Recommendation for a COUNCIL RECOMMENDATION on Italy 2013 national reform programme and delivering a Council opinion on Italy’s stability programme for 2012-2017
Date: 2013-05-29
Institutions: European Commission
Subjects: Italy, administrative formalities, administrative reform, banking system, budget deficit, budgetary equilibrium, educational reform, job creation, judicial reform, liberalisation of the market, public expenditure, stability programme, tax reform

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
COM(2013) 362 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on Italy 2013 national reform programme  

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

{SWD(2013) 362 final}

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Recommendation for a 

COUNCIL RECOMMENDATION 

on Italy 2013 national reform programme  

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

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2 and in particular Article 6(1) thereof, 
Having regard to the recommendation of the European Commission3, 
Having regard to the resolutions of the European Parliament4, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

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

On 13 July 2010, on the basis of the Commission's proposals, the Council adopted a 
recommendation  on  the  broad  guidelines  for  the  economic  policies  of  the  Member 
States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision on 
guidelines  for  the  employment  policies  of  the  Member  States5,  which  together  form 
the  ‘integrated  guidelines’.  Member  States  were  invited  to  take  the  integrated 
guidelines into account in their national economic and employment policies. 

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OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
COM(2013) 362 final. 
P7_TA(2013)0052 and P7_TA(2013)0053. 
Council Decision2013/208/EU of 22 April 2013. 

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(3) 

(4) 

(5) 

(6) 

(7) 

(8) 

(9) 

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

On  6  July  2012,  the  Council  adopted  a  recommendation  on  Italy’s  national  reform 
programme for 2012 and delivered its opinion on Italy’s updated stability programme 
for 2011-2015. 
On  28  November  2012,  the  Commission  adopted  the  Annual  Growth  Survey6, 
marking  the  start  of  the  2013  European  Semester  of  economic  policy  coordination. 
Also  on  28  November  2012,  the  Commission,  on  the  basis  of  Regulation  (EU)  No 
1176/2011, adopted the Alert Mechanism Report7, in which it identified Italy as one of 
the Member States for which an in-depth review would be carried out. 

On  14  March  2013,  the  European  Council  endorsed  the  priorities  for  ensuring 
financial stability, fiscal consolidation and action to foster growth. It underscored the 
need  to  pursue  differentiated,  growth-friendly  fiscal  consolidation,  to  restore  normal 
lending conditions to the economy, to promote growth and competitiveness, to tackle 
unemployment  and  the  social  consequences  of  the  crisis,  and  to  modernise  public 
administration. 
On  10  April  2013,  the  Commission  published  the  results  of  its  in-depth  review8  for 
Italy, under Article 5 of Regulation (EU) No 1176/2011. The Commission’s analysis 
leads  it  to  conclude  that  Italy  is  experiencing  macroeconomic  imbalances,  which 
require determined policy action. In particular, the loss of external competitiveness as 
well  as  high  public  indebtedness  in  an  environment  of  protracted  subdued  growth 
continue to be identified as Italy's main macroeconomic imbalances.  

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

Based  on  the  assessment  of  the  Stability  Programme  2013-2017  pursuant  to  Council 
Regulation  (EC)  No  1466/97,  the  Council  is  of  the  opinion  that  the  macroeconomic 
scenario  underpinning  the  budgetary  projections  in  the  programme  is  optimistic  for 
2014,  when  compared  with  the  Commission  2013  spring  forecast.  It  is  plausible  as 
from 2015, but this is under the assumption of the full implementation of the adopted 
structural reforms, which remains challenging. The budgetary strategy outlined in the 
programme  was  confirmed  by  the  new  government  and  endorsed  by  Parliament.  It 
aims  to  maintain  the  deficit  below  3%  of  GDP  throughout  the  programme  period, 

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COM(2012) 750 final. 
COM(2012) 751 final. 
SWD(2013) 118 final. 

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

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

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

(12)  The  ambitious  fiscal  consolidation  strategy  enacted  so  far  has  been  accompanied  by 
the introduction of a balanced budget rule in the Constitution in April 2012 and action 
to  improve  the  efficiency  and  quality  of  public  expenditure.  However,  gaps  in 
implementation have hampered the full effectiveness of the action taken, in particular 
with regard to public-sector employment efficiency and to the reduction of the number 
of provinces. The Cohesion action plan made it possible to speed up the absorption of 

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structural  funds  accounting  for  about  EUR  12.1  billion  in  three  consecutive  phases. 
Nevertheless, the improvement of the overall management of funds continues to lack 
ambition especially in the South of Italy raising serious concerns in view of the 2014-
2020  programming  period.  This  leaves  ample  scope  for  enhancing  the  efficiency  of 
public expenditure. 

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

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

the  unemployment-benefit 

administration 

support 

to 

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

(16)  The  structure  of  the  tax  system  remains  complex  and  weighs  heavily  on  labour  and 
capital. After the effort undertaken in 2010-2011, additional measures adopted to shift 
the  tax  burden  from  the  productive  factors  onto  consumption,  property  and  the 
environment have been more limited. Action is still needed to simplify the tax system, 
streamline tax expenditures,  align the property  tax  base  with  market  values,  enhance 
compliance  and  dissuade  evasion.  Pending  a  revision  of  cadastral  values,  the 

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envisaged reform of real estate taxation will aim at improving its fairness, within the 
constraints of the budgetary strategy laid out in the stability programme. Reducing the 
shadow economy and undeclared work can benefit public finances and have positive 
implications for equity. The review of VAT exemptions or reduced rates and of direct 
tax  expenditures  may  require  some  adjustment  in  social  transfers  to  minimise  its 
distributional impact. 

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

strategy 

improving 

infrastructure  capacity  but 

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

for  energy  needs 

to  be 

(19) 

(20) 

(21) 

(22) 

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

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

the  national  reform  programme  and 

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

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

9 

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

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

1. 

2. 

3. 

4. 

5. 

6. 

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

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

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

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

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

Ensure the proper implementation of the measures aiming at market opening in the 
services  sector.  Remove  remaining  restrictions  in  professional  services  and  foster 
market access for instance in the provision of local public services where the use of 

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public  procurement  should  be  advanced  (instead  of  direct  concessions).  Pursue 
deployment  of  the  measures  taken  to  improve  market  access  conditions  in  network 
industries, in particular by setting- up the Transport Authority as a priority. Upgrade 
infrastructure  capacity  with  focus  on  energy  interconnections,  intermodal  transport 
and  high-speed  broadband  in  telecommunications,  also  with  a  view  to  tackling  the 
North-South disparities. 

Done at Brussels,  

For the Council 
The President 

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