In particular, the policy set out by Italy prioritises employment 
of young people and women. 

3.4.  Growth and competitiveness structural measures 

Structural  measures  are  key  to  increasing  the  growth  potential  of  the  Italian  economy. 
This  section  covers  the  following  policy  areas:  (i)  liberalisation  and  competition;  (ii) 
research  and  innovation;  (iii)  internal  market  legislation;  (iv)  energy,  transport, 
infrastructure and environment. 

Liberalisation and competition 

The  2011  recommendation  on  competition  and  business  environment  recommended 
opening up the services sector to further competition, including for professional services, 
and adopting the Annual Law on Competition. To address this recommendation, Italy has 
adopted  some  important  measures  in  the  services  sector,  especially  under  the  January 
2012 package of liberalisation measures, which essentially replaced the initially planned 
Annual  Law  on  Competition.  The  national  reform  programme  estimates  the  growth 
potential  related  to  these  measures  (including  in  the  areas  of  local  public  services, 
professions,  transports  and  energy)  at  1.2%  of  GDP  by  2020.  However,  some  key 
regulations  still  need  to  be  adopted  to  fully  implement  the  recommendation,  especially 
regarding  the  professional  services,  and  there  is  scope  to  go  further  towards  opening 
some services to competition. 

The most relevant measures taken since the summer 2011 concern local public services 
and professional services. It is now stipulated that as a general rule, the provision of local 
public services must be awarded by public procurement, except when local governments 
judge  that  a  single  provider  is  more  adequate  or  for  services  worth  up  to  EUR 200 000 
annually.  Also  regional  railway  services,  save  a  temporary  regime  for  existing 
concessions,  will  now  be  subject  to  public  tendering  procedures,  while  previously  the 
obligation  to  tender  them  was  explicitly  excluded  and  direct  award  was  the  norm.  The 
Competition Authority was given stronger supervision powers over local public services 
and can issue binding preventive opinions over any exclusive right assigned by the local 
authorities to specific economic agents. Incentives are also provided to merge the most 
competitive  companies  in  optimal  geographical  configurations  so  as  to  achieve 
economies of scale. 

Competition  in  professional  services  has  been  fostered  to  some  degree  by  deregulating 
prices,  reducing  entry  barriers  and  revising  the  parameters  that  set  the  number  of 

19

 
 
providers,  such  as  pharmacists  and  notaries.  In  particular,  all  references  to  minimum, 
maximum  and  recommended  tariffs  in  all  regulated  professions  have  been  abolished, 
while  a  Presidential  decree  should  reform  the  orders  by  August  2012.  Adoption  and 
implementation  of  this  reform  will  lead  to  a  review  of  access  and  regulation  of  the 
professions,  notably  in  terms  of  disciplinary  policy  and  with  a  view  to  protecting 
consumers. Professionals have been allowed to constitute limited liability companies and 
the access of young people to the professions has been facilitated by reducing the length 
of  compulsory  practical  training  and  allowing  them  to  complete  part  of  it  during 
university  education.  A  significant  increase  in  the  number  of  notaries  is  expected 
between  2012  and  2014.  However,  no  steps  have  been  taken  until  now  to  reduce  the 
number  of  reserved  activities  for  professions,  which  limit  the  supply  of  some  services, 
although a focused intervention on this is foreseen in the national reform programme. 

The  January  2012  package  also  devotes  particular  attention  to  consumers,  who  should 
reap  the  benefits  of  liberalisation  and  competition-enhancing  measures  envisaged  for  a 
range  of  services  including  fuel  distribution,  banks,  insurances,  retail  shops  and 
pharmacies.  Overall,  despite  the  positive  progress,  there  is  still  scope  to  open  up  these 
market segments to competition. 

By contrast, despite the implementation of the EU Directive 97/67/EC to harmonise the 
postal  regulatory  framework  with  the  relevant  European  principles,  the  Italian  postal 
market is still dominated by the national operator. According to the Antitrust Authority, 
further measures are needed to fully liberalise the postal market. 

Research and innovation 

The 2011 recommendation on research and innovation policies has been implemented to 
a limited extent. Although some measures have been adopted in line with the content of 
the  country-specific  recommendation,  progress  is  still  insufficient.  According  to  the 
2011-2013  National  Research  Programme,  procedures  will  be  simplified  and  the 
approach  will  be  more  market-oriented.  The  new  ‘network  contract’  promises  to  be  a 
positive  move  to  support  innovative  clusters  and  stimulate  cooperation.  Public  support 
measures  and  framework  conditions  for  research  and  development  are  in  place  (e.g. 
grants for industrial research, simplification of the Intellectual Property Rights system), 
the  National  Agency  for  the  Evaluation  of  Universities  and  Research  Institutes 
(ANVUR) has become operational, and a new governmental structure has been created to 
coordinate  national  research  and  development  work  and  links  with  stakeholders.  On 
innovation  policy,  Italy  is  overall  a  moderate  innovator  with  a  below-average 
performance.11 Some measures have been taken, notably refinancing of the tax credit for 
research  (in  May  2011)  for  companies  financing  research  projects  in  universities  or 
public  research  bodies.  This  kind  of  ‘automatic’  instrument  is  a  useful  complement  to 
selective instruments based on calls for proposals. 

Italy  set  a  national  target  to  increase  the  share  of  GDP  invested  in  research  and 
development to 1.53% in 2020. Yet, the level of ambition of the measures adopted so far 
is insufficient and deep challenges to Italy’s competitiveness still need to be addressed. 
The  main  one  is  the  persistent  weak  level  of  private  sector  investment  in  research  and 
development. As evidenced in the national reform programme, it only amounts to 0.56% 
of  GDP  in  Italy,  against  1.09%  on  average  in  the  EU.  Other  longstanding  weaknesses 
regard (i) the insufficient coordination between research and innovation policy and other 

11 See: http://ec.europa.eu/enterprise/policies/innovation/files/ius-2011_en.pdf. 

20

 
 
                                                 
policies such as education, industrial, employment and competition policies; (ii) the lack 
of efficient implementation of the measures, continuity of policy and revision based on a 
systemic  evaluation;  (iii)  the  fragmentation  and  dispersion  of  the  national  public 
incentive system, based on many small measures and (iv) the low level of investment in 
researchers and high-skilled staff. 

Limited progress has been made on innovative procurement schemes, essentially in terms 
of  innovative  tools  for  the  development  of  the  Digital  Agenda.  Besides,  the 
rationalisation  of  public  procurement  is  one  of  the  main  objectives  of  the  planned 
spending  review.  In  July  2011,  incentives  were  introduced  for  subscribers  of  specific 
venture  capital  funds  supporting  business  start-up  and  growth.  Although  this  measure 
could be a step in the right direction, its effectiveness is doubtful since the tax incentive 
only indirectly stimulates the launch of venture capital funds. 

Internal market legislation 

As  regards  the  Services  Directive,  transposition  is  satisfactory  at  national  level. 
However, many fields of the Directive are of shared competence between the State and 
the  regions.  Therefore,  in  spite  of  the  new  Antitrust  Authority’s  powers  to  screen  and 
contest any anti-competitive administrative act, there may be an ex-ante risk, supported 
by  some  evidence,  that  the  application  of  the  national  implementing  law  by  local 
authorities  is  hampered  by  conflicting  regional  or  local  rules.  Thus,  a  number  of 
restrictions still obstruct the effective application of the Directive, especially in the retail, 
tourism  and  food  sectors.  Besides,  a  number  of  authorisation,  registration  or  licensing 
requirements  that  presumably  apply  also  to  cross-border  service  providers  are  found  in 
the tourism and construction service sectors. The situation regarding the Point of Single 
Contact  has  improved.  The  Italian  portal  provides  a  good  degree  of  information  on 
required  formalities,  although  it  does  not  yet  allow  for  the  full  completion  of  the 
administrative procedures required by the Services Directive. The Italian Point of Single 
Contact  is  also  difficult  to  use  for  cross-border  providers,  both  for  linguistic  and 
technical reasons. 

Moreover,  Italy  displays  some  weaknesses  in  its  institutional  set-up  for  handling  State 
aid procedures, as there is neither a formal coordination and control of aid notifications, 
nor a formal and independent advice on draft State aid measures. There is also scope for 
reducing the length of State aid procedures.  

Energy, transport, infrastructure and environment 

A set of measures adopted under the January 2012 package aim to increase competition 
and  transparency  in  the  gas  and  electricity  markets.  One  plans  to  unbundle  the  gas 
incumbent  operator  from  the  gas  transmission  operator,  to  be  completed  by  September 
2013. Other measures aim to encourage competition in the gas market, better align Italian 
gas prices with  other EU gas spot markets  and better manage  gas storage facilities.  By 
contrast, in the renewable energy sector, Italy has yet to adopt several implementing acts 
to make the new support scheme fully operational. 

In the transport sector, the January 2012 package created a new independent ‘Transport 
Authority’ which will be responsible for highways, airports, ports and railways, both at 
national  and  local  levels.  It  will  have  a  series  of  responsibilities,  including  (i)  ensuring 
non-discriminatory access of all operators to the infrastructure; (ii) setting the criteria to 
be  followed  by  the  railway  infrastructure  manager  when  setting  access  charges;  (iii) 
tendering  schemes  for  concessions;  (iv)  ensuring  non-discriminatory 
designing 
participation of all operators to regional railway service tenders and (v) liberalising the 
mechanism for setting road haulage tariffs and conditions. 

21

 
 
The new Transport Authority is expected to improve the regulation of the railway sector, 
which remains problematic. The control of both the infrastructure manager and the main 
incumbent operator by the Italian National Railways Company as well as the persistence 
of  potentially  distortive  subsidies  and  practices  remain  indeed  important  bottlenecks  to 
an efficient functioning of the sector. The new Transport Authority must present a report 
to the government by June 2013 to evaluate the scope for ownership unbundling between 
the  infrastructure  manager  and  the  incumbent  operator  in  the  railway  sector.  Italy  does 
not use maritime transport to its full potential. Poor integration of ports with the inland 
transport  network,  the  lack  of  competition  in  port  services  and  excessive  red  tape 
undermine the efficiency of the Italian port system, with negative repercussions in terms 
of competitiveness. 

Another  relevant  issue  is  the  time  needed  to  complete  infrastructure  projects  in  Italy, 
since current administrative procedures tend to be very time consuming. The two appeal 
levels (Regional Administrative court and State Council) often stop a project’s tendering 
or development, ultimately resulting in higher costs, also for private investors. Therefore, 
several measures in the January 2012 package aim to simplify administrative procedures 
and  attract  more  private  capital.  Companies  will  be  allowed  to  issue  project  bonds 
earlier, during the construction phase of the project, and local authorities will also be able 
to  issue  specific  project-related  bonds  to  ensure  an  adequate  level  of  financing  for  the 
construction work. 

Progress on the climate targets under the Europe 2020 Strategy is mixed. While advances 
towards  the  reduction  of  greenhouse  gas  emissions  in  non-Emission  Trading  Scheme 
sectors by 13 % by 2020 is modest, the objective of an increase in the share of renewable 
energy sources in final energy consumption by 17 % by 2020 is well on track. As regards 
the reduction of energy consumption by 27.9 Mtoe by 2020, it will benefit from the new 
objective  set  in  the  Energy  Efficiency  Action  Plan  2011  of  9.6  %  of  energy  saving  by 
2016. In terms of total greenhouse gas emissions, Italy ranks 4th in the EU27. According 
to  the  latest  projections  submitted  by  Italy  and  based  on  existing  measures,  Italy  will 
only reduce emissions by 1.5 % by 2020. In 2011, the government transposed Directive 
2009/28/EC on renewable energy. The government also released its 2011 Action Plan for 
Energy Efficiency, whose target is to reduce energy use by 14 % by 2020. However, the 
2011  Action  Plan  has  the  same  target  for  2016  as  Italy’s  previous  2007  Action  Plan. 
Although  the  Plan  discusses  action  taken  and  opportunities  for  the  transport  sector 
(which accounts for over one quarter of Italy’s energy consumption), it does not specify 
new concrete actions for the sector. A positive development is the creation of the Kyoto 
Revolving  Fund,  providing  loans  to  support  investment  in  renewable  energy  and  other 
sectors. The government is also expected to present a National Energy Plan in 2012.  

Land filled waste is not only detrimental to the environment but is also a major cost to 
the Italian economy. Extended Producer Responsibility schemes are missing for the main 
waste  streams,  thus  limiting  the  appropriate  and  sustainable  funding  of  separate 
collection,  sorting  and  recycling.  ‘Pay-as-you-throw’  schemes  incentivising  prevention 
and public participation to separate collection are in place, but not in the whole country. 

3.5.  Modernisation of public administration  

Italy’s  business  environment  has  deep-rooted  weaknesses,  mainly  stemming  from  high 
administrative burdens on firms, an inefficient judiciary system and an often ineffective 
public administration, including public procurement practices. 

Administrative simplification 

22

 
 
The  functioning  of  the  public  administration  in  Italy  is  characterised  by  a  number  of 
weaknesses  that  affect  its  quality  and  effectiveness.  In  particular,  although  it  is  well 
equipped in terms of availability and sophistication of online material, Italy ranks among 
the countries with the lowest levels of e-government use, both by small companies and 
citizens.  By  the  end  of  June  2012,  the  government  aims  to  set  out  the  implementation 
steps  for  the  Italian  Digital  Agenda,  with  a  view  to  fostering  e-government  and  spread 
the  use  of  digital  technology  in  public  places and  for  public procurement. In this latter 
field, Italy plans to simplify procedures and create, as from 2013, a national database as 
the only source of information, e.g. for competitive tendering. 

Italy  also  records  the  highest  cost  to  start  up  a  company  –  seven  times  the  European 
average. In January 2012, a broad range of administrative authorisations and barriers to 
doing business were abolished. The government is also empowered to issue by the end of 
2012  regulations  aimed  at  replacing  unnecessary  authorisations  by  ex-post  controls. 
Regions and Provinces must adapt their legislation accordingly by the end of 2012. 

These are relevant steps in Italy, and they need to be implemented properly to improve 
the functioning of the business environment. 

Cohesion funds 

in  2011  allowed  minimising 

The  2011  recommendation  on  cohesion  funds  highlighted  the  need  to  speed  up  in  an 
effective  way  the  absorption  of  cohesion  policy  funds,  with  special  emphasis  on 
improving administrative capacity  and  political governance. While measures have been 
taken  to  accelerate  the  absorption  of  funds,  the  issues  of  administrative  capacity  and 
political  governance  have  not  been  addressed  yet.  Internal  reprogramming  initiatives 
taken 
to 
EUR 1.9 million at the end of the year. The major reprogramming exercise for an amount 
of EUR 3.7 billion launched by Italy in December 2011 with the Cohesion Action Plan 
can  be  expected  to  yield  its  first  positive  results  in  2012.  The  Plan  almost  exclusively 
affects  convergence  regions  in  the  South  and  concentrates  resources  on  four  priority 
areas  (education,  employment,  digital  agenda  and  railway  infrastructure).  Specific  task 
forces have been established for the two most critical European Regional Development 
Fund  programmes  (Campania  and  Sicilia), 
local 
administrations in speeding up implementation of the programmes. 

loss  of  cohesion  policy  resources 

the  regional  and 

to  support 

the 

However,  pending  the  impact  of  the  Plan  and  the  results  of  the  task  forces,  absorption 
rates in the South of Italy, where almost 80 % of European Regional Development Fund 
funding is concentrated, continue to be among the lowest in the EU. The work of the task 
forces  has  confirmed  the  persistence  of  major  deficiencies  in  the  capacity  of  regional 
public administrations to implement cohesion policy, as well as the importance and the 
need for national authorities to provide more support and coordination. 

Judicial system 

The 2011 recommendation on competition and business environment identified the need 
to accelerate contract enforcement procedures. In response, a number of measures have 
been adopted to enhance the efficiency of civil justice, notably by reducing case-handling 
times  and  backlogs,  but  most  of  them  are  not  underlined  in  the  national  reform 
programme, despite the centrality of this issue. They aim to reorganise judicial districts, 
promote the specialisation of courts and  judges and increase the recourse to alternative 
means of dispute resolution. A September 2011 enabling law empowered the government 
to  revise  the  geographical  distribution  of  judicial  offices  within  twelve  months  and  the 
first  enacting  decree  was  adopted  in  December.  The  current  12  judicial  courts  for 
industrial/intellectual property rights will soon become 20 courts specialised in company 

23

 
 
law, which should speed up the case-handling of some business-related judicial matters. 
Moreover,  compulsory  mediation  has  been  introduced  in  a  number  of  judicial  fields  as 
from March 2011 and extended to additional fields in March 2012. These measures are 
positive  steps  that,  if  properly  implemented,  should  reduce  the  length  of  procedures, 
avoid  excessive  litigation  and  help  increase  the  productivity  and  the  specialisation  of 
judges, thus improving the functioning of civil justice. However, there remains scope for 
action.  Implementation  measures  for  the  revision  of  the  judicial  offices’  territorial 
distribution  are  still  needed  and  the  efficiency  of  some  adopted  measures  suffers  from 
their narrow scope, since they only concern specific steps of the judicial procedure and 
could possibly be extended to other phases of the proceeding. 

As indicated in the national reform programme, another important challenge for Italy is 
to step up the fight against corruption. Italy remains one of the few Member States that 
has  not  ratified  the  1999  Strasbourg  Penal  Convention  on  Corruption  which  lays  down 
measures to be adopted to incriminate and prosecute corruption practices, including some 
that  do  not  currently  configure  penal  offences  in  the  country.  The  pervasiveness  of 
corruption entails heavy costs for Italy’s productive system – estimated at EUR 60 bn by 
the Court of Auditors — and obstructs an optimal functioning of the markets. 

24

 
 
 
 
4.  OVERVIEW TABLE  

2011 commitments 

Summary assessment 

Country-specific recommendations (CSRs) 

in 

economic 

line  with 

CSR  1:  Implement  the  planned  fiscal  consolidation 
in  2011  and  2012  to  ensure  correction  of  the 
excessive  deficit 
the  Council 
recommendations  under  the  EDP,  thus  bringing  the 
high public debt ratio on a downward path. Building 
on  recently  approved  legislation,  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  2013-2014 
and  the  planned  achievement  of  the  medium-term 
objective by 2014 with concrete measures by October 
2011  as  provided  for  in  the  new  multi-annual 
budgetary 
the 
framework  by  introducing  enforceable  ceilings  on 
expenditure  and  improving  monitoring  across  all 
government sub-sectors. 

framework.  Further 

strengthen 

or 

CSR 2: Reinforce measures to combat segmentation 
in  the  labour  market,  also  by  reviewing  selected 
aspects  of 
legislation 
employment  protection 
including  the  dismissal  rules  and  procedures  and 
reviewing  the  currently  fragmented  unemployment 
benefit  system  taking  into  account  the  budgetary 
constraints. Step up efforts to fight undeclared work. 
In  addition, 
to  promote  greater 
steps 
participation  of  women  in  the  labour  market,  by 
the 
increasing 
facilities 
availability  of 
throughout 
the  country  and  providing  financial 
incentives  to  second  earners  to  take  up  work  in  a 
budgetary neutral way. 

take 

care 

in  July 

(underpinning 

Italy  has  partially  implemented  the  CSR. 
Three  packages  adopted  in  2011  on  fiscal 
consolidation: 
the 
budgetary  targets  in  the  SP);  in  September 
(aiming  at  a  balanced  budget  in  2013,  one 
year  earlier  than  planned)  and  in  December 
(additional permanent net consolidation effort 
of around 1.3 % of GDP, already from 2012). 
The Italian Parliament has just approved a bill 
introducing  a  balanced  budget  rule  in  the 
ordinary 
Italian  Constitution.  Effective 
legislation  will  need 
to  be  designed, 
specifying  the  balance  to  be  considered, 
cyclical 
application 
arrangements 
correction 
and 
conditions) 
mechanisms,  as 
fiscal 
the 
compact. 

appropriate 
required  by 

(e.g. 

Italy has partially implemented the CSR. 

No key policies to fight undeclared work and 
limited  support  for  female  employment  (e.g. 
fiscal  incentives  in  the  South).  The  labour 
market  reform  presented  by  the  government 
on  4  April,  following  consultations  with  the 
social  partners,  aims 
to  comprehensively 
address  the  rigidities  and  asymmetries  of 
legislation  while 
employment  protection 
moving 
integrated 
unemployment  benefit  scheme.  This  should 
improve  the  balance  between  flexibility  of 
entry into and exit from the labour market. 

a  more 

towards 

reforming 

CSR  3:  Take  further  steps,  based  on  the  2009 
agreement 
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  conditions, 
including  clauses 
level 
bargaining to proceed in this direction. 

that  could  allow  firm 

Italy has partially implemented the CSR. 

labour 

firm-level  bargaining 

A  social  partners’  agreement  was  reached  in 
June,  allowing 
to 
derogate  from 
law  (including  on 
dismissal  procedures  and  type  of  contracts  to 
be  used  in  the  firm).  Implementation  of  the 
agreement  on  collective  bargaining  will 
crucially  depend  on  the  behaviour  of  the 
social partners. 

CSR  4:  Extend  the  process  of  opening  up  the 
services  sector  to  further  competition,  including  in 
the field of professional services. Adopt in 2011 the 
Annual Law on Competition, taking into account the 
the  Anti-trust 
recommendations  presented  by 
Authority.  Reduce 
law 
enforcement  procedures.  Further  strengthen  actions 
to promote the access of SMEs to capital markets by 
removing regulatory obstacles and reducing costs. 

length  of  contract 

the 

25

Italy has partially implemented the CSR. 

Rules  were  adopted  to  liberalise  local  public 
services, lift rigidities in professional services 
(Stability  law  and  January  2012  package  on 
the  Antitrust 
strengthen 
liberalisations), 
Authority’s 
abolish 
powers 
and 
bans, 
disproportionate 
authorisations on economic activity from 2012 
(this  requires  further  legislative  measures  to 
be  taken  by  the  end  of  2012).  Sectoral 

restrictions 

and 

 
 
 
 
 
 
 
transport  except 

launched  (retail  shops, 
liberalisation  was 
pharmacies,  public 
taxi 
services). Reforms of the judicial system were 
adopted  in  September  and  December  2011 
(Severino  package),  to  improve  its  efficiency 
by 
reducing  case-handling  duration  and 
backlogs.  The  December  package  also 
addressed SME support. 

Italy has partially implemented the CSR. 

Some  measures  have  been  taken,  notably  the 
refinancing  of  the  tax  credit  for  research  for 
companies.  The 
level  of  ambition  and 
effectiveness  is,  however,  insufficient.  There 
has  been  no  significant  improvement  on 
promoting venture capital. 

Italy has partially implemented the CSR. 

Measures  to  speed  up  the  absorption  of 
structural  funds  started  in  March  2011  and 
culminated in the November Cohesion Action 
Plan. Major deficiencies in the capacity of the 
public  administration  continue 
to  hamper 
programme  implementation,  notably  in  the 
convergence regions. 

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

supporting 

capital 

and 

CSR  6:  Take  steps  to  accelerate  in  a  cost-effective 
way  growth-enhancing  expenditure  co-financed  by 
cohesion  policy  funds 
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. 

to  reduce 

in  order 

Euro Plus Pact (national commitments and progress) 

Public  finances:  amend  the  Constitution  to  reinforce 
budgetary discipline. 

The public finance commitment has been fully 
implemented. 

The Italian Parliament has just approved a bill 
introducing  a  balanced  budget  rule  in  the 
Italian  Constitution.  Effective 
ordinary 
legislation  will  need 
to  be  designed, 
specifying  the  balance  to  be  considered, 
cyclical 
application 
arrangements 
correction 
and 
conditions) 
mechanisms,  as 
fiscal 
the 
compact. 

appropriate 
required  by 

(e.g. 

The  labour  market  commitments  have  been 
partially implemented. 

•  The reform of apprenticeships that entered 
into  force  in  October  2011  is  promising, 
even  if  there  are  some  doubts  on  its 
capacity to enhance the use of this type of 
contracts.  With 
recently  adopted 
the 
reform,  apprenticeship 
labour  market 
contracts  become  the  main  port  of  entry 
towards stable jobs. 

•  The  December  package  shifts  the  tax 
burden  away  from  labour  and  capital  to 
consumption and property. 

•  The  enabling  law  on  the  tax  reform 

Labour market: 

•  Expand apprenticeship schemes; 

•  Reform  the  taxation  system  with  a  view  to 
to 
tax  burden 

labour 

from 

shifting 
the 
consumption. 

26

 
 
 
 
 
 
 
 
 
adopted  on  16  April  does  not  envisage  a 
further shift of the tax burden from labour 
to consumption. 

Structural policy: 

•  Speed up public works; 

The structural policy commitments have been 
partially implemented. 

•  Reduce  red  tape  and  increase  the  efficiency  of 

public administration. 

•  Concerning 

public  works, 

several 
measures in the January 2012 package aim 
to attract more private capital and simplify 
administrative  procedures.  One  of  the 
priority areas of the Cohesion Action Plan 
is 
railway 
infrastructure.    

improvement  of 

the 

the 

•  As 

regards  modernisation  of  public 
administration,  in  January  2012,  a  broad 
range of administrative authorisations and 
barriers to doing business were abolished. 

  Yet, there remains scope for improvement 

in these fields. 

Europe 2020 (national targets and progress) 

Employment rate target: 67-69 % 

R&D target: 1.53 % of GDP 

Greenhouse gas (GHG) emissions target: 

-13%  (compared  to  2005  emissions;  ETS  emissions 
are not covered by this national target 

Renewable energy target: 17 % 

Energy  efficiency  —  reduction  in  primary  energy 
consumption in Mtoe: -27.9 

Early school leaving target: 15-16 % 

Tertiary education target: 26-27 % 

Target to reduce the share of the population at risk of 
poverty or social exclusion, in number of persons:   

-2 200 000 

27

Employment  rate:  61.7 %  in  2009,  61.1 %  in 
2010.  No  progress  has  been  made  towards 
achieving the target. 

Gross  domestic  expenditure  on  R&D:  1.26 % 
of GDP in 2009, 1.26 % of GDP in 2010. No 
progress has been made towards achieving the 
target. 

Change  in  non-ETS  GHG  emissions:  -10% 
(non-ETS  sectors  currently  account  for  62% 
of total GHG emissions). 

Share  of  renewable  energy  in  gross  final 
energy consumption: 8.9 % in 2009.  

n.a.  The  energy  efficiency  objectives  are  set 
to  national  circumstances  and 
according 
national  formulations.  As  the  methodology to 
express  the  2020  energy  consumption  impact 
of  these  objectives  in  the  same  format  was 
agreed  only  recently,  the  Commission  is  not 
yet able to present this overview. 

Early  leavers  from  education  and  training 
(percentage of the population aged 18-24 with 
at most lower secondary education and not in 
further education or training): 19.2 % in 2009, 
18.8 % in 2010. Some progress has been made 
towards achieving the target. 

Tertiary educational attainment: 19 % in 2009, 
19.8 % in 2010. Some progress has been made 
towards achieving the target. 

People at risk of poverty or social exclusion in 
1 000 persons: 14 835 in 2009, 14 742 in 2010. 
Some  progress  has  been  made 
towards 
achieving the target. 

 
 
 
 
 
28

 
 
 
5.  ANNEX 

Table I. Macro-economic indicators 

Core indicators
GDP growth rate
Output gap 1
HICP (annual % change)
Domestic demand (annual % change) 2
Unemployment rate (% of labour force) 3
Gross fixed capital formation (% of GDP)
Gross national saving (% of GDP)
General government (%  of GDP)
Net lending (+) or net borrowing (-)
Gross debt
Net financial assets 
Total revenue 
Total expenditure
  of which: Interest
Corporations (%  of GDP)
Net lending (+) or net borrowing (-)

1995-
1999

2000-
2004

2005-
2008

2009

2010

2011

2012

2013

1.8
0.2
3.0
2.2
11.2
19.3
21.9

-4.4
117.2
-102.6
45.8
50.2
9.3

1.5
1.1
2.5
1.6
8.8
20.6
20.7

-2.8
105.8
-94.1
44.4
47.2
5.6

0.9
1.5
2.5
0.8
6.8
21.2
20.0

-3.1
105.1
-89.9
45.1
48.2
4.9

-5.5
-4.3
0.8
-4.4
7.8
19.4
16.9

-5.4
116.0
-100.2
46.5
52.0
4.7

1.8
-2.5
1.6
2.1
8.4
19.6
16.7

-4.6
118.6
-98.8
46.0
50.6
4.6

0.4
-2.0
2.9
-0.9
8.4
19.5
16.5

-3.9
120.1
n.a
46.1
50.0
4.9

-1.4
-2.9
3.2
-2.9
9.5
19.2
16.4

-2.0
123.5
n.a
48.4
50.4
5.4

0.4
-2.3
2.3
-0.1
9.7
19.4
17.5

-1.1
121.8
n.a
48.4
49.5
5.6

-0.3

-1.0

-1.9

0.3

-1.0

-1.0

-1.4

-1.6

n.a
n.a
10.2
20.1

n.a
n.a
10.7
20.9

-84.5
1.6
10.4
23.9

1.7
n.a
31.1
12.0
24.0
8.5

-126.7
26.0
11.1
21.0

-125.7
-0.9
11.5
22.4

-107.6
-9.5
11.4
23.9

-131.2
21.2
9.4
20.8

3.4
195.4
30.0
14.9
21.4
11.0

7.1
182.2
28.8
18.9
20.7
14.2

1.9
175.3
31.1
12.2
23.8
9.0

3.1
183.6
31.4
12.5
24.0
10.3

3.7
201.3
28.9
15.7
20.7
11.1

Net financial assets, non-financial corporations
Net financial assets, financial corporations
Gross capital formation
Gross operating surplus
Households and NPISH (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Gross wages and salaries
Net property income
Current transfers received
Gross saving
Rest of the world (%  of GDP)
Net lending (+) or net borrowing (-)
Net financial assets
Net exports of goods and services
Net primary income from the rest of the world
Net capital transactions 
Tradable sector
Non tradable sector
  of which: Building and construction sector
Real effective exchange rate (index, 2000=100)
Terms of trade in goods and services (index, 2000=100)
Market performance of exports (index, 2000=100)
Notes:
1 The output gap constitutes the gap between actual and potential gross domestic product at 2000 market prices.
2 The indicator for domestic demand includes stocks.
3  Unemployed persons are all persons who were not employed, had actively sought work and were ready to begin working immediately or within two 
weeks. The labour force is the total number of people employed and unemployed. The unemployment rate covers the age group 15-74.

-2.0
31.0
-0.5
-0.5
0.0
41.0
49.1
5.7
125.0
102.0
78.3

2.4
5.3
3.5
-1.0
0.2
47.5
42.3
4.7
107.3
104.2
115.4

-0.1
11.8
0.9
-0.6
0.1
45.2
44.7
5.0
107.2
102.3
95.7

-1.6
23.9
-0.5
-0.2
0.1
42.8
46.9
5.6
119.5
98.3
85.5

-3.1
n.a
-1.5
-0.7
0.0
40.8
48.7
5.4
121.7
95.2
80.5

-3.6
30.0
-1.9
-0.5
0.0
41.0
48.6
5.4
121.2
98.1
79.5

-2.2
n.a
-0.4
-0.8
0.0
n.a
n.a
n.a
120.0
93.8
80.2

1.1
n.a
31.1
12.6
24.3
7.7

n.a
n.a
10.6
20.4

1.2
n.a
30.7
12.8
24.3
7.8

-1.3
n.a
0.6
-0.8
0.0
n.a
n.a
n.a
119.6
95.2
80.1

Source :
Commission services' spring 2012 forecast

29

 
 
 
Table II. Comparison of macroeconomic developments and forecasts 

Real GDP (% change)
Private consumption (% change)
Gross fixed capital formation (% change)
Exports of goods and services (% change)
Imports of goods and services (% change)
Contributions to real GDP growth:
- Final domestic demand
- Change in inventories
- Net exports
Output gap1
Employment (% change)
Unemployment rate (%)
Labour productivity (% change)
HICP inflation (%)
GDP deflator (% change)
Comp. of employees (per head, % change)
Net lending/borrowing vis-à-vis the rest of the 
world (% of GDP)

2011
COM SP
0.4
0.2
-1.9
5.6
0.4

0.4
0.3
-1.9
5.6
0.4

2012
COM SP
-1.2
-1.4
-1.7
-2.3
-3.5
-3.8
1.2
1.1
-2.3
-4.1

2013
COM SP
0.5
0.2
1.7
2.6
2.2

0.4
-0.4
1.3
4.0
2.3

-0.4
-0.5
1.4
-2.0
0.3
8.4
0.3
2.9
1.3
1.4
-3.1

-0.4
-0.5
1.4
-2.1
0.3
8.4
0.1
2.9
1.3
1.4
-3.1

-2.3
-0.7
1.5
-2.9
-0.8
9.5
-0.4
3.2
2.1
1.5
-2.2

-1.8
-0.3
1.0
-2.8
-0.4
9.3
-0.8
3.0
1.8
1.1
-2.3

-0.1
0.0
0.5
-2.3
0.0
9.7
0.5
2.3
2.2
1.4
-1.3

0.2
0.1
0.1
-2.2
0.3
9.2
0.2
2.2
1.9
1.1
-2.0

2014
SP
1.0
0.5
2.5
4.2
3.6

0.7
0.0
0.2
-1.5
0.6
8.9
0.3
2.0
1.9
1.4
-1.7

2015
SP
1.2
0.7
2.8
4.6
3.9

1.0
0.0
0.3
-0.8
0.7
8.6
0.5
1.8
1.9
1.3
-1.3

Note:
1In percent of potential GDP, with potential GDP growth according to the programme as recalculated by the Commission services.

Source :

Commission services' spring 2012 forecasts (COM); Stability programme (SP).

30

 
 
 
Table III. Composition of the budgetary adjustment 

(% of GDP)

Revenue
of which:
- Taxes on production and imports
- Current taxes on income, wealth, etc.
- Social contributions
- Other (residual)
Expenditure
of which:
- Primary expenditure

of which:

2011

COM
46.1

14.1
14.3
13.7
4.0
50.0

2012

2013

2014

2015

Change: 
2011-2015

COM
48.4

15.5
15.5
13.7
3.7
50.4

SP
48.7

15.6
15.5
13.8
3.8
50.4

COM
48.4

15.8
15.3
13.6
3.7
49.5

SP
49.1

16.3
15.3
13.7
3.8
49.6

SP
49.0

16.2
15.3
13.7
3.8
49.1

SP
48.7

16.1
15.1
13.7
3.8
48.7

45.1

45.0

45.1

43.9

44.2

43.5

42.9

SP
2.6

2.0
0.8
0.0
-0.2
-1.3

-2.2

3

0.7

0.4

0.1

1.3

0.6

1.2

-1.5

-2.9

-2.2

-2.0

-2.9

-2.3

-0.8

-0.6

-0.3

-2.8

-3.6

-0.7
2.9

-0.1
0.7

-0.5
3.1

-1.0
-0.6
0.1
-0.3
-0.3
-0.1
0.9
3.9
4.7
-0.6
4.5

10.3
5.3
22.4
0.9
1.8
3.4
5.4
-0.5
4.9
0.1
-0.6

10.8
5.8
22.1
1.1
2.0
3.3
4.9
-3.9
1.0
0.7
-4.6

9.8
5.2
22.2
0.8
1.7
3.2
5.8
0.0
5.7
0.1
-0.1

10.0
5.3
22.3
0.9
1.8
3.2
5.6
-0.1
5.5
0.2
-0.3

10.3
5.4
22.3
1.0
1.5
3.4
5.6
-1.1
4.5
0.1
-1.2

10.6
5.7
22.5
1.0
1.9
3.4
5.3
-1.7
3.6
0.2
-1.9

10.6
5.7
22.4
1.0
1.8
3.5
5.4
-2.0
3.4
0.2
-2.2

Compensation of employees
Intermediate consumption
Social payments
Subsidies
Gross fixed capital formation
Other (residual)
- Interest expenditure
General government balance (GGB)
Primary balance
One-off and other temporary measures
GGB excl. one-offs
Output gap2
Cyclically-adjusted balance2
Structural balance
Change in structural balance
Structural primary balance3
Change in structural primary balance
Expenditure benchmark
Public expenditure growth4 (real)
Reference rate5,6
Lower reference rate5,7
Deviation in % of GDP from applicable reference 
rate
Two-year average deviation in % of GDP from 
applicable reference rate
Notes:
1On a no-policy-change basis.
2Output gap (in % of potential GDP) and cyclically-adjusted balance according to the programme as recalculated by the Commission on the 
basis of the information in the programme.
3Structural (primary) balance = cyclically-adjusted (primary) balance excluding one-off and other temporary measures.
4M odified expenditure aggregate used for the expenditure benchmark, growth rates net of non-discretionary changes in unemployment benefit 
and of discretionary measures.
5The reference rates applicable to 2014 onwards will be available from mid-2012. For illustrative purposes, the current reference rates have 
also been applied to the years 2014 onwards.
6The (standard) reference rate applies starting in the year following the one in which the country reaches its M TO.
7The lower reference rate applies as long as the country is adjusting towards its M TO, including the year in which it reaches the M TO.

0.3
-0.2

0.5
-0.1

5.9
1.1

6.1
0.1

4.8
3.5

4.7
3.4

6.1
0.0

5.5
0.8

0.5
1.0

-0.66

-0.09

-0.81

-0.81

-0.93

-0.37

-1.19

-0.81

-1.93

-3.46

-0.67

-0.81

-1.84

-2.30

-0.81

-3.01

-7.41

-1.19

-0.81

-2.67

-6.66

0.33

0.33

0.33

0.13

0.33

0.33

0.33

n.a.

n.a.

3.9

4.8

3.3

-
-

-

-

-

Source :
Commission services' spring 2012 forecasts (COM); Stability programme (SP). Commission services' calculations.

31

 
 
 
(% of GDP)

Gross debt ratio1
Change in the ratio
Contributions 2 :

1. Primary balance
2. ‘S now-ball’ effect

Of which:
Interest expenditure
Growth effect
Inflation effect

3. S tock-flow adjustment

Of which:
Cash/accruals diff.
Accum. financial assets

Privatisation

Val. & residual effects

% of GDP

Gap to the debt benchmark5,6

S tructural adjustment7

To be compared to:
Required adjustment8

Table IV. Debt dynamics 

Average 
2006-10

109.9
2.6

2011

120.1
1.5

2012

2013

COM

123.5
3.4

SP

123.4
3.3

COM

121.8
-1.7

SP

121.5
-1.9

2014
SP

118.2
-3.3

2015
SP

114.4
-3.8

-1.2
3.2

4.8
0.2
-1.9
0.7

0.1
0.6
-0.1
0.0

-

-

-

-1.0
2.9

4.9
-0.5
-1.5
-0.4

0.0
-0.5
0.0
0.0

2011

-

-

-

-3.4
4.6

5.4
1.7
-2.5
2.2

-0.1
2.2
0.0
0.0

2012
3

COM/SP
-

-

-

-3.6
4.6

5.3
1.5
-2.1
2.2

-0.3
0.1
0.0
2.4

4

SP
-

-

-

-4.5
2.4

5.6
-0.5
-2.6
0.4

-0.3
0.7
0.0
0.0

2013
3

COM/SP
-

1.0

0.0

-4.9
2.5

5.4
-0.6
-2.3
0.5

-0.7
0.4
0.0
0.7

4

SP
-

1.0

-5.5
2.3

5.6
-1.1
-2.2
-0.1

-0.8
0.3
0.0
0.5

-5.7
2.1

5.7
-1.4
-2.2
-0.2

-1.0
0.3
0.0
0.4

2014
4
SP
-

2015
4
SP
-

-0.1

-0.2

0.0

0.0

0.0

Notes:
1End of period.
2The snow-ball effect captures the impact of interest expenditure on accumulated debt, as well as the impact of real GDP growth 
and inflation on the debt ratio (through the denominator). The stock-flow adjustment includes differences in cash and accrual 
accounting, the accumulation of financial assets, and valuation and other residual effects. 

3 Assessment of the consolidation path set in the SP assuming growth follows the COM  forecasts.
4 Assessment of the consolidation path set in the SP assuming growth follows the SP projections.

5 Not relevant during the excessive deficit procedures that were ongoing in November 2011 and in the three years following the 
correction of the excessive deficit.

6Shows the difference between the debt-to-GDP ratio and the debt benchmark. If positive, the projected gross debt-to-GDP ratio 
does not comply with the debt reduction benchmark.
7Applicable only during the transition period of three years from the correction of the excessive deficit for excessive deficit 
procedures that were ongoing in November 2011.
8Defines the remaining annual structural adjustment over the transition period which ensures that - if followed – M ember State 
will comply with the debt reduction benchmark at the end of the transition period, assuming that COM  (SP) budgetary 
projections are achieved.

Source :
Commission services' spring 2012 forecasts (COM); Stability programme (SP). Commission services' calculations.

32

 
 
 
Table V. Long-term sustainability 

IT

EU27

No policy 
change 
scenario 

Stability 
programme 
scenario

No policy 
change 
scenario 

SCPs 
scenario

S2
of which:

Initial budgetary position (IBP)
Long-term change in the primary balance (LTC)
 of which:
pensions
healthcare and long-term care
other
S1 (required adjustment)*

Debt,  % of GDP (2011)
Age-related expenditure, % of GDP (2011)
Notes:

-2.8

-3.4
0.5

-0.3
1.1
-0.3
-0.9

-3.5

-4.3
0.8

-0.2
1.2
-0.2
-1.4

2.9

0.7
2.3

1.1
1.5
-0.3
2.2

0.7

-1.6
2.4

1.2
1.5
-0.3
-0.1

120.1
27.8

82.8
25.8

Note: The ‘no policy change’ scenario depicts the sustainability gap under the assumption that the budgetary position evolves 
according to the spring 2012 forecast until 2013. The ‘stability programme’ scenario depicts the sustainability gap under the 
assumption that the budgetary plans in the programme are fully implemented. 

* The required adjustment of the primary balance until 2020 to reach a public debt of 60% of GDP by 2030.

Source : Commission services, 2012 stability and convergence programmes

(% of GDP)

Gross debt as % of GDP - ITALY - Medium-term debt projections

130

120

110

100

90

80

70

60

0
0
0
2

1
0
0
2

2
0
0
2

3
0
0
2

4
0
0
2

5
0
0
2

6
0
0
2

7
0
0
2

8
0
0
2

9
0
0
2

0
1
0
2

1
1
0
2

2
1
0
2

3
1
0
2

4
1
0
2

5
1
0
2

6
1
0
2

7
1
0
2

8
1
0
2

9
1
0
2

0
2
0
2

COM no-policy change scenario
COM + Shock ( -1p.p. in the short-term/long-term interest rate on maturing and new debt from 2014)
COM + Shock (+1p.p. in the short-term/long-term interest rate on maturing and new debt from 2014)
COM consolidation scenario (0.5% per year on SB) in order to achieve MTO
COM consolidation scenario (1% per year on SB) in order to achieve MTO
SP scenario

33

 
 
 
 
Table VI. Taxation indicators 

Total tax revenues (incl. actual compulsory social contributions, % of GDP)
Breakdown by economic function (% of GDP)1
     Consumption

              of which:

              - VAT

             - excise duties on tobacco and alcohol

             - energy

             - other (residual)

     Labour employed

     Labour non-employed

     Capital and business income

     Stocks of capital/wealth
     p.m.  Environmental taxes 2
3
VAT efficiency
     Actual VAT revenues as % of theoretical revenues at standard rate

2001

41.1

10.3

6.2

0.7

2.4

1.1

2005

40.1

9.9

5.9

0.7

2.2

1.1

2007

42.7

10.2

6.2

0.7

2.0

1.2

2008

42.7

2009

42.8

9.8

5.9

0.8

1.9

1.2

9.7

5.7

0.8

2.1

1.3

2010

42.3

10.2

6.2

0.8

2.0

1.2

17.9

18.1

18.6

19.2

19.3

19.3

2.1

8.3

2.5

3.0

2.2

7.3

2.6

2.8

2.2

9.1

2.7

2.7

2.3

8.9

2.5

2.5

2.5

8.3

2.8

2.7

2.6

7.7

2.5

2.6

43.4

40.6

42.7

40.6

37.3

41.3

Note: 
1 T ax revenues are broken down by economic function, i.e. according to whether taxes are raised on consumption, labour or capital. See European Commission (2012), 

T axation trends in the European Union, for a more detailed explanation.

2 T his category comprises taxes on energy, transport and pollution and resources included in taxes on consumption and capital.

3 T he VAT  efficiency is measured via the VAT  revenue ratio. T he VAT  revenue ratio is defined as the ratio between the actual VAT  revenue collected and the revenue 

that would theoretically be raised if VAT  was applied at the standard rate to all final consumption. A low ratio can indicate a reduction of the tax base due to large 

exemptions or the application of reduced rates to a wide range of goods and services ('policy gap') or a failure to collect all tax due to e.g. fraud ('collection gap'). See 

European Commission (2011), T ax reforms in EU Member States, European Economy 5/2011, for a more detailed explanation.

Source: Commission

34

 
 
 
Table VII. Selected macro-financial stability indicators 

Total assets of the banking sector (% of GDP)
Share of assets of the five largest banks (% of total assets)
Foreign ownership of banking system (% of total assets)
Financial soundness indicators:
              - non-performing loans (% of total loans) 1), 2)
              - capital adequacy ratio (%) 1), 3)
              - return on equity (%) 1), 4)
Bank loans to the private sector (year-on-year % change)
Lending for house purchase (year-on-year % change)
Loan to deposit ratio
CB liquidity as % of liabilities
Banks' exposure to countries receiving official financial assistance  (% of GDP)5)
Private debt (% of GDP)
Gross external debt (% of GDP) 6)

2007

2008

2009

2010

2011

219.2
33.1
18.1

4.6
10.4
12.8
10.5
8.7
141.5
0.9
3.6
99.6

234.5
31.2
13.4

4.9
10.8
4.5
5.8
0.0
136.6
1.7
4.0
102.9

245.4
31.0
12.3

7.0
12.1
3.8
2.4
5.9
131.2
0.9
3.1
109.0

243.5
39.2
…

10.0
12.1
3.7
3.9
7.5
120.5
1.6
2.8
116.1

256.6
…
…

11.0
12.8
2.2
1.0
4.4
125.5
0.0
2.7
115.4

42.1
23.2
27.0
…

47.5
24.2
69.7
88.4

50.5
24.1
109.1
108.2

51.3
25.2
129.3
164.4

- Public
            - Private
Long term interest rates spread versus Bund (basis points)*
Credit default swap spreads for sovereign securities (5-year)*
Notes: 
1) Latest available June 2011. 
2) The capital adequacy ratio is defined as total capital divided by risk weighted assets.   
3) The capital adequacy ratio is defined as total capital devided by risk weigthed assets.   
4) Net income to equity ratio. After extraordinary items and taxes.
5) Covered countries are IE, EL, PT, RO, LV and HU.
6) Latest data 2011Q3.
* M easured in basis points.
Source :
Bank for International Settlements and Eurostat (exposure to macro-financially vulnerable countries), IMF (financial soundness indicators), 
Commission (long-term interest rates), World Bank (gross external debt) and ECB (all other indicators).

45.0
23.9
281.6
299.4

35

 
 
 
 
 
Table VIII. Labour market and social indicators 

Labour market indicators
Employment rate 
(% of population aged 20-64)
Employment growth 
(% change from previous year)
Employment rate of women 
(% of female population aged 20-64)
Employment rate of men 
(% of male population aged 20-64)
Employment rate of older workers 
(% of population aged 55-64)
Part-time employment 
(% of total employment)
Part-time employment of women  
(% of women employment)
Part-time employment of men  
(% of men employment)
Fixed term employment 
(% of employees with a fixed term contract)
Unemployment rate1 (% of labour force)
Long-term unemployment2  (% of labour force)
Youth unemployment rate 
(% of youth labour force aged 15-24)

2006

2007

2008

2009

2010

2011

62.5

62.8

63.0

61.7

61.1

61.2

1.9

1.0

0.8

-1.6

-0.7

0.4

49.6

49.9

50.6

49.7

49.5

49.9

75.5

75.8

75.4

73.8

72.8

72.6

32.5

33.8

34.4

35.7

36.6

37.9

13.5

13.8

14.5

14.5

15.3

15.7

26.7

27.1

28.1

28.2

29.3

29.6

4.8

5.1

5.4

5.2

5.6

6.1

13.1

13.2

13.3

12.5

12.8

13.4

6.8

3.4

6.1

2.9

6.7

3.1

7.8

3.5

8.4

4.1

8.4

4.4

21.6

20.3

21.3

25.4

27.8

29.1

Youth NEET3 rate (% of population aged 15-24)

16.8

16.2

16.6

17.7

19.1

:

:

:

0.2

-0.1

0.2

0.1

1.0

-0.3

Early leavers from education and training (% of 
pop. 18-24 with at most lower sec. educ. and not 
in further education or training)
Tertiary educational attainment (% of population 
30-34 having successfully completed tertiary 
education)
Labour productivity per full-time-equivalent 
(annual % change )
Hours worked per person employed  (annual % 
change)
Labour productivity per hour worked (annual % 
change; constant prices)
Compensation per employee (annual % change; 
constant prices)
Nominal unit labour cost growth (annual % 
change)

0.6

-0.2

0.4

1.0

2.0

Real unit labour cost growth (annual % change)

0.2

Notes:

20.6

19.7

19.7

19.2

18.8

17.3

18.9

19.9

20.2

20.7

0.7

0.1

0.3

-0.1

1.6

-0.7

-0.8

-0.7

-0.7

1.2

4.5

2.0

-2.7

-1.7

-2.2

-0.4

4.0

1.9

2.5

0.2

2.3

1.7

-0.5

-0.9

1 According to ILO definition, age group 15-74
2 Share of persons in the labour force who have been unemployed for at least 12 months.
3 NEET are persons that are neither in employment nor in any education or training.

Sources: 
Commission (EU Labour Force Survey and European National Accounts) 

36

 
 
  
Table VIII (cont.). Labour market and social indicators 

Expenditure on social protection 
benefits (% of GDP)
Sickness/Health care
Invalidity
Old age and survivors
Family/Children
Unemployment
Housing and Social exclusion n.e.c.
Total
of which:  Means tested benefits
Social inclusion indicators
Risk-of-poverty or exclusion1 (% of total 
population)
Risk-of-poverty or exclusion of children (% of 
people aged 0-17)
Risk-of-poverty or exclusion of elderly (% of 
people aged 65+)
At-risk-of-poverty rate2 (% of total population)
Value of relative poverty threshold (single 
household per year) - in PPS
Severe material deprivation3  (% of total 
population)
Share of people living in low work intensity 
households 4 (% of people aged 0-59 not 
student)
In-work at-risk-of poverty rate (% of persons 
employed)

Notes:

2005

2006

2007

2008

2009

6.78
1.52
12.86
1.11
0.51
0.02
26.4
1.17

2006

6.88
1.51
13.00
1.15
0.51
0.02
26.6
1.59

2007

6.64
1.53
13.14
1.22
0.45
0.02
26.7
1.67

2008

6.98
1.57
13.63
1.26
0.51
0.02
27.8
1.74

2009

7.31
1.74
14.44
1.40
0.80
0.02
29.8
1.95

2010

25.9

26.1

25.3

24.7

24.5

28.4

29.4

29.1

28.8

28.9

24.6

19.6

25.3

19.9

24.4

18.7

22.8

18.4

20.3

18.2

8323

8644

9157

9119

9119

6.3

6.8

7.5

7.0

6.9

10.8

10.0

9.8

8.8

10.2

9.6

9.8

8.9

10.3

9.4

1 People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) 
and/or suffering from severe material deprivation (SM D) and/or living in households with zero or very low 
work intensity (LWI).

2 At-risk-of poverty rate: share of people with an equivalised disposable income below 60% of the national 
equivalised median income. 

3 Share of people who experience at least 4 out of 9 deprivations: people cannot afford to i) pay their rent or 
utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish, or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have 
a washing machine, viii) have a colour TV, or ix) have a telephone.

4 People living in households with very low work intensity: share of people aged 0-59 living in households 
where the adults work less than 20% of their total work-time potential during the previous 12 months.

Sources: 
For expenditure on social protection benefits ESSPROS; for social inclusion EU-SILC.

37

 
 
 
 
 
 
Table IX. Product markets performance and policy indicators 

Performance indicators

Labour productivity1 total economy (annual 
growth in %)
Labour productivity1 in manufacturing (annual 
growth in %)
Labour productivity1 in electricity, gas, water 
(annual growth in %)
Labour productivity1 in the construction sector 
(annual growth in %)
Patent intensity in manufacturing2 (patents of the 
EPO divided by gross value added of the sector)

2002-
2006

-0.3

-0.1

3.1

2007

2008

2009

2010

2011

0.2

1.4

1.6

-1.6

-3.6

2.1

1.8

-4.0

-12.1

8.7

n.a.

8.8

-9.5

n.a.

n.a.

-0.7

-2.6

-3.2

-6.6

-2.1

n.a.

1.9

1.8

1.6

n.a.

n.a.

n.a.

Policy indicators

Enforcing contracts3 (days)
Time to start a business 3 (days)
R&D expenditure (% of GDP)
Tertiary educational attainment 
(% of 30-34 years old population)
Total public expenditure on education 
(% of GDP)

2002-
2006

n.a.

n.a.
1.1

2007

2008

2009

2010

2011

1210

1210

1210

1210

1210

13
1.2

10
1.2

10
1.3

6
1.3

15.5

18.6

19.2

19.0

19.8

4.6

4.3

4.6

n.a.

n.a.

6
n.a.

n.a.

n.a.

Product market regulation4, Overall
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Retail
(Index; 0=not regulated; 6=most regulated)
Product market regulation4, Network Industries5
(Index; 0=not regulated; 6=most regulated)

2005

2006

2008

2009

2010

2011

n.a.

n.a.

n.a.

n.a.

1.4

2.6

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

2.0

2.0

2.0*

n.a.

n.a.

n.a.

Notes:
1Labour productivity is defined as gross value added (in constant prices) divided by the number of persons employed.
2 Patent data refer to applications to the European Patent Office (EPO). They are counted according to the year in which 
they were filed at the EPO. They are broken down according to the inventor's place of residence, using fractional counting if 
multiple inventors or IPC classes are provided to avoid double counting. 
3 The methodologies, including the assumptions, for this indicator are presented in detail on the website 
http://www.doingbusiness.org/methodology. 
4 The methodologies for the product market regulation indicators are presented in detail on the website 
http://www.oecd.org/document/1/0,3746,en_2649_34323_2367297_1_1_1_1,00.html. The latest available product market 
regulation indicators refer to 2003 and 2008, except for Network Industries.

5 Aggregate ET CR.

*figure for 2007.

Source :

Commission, World Bank - Doing Business  (for enforcing contracts and time to start a business) and OECD (for the 
product market regulation indicators). 

38

 
 
 
 
 
Table X. Green growth performance 

Italy

Green Growth performance

Macroeconomic
Energy intensity 
Carbon intensity 
Resource intensity (reciprocal of resource productivity)
Waste intensity 
Energy balance of trade 
Energy weight in HICP
Difference between change energy price and inflation 
Environmental taxes over labour taxes
Environmental taxes over total taxes

Sectoral 

Industry energy intensity 
Share of energy-intensive industries in the economy
Electricity prices for medium-sized industrial users 
Public R&D for energy 
Public R&D for the environment
Recycling rate of municipal waste
Share of GHG emissions covered by ETS
Transport energy intensity
Transport carbon intensity
Change in the ratio of passenger transport and GDP

Security of energy supply
Energy import dependency
Diversification of oil import sources 
Diversification of energy mix
Share of renewable energy in energy mix

kgoe / €
kg / €
kg / €
kg / €
% GDP
%
%
ratio
ratio

kgoe / € 
% GDP
€ / kWh
% GDP
% GDP
ratio
%
kgoe / €
kg / €
%

%
HHI
HHI
%

2001-
2005

0.15
0.46
0.67
n.a.
-1.5%
6
0.2
14.0%
6.9%

0.15
9.6
0.08
n.a.
n.a.
48.4%
n.a.
0.48
1.38
-1.5%

84.4%
n.a.
0.37
6.0%

2006

2007

2008

2009

2010

0.15
0.44
0.65
0.12
-2.1%
7
7.4
13.2%
6.4%

0.14
9.6
0.09
0.02%
0.02%
58.9%
40.3%
0.46
1.31
4.7%

86.8%
0.14
0.35
6.7%

0.14
0.42
0.61
0.13
-1.9%
9
-0.6
12.3%
6.0%

0.13
9.8
0.10
0.02%
0.02%
61.9%
40.8%
0.44
1.25
1.1%

85.2%
0.16
0.35
6.6%

0.14
0.42
0.60
0.14
-2.3%
8
7.4
11.2%
5.7%

0.12
9.6
n.a.
0.04%
0.03%
60.6%
40.7%
0.43
1.20
-4.4%

85.2%
0.15
0.34
7.5%

0.14
0.40
0.57
n.a.
-2.7%
8
-5.8
11.9%
6.1%

0.11
8.4
n.a.
0.03%
0.02%
60.4%
37.6%
0.42
1.20
n.a.

82.9%
0.15
0.34
9.5%

0.14
n.a.
n.a.
n.a.
-3.4%
8
-3.3
n.a.
n.a.

n.a.

n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.

n.a.
n.a.
n.a.
n.a.

Country-specific notes: 
The year 2011 is not included in the table due to lack of data.
General explanation of the table items:
Source: Eurostat unless indicated otherwise; ECFIN explanations given below
All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2000 prices)
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)
          Carbon intensity: Greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)
          Resource intensity: Domestic M aterial Consumption (in kg) divided by GDP (in EUR)
          Waste intensity: waste (in kg) divided by GDP (in EUR)
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP  
Energy weight in HICP: the share of the "energy" items in the consumption basket used in the construction of the HICP
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual %-change)
Environmental taxes over labour or total taxes: from DG TAXUD's database "Taxation trends in the European Union"
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in EUR) 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP
Recycling rate of municipal waste: ratio of municipal waste recycled over total municipal waste
Public R&D for energy or for the environment: government spending on R&D (GBAORD) for these categories as % of GDP
Share of GHG emissions covered by ETS: based on greenhouse gas emissions as reported by M ember States to EEA (excl LULUCF)
Transport energy intensity: final energy consumption of transport (in kgoe) divided by gross value added of industry (in EUR) 
Transport carbon intensity:  greenhouse gas emissions in transport divided by gross value added of the transport sector
Passenger transport growth : measured in %-change in passenger kilometres
Energy import dependency: net energy imports divided by gross inland energy consumption incl. of international bunkers

Diversification of oil import sources: Herfindahl index (HHI), calculated as the sum of the squared market shares of countries of origin 

Diversification of the energy mix: Herfindahl Index over natural gas, total petrol products, nuclear heat, renewable energies and solid fuels

Share of renewable energy in energy mix: percentage-share in  gross inland energy consumption, expressed in tonne oil equivalents

39