COMMISSION STAFF WORKING DOCUMENT Assessment of the 2013 national reform programme and stability programme for ITALY Accompanying the document Recommendation for a Council Recommendation on Italy’s 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 reform, budget deficit, budgetary equilibrium, competitiveness, economic recession, economic statistics, educational reform, job creation, price of energy, public expenditure, youth unemployment

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
SWD(2013) 362 final 

COMMISSION STAFF WORKING DOCUMENT 

Assessment of the 2013 national reform programme and stability programme for 
ITALY 

Accompanying the document 

Recommendation for a Council Recommendation  

on Italy’s 2013 national reform programme and delivering a Council Opinion on Italy’s 
stability programme for 2012-2017 

{COM(2013) 362 final}

EN 

Error! No document variable supplied.  EN 

 
 
 
 
 
  
 
 
 
 
 
TABLE OF CONTENTS 

Executive summary .................................................................................................................... 3 

1. 

2. 

2.1. 

2.2. 

3. 

3.1. 

3.2. 

3.3. 

3.4. 

3.5. 

4. 

5. 

Introduction .................................................................................................................. 5 

Economic developments and challenges...................................................................... 7 

Recent economic developments and outlook............................................................... 7 

Challenges .................................................................................................................... 9 

Assessment of policy agenda ..................................................................................... 13 

Fiscal policy and taxation........................................................................................... 13 

Financial sector .......................................................................................................... 19 

Labour market, education and social policies ............................................................ 21 

Structural measures promoting growth and competitiveness..................................... 26 

Modernisation of public administration ..................................................................... 30 

Overview table ........................................................................................................... 34 

Annex ......................................................................................................................... 38 

2 

 
 
EXECUTIVE SUMMARY 

Economic Outlook 

Italy is undergoing a protracted recession. Italy's real GDP contracted by 2.4% in 2012, on 
the  back  of  negative  domestic  demand  driven  by  tight  financing  conditions  and  declining 
disposable incomes. Economic activity is expected to decline further in 2013, before starting 
to recover mildly in the second half of 2013. The unemployment rate is projected to continue 
increasing and to reach 12.2% in 2014, affecting young people in particular.  

Key Issues 

Italy’s  capacity  to  withstand  the  impact  of  the  crisis  is  hampered  by  long-standing 
structural  weaknesses.  The  high  government  debt  and  loss  of  external  competitiveness, 
driven  by  sluggish  productivity  growth,  were  identified  in  the  second  in-depth  review 
presented  by  the  Commission  on  10  April  as  the  main  macroeconomic  imbalances  of  the 
Italian economy, which require monitoring and determined policy action.  

Over the past year Italy has adopted a range of relevant and ambitious measures with a 
view to safeguarding fiscal sustainability and spurring growth. Italy has undertaken action 
to correct the excessive government deficit, strengthen the budgetary framework, enhance tax 
compliance,  improve  the  functioning  of  the  labour  market  and  the  wage  setting  framework, 
foster  competition  in  key  sectors  of  the  economy  and  improve  the  business  environment, 
including the efficiency of the public administration. These measures go towards meeting the 
country-specific  recommendations  issued  in  2012  and  can  contribute  to  addressing  many  of 
the economy’s challenges.  

However,  implementation  of  the  measures  taken  remains  challenging  and  the  reform 
agenda  needs  to  be  taken  forward.  Delays  in  the  adoption  of  enacting  legislation  or 
incomplete  application  of  legislation  are  still  holding  back  the  potential  benefits  of  several 
measures. There is also scope for further action in the following areas:    

•  Public finances: according to the Commission 2013 spring forecast, Italy corrected its 
excessive  deficit  in  2012  in  a  durable  way,  conditional  upon  the  rigorous 
implementation of the consolidation effort enacted in 2011-12. Despite the budgetary 
consolidation, the high government debt-to-GDP ratio, expected to peak at 132.2% in 
2014,  remains  a  major  burden  on  the  Italian  economy.  While  low  growth  makes  it 
more difficult to put the public finances on a sustainable path, high public debt may 
hamper growth prospects, dampen domestic demand and crowd out productive public 
spending.  

•  Taxation:  the  high  tax  burden  in  Italy  still  weighs  heavily  on  labour  and  capital. 
While in the short to medium term reducing the overall tax burden is not an option in 
the current budgetary conditions, there is scope for improving the efficiency of the tax 
system.  Fighting  against  tax  evasion,  the  shadow  economy  and  undeclared  work 
would help to lower the high statutory tax rates on compliant taxpayers.  

•  Banking sector: while the Italian banking sector showed resilience in the aftermath of 
the global financial crisis, the protracted recession affected asset quality and reduced 
3 

 
the  profitability  of  banks,  resulting  in  constraints  to  the  provision  of  credit  to  the 
economy, in particular to SMEs. 

•  Labour market and social cohesion: youth unemployment, which reached 35.3% in 
2012,  and  the  still  low  participation  of  women  in  the  workforce  represent  a  missed 
opportunity for the Italian economy, particularly in the southern regions. If effectively 
implemented, the June 2012 reform has the potential to help address the rigidities and 
segmentation in the labour market. Meanwhile, over the last decade, Italy’s lacklustre 
productivity performance has not been adequately reflected in wage dynamics, leading 
to sustained unit labour cost growth and loss of cost competitiveness. Adjustments to 
the  wage  setting  framework  are  thus  required  along  the  lines  of  the  recent  social 
partners'  agreements.  Finally,  the  protracted  recession  has  exacerbated  the  risk  of 
poverty  and  social  exclusion.  Therefore,  it  is  crucial  that  the  reform  agenda  be 
informed by the principles of social equity and the efficiency and the effectiveness of 
the social protection system be improved. 

•  Education: although some steps have been taken to upgrade the educational system, 
the  still  high  early  school  leaving  rate  and  low  tertiary  attainment  rate  point  to  a 
performance  of  the  educational  system  that  lags  behind  that  in  other  EU  countries. 
There  is  also  evidence  of  a  difficult  transition  from  education  to  the  labour  market, 
including for high-skilled young people. 

•  Market  opening  in  services  and  network  industries:  several  measures  aimed  at 
opening  to  competition  services  and  network  industries  have  been  adopted  over  the 
past years. Their proper implementation is key for the reforms to deploy their benefits. 
The  persistence  of  sheltered  market  segments  in  services  and  network  industries, 
compounded in the latter by the presence of infrastructure bottlenecks, translates into 
higher costs for firms and households, notably in the energy sector.  

•  Public  administration:  notwithstanding  the  reform  action  undertaken  in  this  area, 
weaknesses  in  the  public  administration  continue  to  contribute  to  an  unfavourable 
business  environment,  discourage  foreign  direct 
the 
implementation  of  reforms.  The  main  shortcomings  include  the  long  duration  of 
proceedings  in  civil  justice  and  a  cumbersome  and  often  opaque  administrative  and 
regulatory  framework  at  various  government  levels.  Furthermore,  weaknesses  in 
administrative  capacity  hamper  the  good  use  of  structural  funds,  especially  in  the 
southern regions.  

investment  and  hamper 

4 

 
1.  INTRODUCTION 

In  May  2012,  the  Commission  proposed  a  set  of  country-specific  recommendations  (CSRs) 
for economic and structural reform policies for Italy.1 On the basis of these recommendations, 
the  Council  of  the  European  Union  adopted  six  CSRs  in  the  form  of  a  Council 
Recommendation.2  These  CSRs  concerned  public  finances,  the  budgetary  framework  and 
structural  funds,  education,  the  labour  market,  taxation,  as  well  as  competition  and  the 
business  environment.  This  Staff  Working  Document  (SWD)  assesses  the  state  of 
implementation of these recommendations in Italy. 

The  SWD  assesses  policy  measures  in  light  of  the  findings  of  the  Commission’s  Annual 
Growth  Survey  for  2013  (AGS)3  and  the  second  annual  Alert  Mechanism  Report  (AMR),4 
which were published in November 2012. The AGS sets out the Commission’s proposals for 
building the necessary common understanding about the priorities for action at national and 
EU  level  in  2013.  It  identifies  five  priorities  to  guide  Member  States  to  renewed  growth: 
pursuing differentiated, growth-friendly fiscal consolidation; restoring normal lending to the 
economy;  promoting  growth  and  competitiveness  for  today  and  tomorrow;  tackling 
unemployment  and  the  social  consequences  of  the  crisis;  and  modernising  public 
administration.  The  AMR  serves  as  an  initial  screening  device  to  determine  whether 
macroeconomic imbalances exist or risk emerging in Member States. The AMR found signs 
that macroeconomic imbalances in Europe are being corrected. To ensure that complete and 
durable rebalancing is achieved, Italy and 13 other Member States were selected for a review 
of developments in the accumulation and unwinding of imbalances.5 

Against the background of the 2012 Council Recommendation, the AGS and the AMR, Italy 
presented updates of its national reform programme (NRP) and its stability programme on 23 
April  2013.  These  programmes  were  submitted  to  the  consultation  of  the  social  partners, 
regional  and  local  authorities  during  the  parliamentary  process  leading  to  their  formal 
approval  by  the  Italian  Parliament  on  7  May  2013.  The  programmes  provide  detailed 
information on progress made since July 2012 and indicate the reform path to follow in the 
future, without however designing a precise plan for action given the political uncertainty at 
the time of their publication. The information contained in these programmes, together with 
the  reform  agenda  outlined  by  the  new  government,  provides  the  basis  for  the  assessment 
made in this SWD. 

1 COM(2012) 318 final of 30 May 2012. 
2 OJ C 219 of 24 July 2012. 
3 COM(2012) 750 final. 
4 COM(2012) 751 final. 
5 SWD(2013) 118 final. 13 in-depth reviews were published on 10 April 2013. While selected for an in-depth 
review  in  the  AMR,  Cyprus  was  ultimately  not  reviewed  under  the  Macroeconomic  Imbalance  Procedure  in 
view of the advanced preparations for a financial assistance programme. 

5 

 
 
                                                            
Overall assessment 

In the Commission’s assessment, Italy has made some progress towards addressing the CSRs 
of the Council Recommendation. While a sizeable effort has been made to tackle the issues 
identified in the 2012 CSRs, gaps in implementation and the persistence or even exacerbation 
of several key challenges have hampered progress. 

The ambitious and wide-ranging policy action taken so far appears relevant to addressing the 
challenges  identified  in  the  2012  CSRs  and  meeting  the  priorities  set  out  in  the  AGS.  The 
ambitious  fiscal  consolidation  strategy  put  in  place,  enriched  with  measures  aimed  at 
enhancing  the  efficiency  of  public  expenditure,  strengthening  the  fiscal  framework  and 
improving  tax  compliance,  have  been  strong  signals  of  Italy’s  commitment  to  bringing  the 
public  finances  onto  a  sustainable  path,  which  is  an  essential  prerequisite  for  anchoring 
market  confidence  and  macroeconomic  stability.  On  the  structural  side,  key  measures  have 
been  adopted  to  remove  Italy’s  deep-rooted  bottlenecks  to  growth.  They  aim  to:  foster 
competition in some product and services markets, including the network industries; improve 
the performance of the education system; address segmentation in the labour market; promote 
the  responsiveness  of  wages  to  economic  and  competitive  conditions;  foster  innovation; 
enhance  the  quality  of  the  business  environment;  and  improve  the  absorption  of  structural 
funds. 

The  implementation,  at  all  levels  of  government  and  by  all  relevant  stakeholders,  of  the 
measures  taken  remains  challenging  and  entails  risks  in  terms  of  credibility  of  action, 
however relevant and ambitious the reform action on the fiscal and structural front might be. 
In  the  case  of  Italy,  implementation  remains  a  critical  challenge  in  three  respects.  First, 
although a large part of the measures adopted are already operational, others – in particular in 
the  labour  market,  network  industries  and  administrative  simplification  –  still  require  the 
adoption of enacting legislation or regulations.6 This has become a matter of urgency for some 
important provisions where the deadline for their specification through secondary legislation 
has already expired. Second, it is essential to guarantee and monitor the proper application of 
the  adopted  measures  on  the  ground.  For  this  purpose,  close  coordination  between  central, 
regional and local governments and the active involvement of all relevant stakeholders play a 
key  role.  Lastly,  in  recent  months,  the  implementation  of  some  important  provisions  in  the 
fields  of  competition  and  civil  justice  has  been  hampered  by  setbacks,  while  some  relevant 
measures  that  have  been  proposed  by  the  government  in  the  areas  of  taxation  and 
administrative simplification are still to be approved by the Italian Parliament. 

The  reform  agenda  needs  to  be  taken  forward  in  order  to  address  the  remaining  severe 
challenges for the Italian economy. The high government debt remains a major burden on the 
Italian  economy,  especially  against  the  background  of  slow  growth.  There  is  therefore  a 
pressing need to pursue the fiscal adjustment effort in order to put the debt-to-GDP ratio on a 
steadily  declining  path,  with  positive  feedback  loops  on  confidence  and  growth.  To  ensure  
growth-friendly and equitable fiscal consolidation as recommended in the AGS, there remains 
scope for increasing the efficiency of expenditure and of the taxation system while pursuing 

6  According  to  a  report  published  in  February  2013  by  the  Italian  government,  a  large  part  of  the  adopted 
measures do not need implementing legislation and are thus immediately applicable. Moreover, among the main 
implementing measures required, around 56% remain to be adopted. 

6 

 
                                                            
with determination the fight against tax evasion, undeclared work and the shadow economy. 
Other key challenges are: making the labour market more inclusive, with particular attention 
to young people and women; improving the performance and quality of the education system, 
also with a view to facilitating the transition to work; further fostering competition in services 
and  network  industries;  enhancing  the  business  environment,  including  by  improving  the 
efficiency  of  the  public  administration;  and  achieving  efficient  management  of  structural 
funds. In addition, it is important to support the capacity of the banking sector to finance the 
economy  and  facilitate  the  needed  adjustment,  while  the  scope  for  alternative  forms  of 
financing  for  firms  needs  to  be  exploited.  If  combined,  action  in  the  areas  of  education, 
market  functioning  and  enterprise  financing  could  contribute  to  addressing  Italy’s  weak 
performance  in  research  and  innovation.  Lastly,  as  the  protracted  recession  in  Italy  affects 
households’ disposable income and employment opportunities, leading to an increased risk of 
poverty  and  social  exclusion,  the  reform  agenda  needs  to  be  informed  by  the  principles  of 
social equity and the efficiency and the effectiveness of the social protection system needs to 
be improved. The national reform programme submitted by Italy outlines the areas where the 
reform momentum needs to be maintained, within the constraints of the fiscal consolidation 
strategy laid out in the stability programme to bring the very high government debt-to-GDP 
ratio  onto  a  declining  path.  While  the  ambition  of  the  policy  plans  presented  in  the 
programmes  has  been  restrained  by  the  uncertain  political  context  at  the  time  of  their 
submission,  the  new  government  has  indicated  the  intention  to  strengthen  the  structural 
reform  agenda,  while  confirming  the  budgetary  targets  put  forward  in  the  stability 
programme. A first step in this direction was made with the adoption on 17 May of a decree-
law  containing  new  provisions  on  real  estate  taxation  and  the  extension  of  the  wage 
supplementation  scheme  for  under-employed  workers,  which  is  taken  into  account  in  this 
assessment.  

2.  ECONOMIC DEVELOPMENTS AND CHALLENGES 

2.1. 

Recent economic developments and outlook 

Recent economic developments 

Italy is undergoing a protracted recession. Italy’s real GDP contracted sharply during the 
2008-09  economic  and  financial  crisis.  The  recovery  that  followed  was  modest  and  short-
lived: economic activity started contracting again in the second half of 2011, when the euro-
area sovereign debt crisis spread to Italy. In 2012, it dropped by 2.4%, due to the strong fall in 
domestic  demand  driven  by  high  uncertainty,  tight  financing  conditions  and  declining 
disposable  incomes.  Employment  also  declined,  more  in  terms  of  hours  worked  than  of 
headcount  employment,  which  fell  by  0.3%.  Combined  with  the  increased  participation  of 
young and older people, this translated into an increase in the unemployment rate to 10.7% on 
average in 2012. Young people were particularly affected, with youth unemployment reaching 
35.3% in 2012.  

7 

 
 
 
Economic outlook 

According to the Commission 2013 spring forecast, high uncertainty continues to weigh 
on recovery prospects. Real GDP is projected to contract by a further 1.3% in 2013, on the 
back of persistent uncertainty and continued difficult access to credit. Subdued consumer and 
business confidence points to still contracting economic activity in the first half of the year. 
However,  settlement  of  the  government’s  commercial  debt  is  expected  to  support  a  mild 
recovery as from the third quarter of 2013 and, in the absence of renewed tensions in financial 
markets  and  with  improving  confidence,  private  consumption  and  investment  are  set  to 
stabilise  in  the  second  half  of  the  year.  In  2014,  the  gradual  improvement  in  financing 
conditions  supports  domestic  demand,  especially  investment  in  equipment.  On  the  external 
side,  the  projected  acceleration  in  global  trade  supports  exports,  especially  towards  non-EU 
trade partners. Overall, real GDP is anticipated to expand by 0.7% in 2014. 

Employment is set to contract further in 2013. In 2013, on the back of further contraction 
in economic activity, employment is projected to continue declining, while a stabilisation is 
projected  in  2014.  The  unemployment  rate  is  set  to  rise  further,  to  over  12%  by  2014. 
Adjustment  in  employment  entails  some  recovery  in  labour  productivity.  As  wage  growth 
remains subdued, the growth in nominal unit labour costs is projected to decelerate to around 
1% over 2013-14. 

The  Italian  government’s  macroeconomic  outlook  appears  plausible  for  2013  and 
optimistic  for  2014.  Italy’s  stability  programme  covers 
the  period  2013-17.  The 
macroeconomic projections are broadly in line with the Commission 2013 spring forecast for 
the  current  year,  while  they  anticipate  stronger  economic  recovery  in  2014,  driven  by 
domestic demand. Real GDP is projected to continue growing at a dynamic pace in the outer 
years  of  the  programme,  also  supported  by  the  estimated  impact  of  the  adopted  structural 
reforms.  In  line  with  the  underlying  macroeconomic  scenario,  the  programme  projects 
employment  to  recover  as  from  next  year  and  the  unemployment  rate  to  peak  at  11.8%  in 
2014  and  then  to  fall  steadily.  The  outlook  also  implies  a  broadly  balanced  current  account 
over the programme’s horizon. 

If  properly  and  promptly  implemented,  the  structural  measures  could  have  a  sizeable 
impact  on  economic  growth.  The  national  reform  programme  estimates  the  impact  of  the 
measures adopted in the areas of labour market, product market and the business environment 
at 1.6 percentage points by 2015, 3.9 percentage points by 2020 and 6.9 percentage points in 
the long term. Simulations by the International Monetary Fund suggest an even bigger impact 
on economic growth.7 

7  According  to  the  International  Monetary  Fund,  the  full  implementation  of  Italy’s  product  and  labour  market 
reforms should raise GDP by 5.7% over a five-year horizon and by 10.5% in the long term. 

8 

 
                                                            
2.2. 

Challenges 

High public debt and sluggish productivity performance, reflected in declining external 
competitiveness,  weigh  heavily  on  Italy’s  long-term  economic  outlook.  The  Italian 
economy is still affected by the high level of public debt that is coupled with persistently slow 
growth,  driven  by  its  weak  productivity  performance.  The  latter  has  in  turn  resulted  in 
declining external competitiveness and the loss of export market shares. 

Structural weaknesses are at the root of the sluggish productivity performance and loss 
of  external  competitiveness.  As  analysed  in  detail  in  the  in-depth  review  (see  Box 1), 
stagnating total factor productivity, which underlies Italy’s poor productivity performance, is 
strongly related to the failure of many Italian firms to grow and become international players. 
Limited  innovation  capacity,  institutional  and  regulatory  barriers  to  firms’  growth,  obsolete 
corporate  governance  practices  and  the  high  cost  of  doing  business  are  at  the  origin  of  the 
problem.  Italy’s  exposure  to  competition  from  emerging  countries,  given  the  predominantly 
low- and medium-low technology composition of its exports, has also played a role. 

The  high  government  debt  remains  a  major  source  of  vulnerability  for  the  Italian 
economy,  especially  against  the  background  of  persistently  slow  growth.  Italy  has  the 
second  highest  debt-to-GDP  ratio  in  the  euro  area,  at  127%  of  GDP  in  2012.  While  low 
growth  makes  it  more  difficult  to  put  the  public  finances  on  a  sustainable  path,  high  public 
debt may in turn hamper growth prospects. In particular, the high level of taxation needed to 
service the debt dampens domestic demand and may raise the distortionary costs of taxation, 
while  high  interest  expenditure  crowds  out  productive  public  expenditure  and  reduces  the 
room  for  social  policies.  The  inefficiency  of  public  spending  in  many  areas  adds  to  the 
challenge.  Over  the  past  two  years,  the  adverse  feedback  loop  between  high  debt  and  low 
growth has increased financial markets’ concerns about debt sustainability. The sharp increase 
in  the  sovereign  risk  premium  in  2011-12  translated  into  a  higher  cost  of  capital  for  the 
private  sector,  hampering  productive  investment.  Despite  some  easing  in  financial  market 
tensions since the second half of 2012, Italy remains vulnerable to sudden changes in market 
sentiment. 

The challenges highlighted in the 2012 SWD8 for Italy remain critical, while the crisis is 
putting  pressure  on  the  banking  sector  and  social  cohesion.  The  2012  SWD  identified 
challenges  in  the  areas  of  taxation,  the  labour  market,  education,  competition  and  the 
efficiency of the public administration. These challenges remain valid and some of them are 
amplified  in  the  south.  Addressing  them,  taking  regional  disparities  into  account,  will  also 
help to reduce the persistent north-south economic divide. Additional challenges derive from  
deteriorating bank asset quality, as well as an increasing risk of poverty and social exclusion 
due to the protracted recession. 

The  structure  of  the  tax  system  is  skewed  towards  distortionary  taxes  weighing  on  the 
factors  of  production  and  is  unevenly  distributed  because  of  significant  tax  evasion. 
While  in  the  short  to  medium  term  reducing  the  overall  tax  burden  is  not  an  option  in  the 
current budgetary conditions, there is scope for improving the efficiency of the tax system and 
reducing  distortions.  The  high  tax  burden  in  Italy  weighs  heavily  on  labour  and  capital.  By 

8 SWD(2012) 318 final. 

9 

 
                                                            
contrast, the implicit tax rate on consumption remains low relative to the euro-area average, 
largely due to the erosion of the tax base through the extensive use of exemptions and reduced 
rates  as  well  as  tax  evasion.  As  regards  recurrent  taxation  of  immovable  property,  which  is 
considered  to  be  among  the  least  detrimental  to  growth,  policy  action  in  2012  brought  it  in 
line with EU average, while better alignment of the property tax base with market values is 
needed  to  improve  its  fairness.  Significant  tax  evasion  and  a  large  shadow  economy 
contribute  to  the  high  statutory  tax  rates  on  compliant  citizens  and  firms.  Compliance  costs 
and the administrative costs of revenue collection are in the upper range of the EU spectrum. 

Employment  and  labour  market  participation  among  young  people,  women  and  older 
workers  remain  well  below  the  EU  average.  In  the  context  of  a  still  segmented  labour 
market,  the  vulnerable  situation  of  young  people  continues  to  be  a  concern  –  the  youth 
unemployment rate reached 35.3% in 2012 and in 2011 more than one in five 15-29-year-olds 
were  neither  in  education  nor  employed  –  while  low  participation  and  employment  among 
women, also due to the insufficient offer of care services, represent a missed opportunity for 
the  economy  and  a  risk  for  households’  and  children’s  well-being.  These  issues  are 
particularly acute in the southern regions, where the poor performance of the labour market 
reflects  the  difficult  general  economic  conditions.  Following  the  latest  pension  reform 
adopted in 2011, which further raised the statutory retirement age, ensuring that older workers 
remain  employable  and  have  suitable  job  opportunities  remains  a  challenge.  Lastly, 
undeclared work remains an issue of concern in Italy. 

The loss of external competitiveness of the Italian economy also requires adjustments on 
the wage setting side. Over the last years, Italy’s lacklustre productivity performance has not 
been adequately reflected in wage dynamics, leading to sustained unit labour cost growth and 
loss of cost competitiveness. The dominant level of collective bargaining in Italy remains the 
national  level,  even  though  important  changes  to  the  bargaining  framework  since  the 
beginning  of  the  1990s  have  promoted  a  gradual  shift  towards  the  company  level.  This 
hampers  a  better  alignment  of  wages  to  firms’  or  local  economic  and  competitiveness 
conditions, while wages negotiated at the national sectoral level in line with expected inflation 
may  not  be  consistent  with  Italy’s  need  to  regain  cost  competitiveness  relative  to  trade 
partners. 

Italy’s weak human capital endowment hinders innovation and young graduates face a 
difficult labour market. Public expenditure on education as a share of GDP in Italy is among 
the lowest in the EU, notably at tertiary level. With a rate of 17.6% in 2012, Italy performs 
significantly  worse  than  the  EU  average  in  terms  of  early  school  leaving,  especially  in  the 
southern  regions,  which  translates  into  a  lack  of  basic  skills.  In  addition,  Italy  registers  the 
lowest tertiary education attainment rate in the EU for the 30-34-year-old age group and adult 
participation  in  lifelong  learning  is  below  the  EU  average.  This  low  skill  level  certainly 
contributes to the economy’s limited ability to innovate, as reflected in the weak research and 
innovation intensity of Italian businesses. There is also evidence of a difficult transition from 
education  to  the  labour  market,  including  for  high-skilled  young  people,  which  is 
compounded by the effects of the economic crisis: in 2012, almost one in five young tertiary 
education graduates were unemployed. 

10 

 
Social cohesion is being undermined as a consequence of the economic crisis and the risk 
of  poverty  and  social  exclusion  is  markedly  on  the  rise.  As  highlighted  in  the  AGS, 
tackling the social consequences of the crisis represents a key challenge. Due to the protracted 
recession,  the  risk  of  poverty  and  social  exclusion  has  been  increasing  and  concerned  more 
than  one  in  four  people  in  2011.  In  addition,  the  risk  of  entering  poverty  is  high,  while  the 
transition out of poverty is low. Economic developments in 2012 point to further deterioration 
in  households’  disposable  income,  while  the  social  protection  system,  which  is  strongly 
biased  towards  entitlement-based  pension  expenditure,  is  not  well  equipped  to  face  this 
situation. 

Notwithstanding  the  action  undertaken  so  far,  the  Italian  economy  continues  to  be 
characterised by barriers to competition, as well as infrastructure gaps. The persistence 
of sheltered market segments in some services and network industries results in higher input 
costs  for  the  tradable  sectors.  High  electricity  and  gas  prices  for  both  households  and 
industrial  customers  not  only  reflect  limited  competition  in  the  gas  sector,  but  also 
infrastructure bottlenecks. Inadequate infrastructure is also an issue for transport, especially as 
regards intermodal systems, but also ports and railways, where Italy ranks among the bottom 
five  performers  in  the  EU  concerning  the  quality  and  density  of  its  infrastructure.  In 
telecommunications,  Italy  ranks  low  in  terms  of  penetration  and  coverage  of  broadband, 
especially high-speed broadband. This may result from a combination of obstacles to platform 
competition  and  insufficient  information  and  communication  technology  literacy  among  the 
population. 

Weaknesses  in  the  public  administration  continue  to  contribute  to  an  unfavourable 
business environment and hamper the full implementation of the measures adopted. In 
spite of efforts to modernise it, in line with the AGS, the Italian public administration shows a 
number  of  shortcomings,  namely  the  long  duration  of  proceedings  in  civil  justice, 
unaddressed  issues  in  the  fight  against  corruption,  considerable  delays  in  the  payment  of 
goods and services purchased from private firms, cumbersome public procurement procedures 
and  a  persistently  heavy  and  complex  administrative  and  regulatory  framework  at  various 
government  levels.  These  weaknesses  are  mirrored  in  gaps  in  the  implementation  of  the 
reforms  adopted,  which  in  turn  limit  their  effectiveness.  They  also  affect  the  quality  of  the 
business environment and discourage inward foreign direct investment, thus preventing Italy 
from  reaping  the  associated  benefits  in  terms  of  competitiveness  and  innovation.  They  also 
result  in  an  inefficient  functioning  of  the  public  employment  services  across  the  country. 
Furthermore,  important  weaknesses  in  administrative  capacity  continue  to  hamper  the  good 
use of structural funds, especially in the southern regions. 

The  resilience  of  Italian  banks  has  weakened  since  mid-2011.  While  the  Italian  banking 
sector  showed  resilience  in  the  aftermath  of  the  global  financial  crisis,  the  protracted 
economic recession affected the quality of its assets. As analysed in the 2013 in-depth review 
for Italy (see Box 1), this makes it difficult to provide credit to the economy, in particular to 
SMEs. Restoring normal lending to the economy is identified as a priority in the AGS. 

11 

 
Box 1 – Summary of the 2013 in-depth review (IDR)  
under the Macroeconomic Imbalance Procedure (MIP) 

•  The second in-depth review for Italy, presented by the Commission on 10 April, concludes 
that  the  Italian  economy  is  experiencing  macroeconomic  imbalances,  which  require 
monitoring  and  decisive  policy  action.  Italy’s  high  government  debt,  the  loss  of  external 
competitiveness  and 
the  main 
macroeconomic  imbalances.  In  particular,  persistently  weak  productivity,  rooted  in  structural 
weaknesses and insufficiently reflected in wage dynamics, led to increasing unit labour costs, the 
effect  of  which  has  been  further  amplified  by  a  substantial  appreciation  of  Italy’s  nominal 
effective exchange rate between 2003 and 2009. 

its  underlying  sluggish  productivity  performance  are 

•  An unfavourable product specialisation model and the limited ability of Italian firms to grow 
are  among  the  main  factors  behind  the  country’s  poor  productivity  performance.  Italy’s 
specialisation model is very similar to that of emerging markets with most of the value added in 
relatively  low-technology  traditional  sectors,  mainly  due  to  Italian  firms’  limited  innovation 
capacity.  The  in-depth  review  focuses  on  the  role  of  micro-  and  small  enterprises  in  the  Italian 
economy,  arguing  that  their  predominance  highlights  the  difficulties  faced  by  Italian  firms  in 
growing  and  becoming  international  players  because  of  institutional  and  regulatory  barriers, 
structural firm features and an unfriendly business environment. These factors also limit the inflow 
of  foreign  direct  investment,  preventing  Italy  from  taking  advantage  of  the  direct  and  indirect 
benefits  that  inward  foreign  direct  investment  brings,  such  as  the  transfer  of  capital  and 
knowledge,  increased  involvement  in  world  trade  and  the  impulse  towards  a  more  competitive 
business environment and modern corporate management. 

•  The  resilience  of  the  Italian  banking  sector  has  weakened  since  mid-2011,  undermining 
banks’  ability  to  support  economic  activity  and  adjustment.  Italian  banks’  loss  of  access  to 
international wholesale funding following the extension of the euro-area sovereign debt crisis to 
Italy has significantly increased the sector’s dependence on Eurosystem refinancing. The double-
dip recession in Italy has increased credit risk in the private sector, burdening Italian banks with a 
large stock of non-performing loans. This has led to a protracted contraction in credit, while the 
average cost of new credit remains elevated despite an accommodative monetary policy at euro-
area level. 

•  The  persistence  of  sizeable  vulnerabilities  in  the  Italian  economy  translates  into  policy 
challenges  in  a  wide  range  of  areas.  The  remaining  avenues  for  action,  on  the  fiscal  and 
structural front, to strengthen the adjustment capacity of the Italian economy, are analysed in this 
SWD. 

12 

 
 
3.  ASSESSMENT OF POLICY AGENDA 

3.1. 

Fiscal policy and taxation 

Budgetary developments and debt dynamics 

The stability programme foresees a continued decline in the headline deficit, from 3% of 
GDP in 2012, and reaffirms the target of a balanced budget in structural terms as from 
2013.  Italy's  new  government  has  confirmed  the  budgetary  objectives  of  the  stability 
programme, already endorsed by Parliament on 7 May. The deficit for 2012, at 3.0% of GDP, 
was significantly above the 1.7% planned in the 2012 update of the stability programme and 
also  above  the  2.6%  revised  target  published  in  September.  This  was  largely  due  to  lower-
than-projected  growth,  notably  in  domestic  demand,  which  significantly  dampened  revenue 
dynamics.  For  2013,  the  programme  targets  a  deficit  of  2.9%  of  GDP.  This  includes  the 
impact of the settlement of commercial debt, which is planned to increase the deficit by 0.5 
percentage points of GDP. The decree-law adopted on 17 May suspends the June instalment 
of the property tax on owner-occupied houses, while committing the government to an overall 
redesign of the legislation on real estate taxation.9 It also extends the wage supplementation 
scheme to workers not already covered for the year 2013, by reallocating available budgetary 
resources. The programme projects the deficit to decline to 1.8% of GDP  in 2014. Looking 
ahead,  the  deficit  ratio  is  planned  to  decrease  steadily,  to  0.4%  by  2017,  partly  due  to 
unspecified measures worth 0.6 percentage points of GDP in cumulative terms over 2015-17. 
The programme confirms the medium-term objective (MTO) for Italy of a balanced budget in 
structural terms and plans to achieve and maintain it as from 2013, which is in line with the 
Stability  and  Growth  Pact,  and  in  particular  the  need  to  put  the  debt  ratio  on  a  steadily 
declining path.  

According to the Commission 2013 spring forecast, Italy corrected its excessive deficit in 
2012  in  a  durable  way,  conditional  upon  full  implementation  of  the  consolidation 
measures adopted in 2011-12. The Commission 2013 spring forecast projects the deficit to 
be  2.9%  of  GDP  this  year,  in  line  with  the  government’s  target,  and  to  decline  to  2.5%  of 
GDP in 2014 – i.e. 0.7 percentage points of GDP higher than the government’s target, on the 
back of the slower economic recovery assumed in the Commission 2013 spring forecast. Both 
the  government’s  target  and  the  Commission  2013  spring  forecast  incorporate  the  full 
implementation  of  the  consolidation  measures  adopted  in  2011-12,  notably  the  additional 
expenditure  restraint  enacted  with  the  spending  review,  the  1  percentage  point  hike  in  the 
standard rate of VAT (to 22%) as from July 2013 and the entry into force of new or higher 
taxes  on  financial  wealth  and  transactions,  and  on  local  public  services.  The  decree-law 
adopted  by  the  government  on  17  May,  i.e.  after  the  Commission  2013  spring  forecast,  is 
assessed  not  to  significantly  affect  the  2013  deficit  projection,  provided  that  it  is  properly 
implemented. 

Italy  achieved  a  notable  improvement  in  the  structural  balance  over  2012.  Italy’s 
structural balance, i.e. the general government balance corrected for the cycle and net of the 

9  A  safeguard  clause  ensures  that  the  redesign  has  to  be  made  in  the  full  respect  of  the  budgetary  targets  in 
primary terms; furthermore, if the budgetary-neutral reform fails to be approved by the end of August 2013, the 
suspended property tax instalment will have to be paid by 16 September. 

13 

 
                                                            
impact of one-off measures, improved by a sizeable 2¼ percentage points of potential GDP in 
2012.  When  recalculated  by  the  Commission  based  on  the  information  in  the  stability 
programme, following the  commonly agreed methodology, the structural balance is planned 
to  improve  further,  by  1.0  percentage  point  of  GDP  this  year,  i.e.  broadly  in  line  with  the 
Commission  2013  spring  forecast.10  According  to  the  stability  programme,  it  is  expected  to 
improve  by  0.4  percentage  points  in  2014,  whereas  the  spring  forecast  projects  a  slight 
deterioration. In 2013, the planned budgetary position in structural terms is slightly negative, 
at -½% of potential GDP, due to the impact of the additional investment expenditure related to 
the settlement of the commercial debt. In the stability programme, Italy’s MTO of a balanced 
budgetary position in (recalculated) structural terms is projected to be appropriately reached 
in  2014,  and  broadly  maintained  –  albeit  worsening  slightly  –  in  the  outer  years  of  the 
programme  horizon.  The  primary  balance  in  (recalculated)  structural  terms  is  projected  to 
improve from around 4 % of GDP in 2012 to nearly 6 % in 2017. 

Expenditure growth has been contained, contributing to progress towards the MTO. In 
2012,  thanks  to  the  savings  measures  enacted  in  2010-11,  primary  expenditure  in  nominal 
terms  contracted  for  the  third  year  in  a  row,  decreasing  by  over  1.5%  relative  to  the  2009 
level. According to the information provided in the programme and to the Commission 2013 
spring  forecast,  the  growth  rate  of  government  expenditure  in  2012,  net  of  discretionary 
revenue measures, was well below the lower benchmark of -0.8% and thus contributed to an 
annual structural adjustment towards the MTO of 0.5% of GDP. In the two subsequent years, 
the growth rate of expenditure is also set to contribute to progress towards the MTO, as it will 
remain  below  the  lower  benchmarks  of  -0.81%  and  -1.07%  in  2013  and  2014  respectively. 
Following  an  overall  assessment  of  Italy’s  budgetary  developments  and  plans,  with  the 
structural  balance  as  a  reference,  including  an  analysis  of  expenditure  net  of  discretionary 
revenue measures, the adjustment path towards the MTO was very significant in 2012, also 
given  the  tax-poor  composition  of  growth.  The  structural  adjustment  expected  in  the 
Commission 2013 spring forecast for 2013 is also appropriate. However, the departure from 
the adjustment path towards the MTO shown in the forecast for 2014 does not appear to be 
appropriate. 

10 The structural balances as recalculated by the Commission differ slightly from those presented in the stability 
programme  mainly  because  the  former  are  based  on  output  gaps  computed  through  a  methodology  that  limits 
backward  revisions  compared  to  the  Commission  2013  spring  forecast,  while  the  methodology  used  in  the 
stability programme allows for backward revisions. 

14 

 
                                                            
Box 2. Main measures 

Main budgetary measures 

Revenue 

Expenditure 

2012 

• Taxation of real-estate property (+0.9%) 
• Excise duties (+0.5 %) 
• Stamp duties on financial assets (+0.3%) 
• Harmonisation  of  personal  withholding  tax  rate  on 

• Lower transfers to local governments (-0.2%) 
• Cuts to ministerial spending (-0.4%) 
• Partial de-indexation of pensions (-0.1%) 
• Other current expenditure (local authorities, military 

interests and dividends (+0.1%) 

missions, earthquake) (+0.2%) 

• Regional surtax on personal incomes (+0.1%) 
• Fight against tax evasion (+0.5%) 
• Allowance  for  new  corporate  equity  (ACE)  11  and 

deductibility of labour costs (-0.1%) 

2013 

• VAT rate (+0.1 %) and excise duties (+0.1%) 
• Stamp duties on financial assets (+0.2% ) 
• Financial transaction tax (+0.1%) 
• Social contributions from self-employed (+0.1%) 
• Fight against tax evasion (+0.1%) 
• Productivity-related tax incentives (-0.1%) 
• ACE and deductibility of labour costs (-0.3%) 

• Higher retirement age and de-indexation of pensions 

(-0.4%) 

• Cuts to ministerial/local spending (-0.8%) 
• Other current expenditure (local authorities, military 

missions, earthquake) (+0.6%) 

• Payment  of  commercial  debt  arrears  (investment) 

(+0.5%) 

2014 

• ACE and deductibility of labour costs (-0.3%) 
• Productivity-related tax incentives (-0.1%) 

• Savings from higher retirement age (-0.1%) 
• Cuts to ministerial/local spending (-0.9%) 

  Note:  The  budgetary  impact  in  the  table  is  the  impact  reported  in  the  programme,  i.e.  by  the  national 
authorities, in % of GDP. A plus sign indicates that revenue/expenditure increases as a consequence of the 
measure. The degree of detail reflects the information made available in the stability programme and in the 
multiannual budget.  

• 

Despite  the  budgetary  consolidation,  Italy’s  general  government  gross  debt-to-GDP 
ratio  is  set  to  rise  further  in  2013-14.  The  debt-to-GDP  ratio  rose  further  in  2012,  by  6.2 
percentage  points  of  GDP,  due  to  negative  nominal  GDP  growth,  higher  interest  rates  and 
some  debt-increasing  stock-flow  adjustments,  mainly  reflecting  Italy’s  contribution  to  the 
euro-area  financial  support  mechanisms.  In  2013,  both  the  stability  programme  and  the 
Commission 2013 spring forecast project a further increase in the debt-to-GDP ratio, also due 
to the planned settlement of around EUR 20 billion of commercial credits owed by the public 
sector for goods and services purchased from private providers – which, for the part related to 
current expenditure that was already recorded in past years’ deficit, increases the stock-flow 
adjustment,  while  the  0.5%  of  GDP  corresponding  to  capital  expenditure  impacts  on  the 
primary balance. The programme’s debt projections incorporate a 1 percentage point of GDP 
per  year  reduction  impact  from  the  proceeds  of  privatisations  over  2013-17,  which  remain 
unspecified.  Regarding  compliance  with  the  debt  criterion,  Italy  is  in  a three-year  transition 
period  as  from  2013,  and  the  debt  trajectory  in  the  stability  programme  ensures  sufficient 
progress towards compliance with it. Medium-term debt projections (see Graph below Table 
V  in  annex)  suggest  that  full  implementation  of  the  programme,  including  the  planned 

11  The  ACE  allows  companies  to  deduct  part  of  the  notional  return  on  new  injections  of  equity  capital  from 
taxable income. 

15 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                            
privatisations, would allow reducing the debt by 2020 faster than when using the Commission 
forecast as a basis, though it would still remain well above the 60% of GDP reference value. 

Risks  to  both  the  deficit  and  debt  outlook  stem  mainly  from  the  possible  non-
implementation  of  the  budgetary  measures  and  structural  reforms  adopted,  both  of 
which are essential to anchor market confidence and boost growth and jobs. 

Box 3. Excessive Deficit Procedure (EDP) for Italy 

On  2  December  2009,  the  Council  decided  that  an  excessive  deficit  existed  in  Italy.  The  Council 
recommended that Italy’s authorities put an end to the present excessive deficit situation by 2012, by 
bringing the general government deficit below 3% of GDP in a credible and sustainable manner and 
by  taking  action  in  a  medium-term  framework.  Specifically,  to  this  end,  the  Italian  authorities  were 
recommended  to:  (a)  implement  the  budgetary  measures  in  2010  as  planned  in  the  three-year  fiscal 
package  for  2009-11  approved  in  summer  2008  and  confirmed  in  the  Economic  and  Financial 
Planning  Document  2010-13;  (b)  ensure  an  average  annual  fiscal  effort  of  at  least  0.5  percentage 
points of GDP over the period 2010-12, which should also contribute to bringing the government gross 
debt-to-GDP  ratio  back  on  a  declining  path  that  approaches  the  60%  of  GDP  reference  value  at  a 
satisfactory  pace  by  restoring  the  primary  surplus  to  an  adequate  level;  (c)  specify  the  measures 
necessary  to  achieve  the  correction  of  the  excessive  deficit  by  2012,  cyclical  conditions  permitting, 
and  accelerate  the  reduction  of  the  deficit  if  economic  or  budgetary  conditions  turn  out  better  than 
currently expected. In addition, the Italian authorities should seize any opportunities beyond the fiscal 
effort, including from better economic conditions, to accelerate the reduction of the gross debt-to-GDP 
ratio towards the 60% of GDP reference value. Furthermore, the Council invited the Italian authorities 
to implement reforms with a view to raising potential GDP growth. This includes reforms conducive 
to  enhancing  the  quality  of  public  finances,  by  focusing  on  spending  efficiency  and  composition,  in 
particular  by  continuing  to  improve  fiscal  governance  and  the  work  on  a  new  framework  for  fiscal 
federalism that ensures the accountability of local governments and underpins fiscal discipline. 

An overview of the current state of the EDPs, including also additional EDP steps adopted after the 
finalisation of this SWD, is available on: 
http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/index_en.htm  (see  the  country 
sections at the bottom of the page). 

Long-term sustainability 

The latest pension reform is set to restrain long-term growth in age-related expenditure. 
Based on an ‘early-detection’ indicator (S0), a composite indicator constructed with a whole 
set  of  fiscal  and  financial-competitiveness  variables,  Italy  does  not  appear  to  face  a  risk  of 
fiscal  stress  in  the  short  term,  provided  it  continues  to  maintain  a  prudent  fiscal  stance  and 
foster  growth  with  ambitious  structural  measures,  which  is  essential  to  anchor  financial 
market confidence. The sustainability risks appear to be medium in the medium term, while 
being  contained  in  a  long-term  perspective,  conditional  upon  the  full  implementation  of  the 
planned  ambitious  fiscal  consolidation  and  on  maintaining  the  structural  primary  balance  at 
around  5%  of  GDP  well  beyond  2014.  On  the  basis  of  current  policies,  the  general 
government debt would be on a declining path over the medium term and beyond. But, as the 
improved  structural  primary  fiscal  position  expected  to  be  reached  by  2014  is  rather 
demanding  from  both  cross-country  and  historical  perspectives,  strong  determination  is 
16 

 
 
needed to avoid slippages in the fiscal stance. Indeed, the risks would be much higher in the 
event  of  the  structural  primary  balance  reverting  to  the  lower  values  observed  in  the  past. 
Over the long term, the projected change in age-related expenditure in Italy is below the EU 
average, partly thanks to measures that contribute to broadly stabilising pension spending as a 
share of GDP. 

Fiscal framework 

While significant action has been taken to strengthen the fiscal framework, there is still 
room  for  improving  the  efficiency  of  public  expenditure.  In  2012,  the  Council 
Recommendation  for  Italy  contained  a  CSR  calling  for  the  appropriate  specification  of  the 
constitutional  balanced  budget  rule  consistently  with  the  EU  framework  and  for  action  to 
enhance  the  efficiency  of  public  expenditure.  The  part  of  the  CSR  covering  the  balanced 
budget rule has been addressed through relevant, ambitious and credible action, whereas only 
some  progress  has  been  made  on  the  front  of  expenditure.  Relevant  measures  have  indeed 
been taken to increase expenditure efficiency, but implementation gaps undermine credibility 
of action, and there remains considerable scope for further measures. 

The  balanced  budget  rule  represents  a  major  step  towards  strengthening  Italy’s  fiscal 
framework.  In  line  with  the  2012  CSR,  the  introduction  of  a  balanced  budget  rule  in  the 
Italian  Constitution,  approved  in  April  2012,  was  followed  in  December  by  legislation 
specifying the modalities of application of the rule. This has been done in broad consistency 
with  the  Stability  and  Growth  Pact  and  the  fiscal  compact.  It  is  stipulated  that  a  general 
government  budget  balance  in  structural  terms  will  have  to  be  ensured  as  from  2014,  while 
subnational governments will have two more years to comply with the rule.12 In the context of 
increased tax autonomy envisaged under the ongoing fiscal federalism process, the success of 
the new provisions depends on the good coordination across government levels. In addition, 
the  correction  plan  introduced  to  rectify  temporary  deviations  could  be  reinforced  by 
specifying  the  measures  envisaged.  An  independent  fiscal  council  attached  to  the  Italian 
Parliament  will  be  tasked  with  overseeing  official  macroeconomic  and  fiscal  projections. 
Provided  that  its  independence  is  safeguarded,  the  fiscal  council  can  contribute  to  ensuring 
that fiscal plans are based on realistic and prudent projections. 

To  increase  the  efficiency  of  public  expenditure,  progress  has  been  made  with  the 
conduct  of  spending  reviews  at  central  government  level,  but  significant  scope  for 
improvement  remains.  Targeted  cuts  to  departmental  expenditure  have  been  accompanied 
by  a  rationalisation  of  procurement  procedures  aimed  at  reducing  unit  costs,  while  local 
governments  are  requested  to  achieve  similar  efficiency  gains  within  their  administrations 
following the  cuts to transfers  from the  centre. Nevertheless, the enacting decree specifying 
the  envisaged  reduction  of  public  employment  has  not  been  adopted  and  the  planned 
reduction  in  the  number  of  provinces  has  not  been  approved  by  the  Italian  Parliament. 
Meanwhile, the lack of a comprehensive strategy in terms of natural disaster risk prevention 
has weighed on public expenditure as a number of natural disasters have hit the country. The 
national  reform  programme  announces  the  launching  of  another  spending  review  round  in 
2013, but there is no plan to make this process a regular exercise in Italy. 

12  Regions  will  have  to  maintain  a  balanced  budget  at  their  level,  while  local  governments  will  be  allowed  to 
borrow to finance investment. 

17 

 
                                                            
Tax system 

Following important efforts to shift the tax burden away from the factors of production 
onto  consumption  and  immovable  property  in  2010-11,  the  action  undertaken  in 
response  to  the  2012  CSR  on  taxation  has  been  more  limited.  In  2012,  the  Council 
Recommendation called on Italy to pursue the fight against evasion, reduce the scope of tax 
expenditures  and  further  shift  the  tax  burden  away  from  the  factors  of  production.  Several 
measures  adopted  over  2010-11  had  already  shifted  the  tax  burden  from  labour  and  capital 
onto  consumption  and  property,  and  intensified  the  fight  against  tax  evasion.  Starting  from 
these steps, the relevance and ambition of the additional measures adopted in 2012 have been 
limited. Policy action on taxation has focused more on finding the resources – in the form of 
expenditure  savings  through  the  spending  review  –  to  replace  some  of  the  previously 
stipulated increases in taxation on consumption than on alleviating the tax burden on labour 
and  capital,  with  the  stated  intention  to  avoid  further  depressing  domestic  demand.  For 
instance, the 2.5 percentage points increase in both the standard and the reduced VAT rates 
that  was  legislated  in  2011  has  been  scaled  down  in  the  second  half  of  2012  to  just  1 
percentage point increase in the standard rate as from July 2013. Moreover, a planned reform 
of the tax system failed to be adopted by the Italian Parliament, hence affecting credibility of 
action. 

There remains room for alleviating the tax burden on the factors of production but in a 
revenue-neutral way. Italy still taxes labour and capital heavily: in 2011, it had the second 
highest implicit tax rate on labour in the EU, at 42.3%, and a high tax wedge on low-income 
workers, especially second-earners. Italy’s implicit tax rate on capital was the fourth highest 
in the EU in 2011. In 2012, the increase in excise duties on fuels and reduced deductibility for 
company cars helped to stem the long-term decreasing trend in the ratio of environmental tax 
revenues to GDP. At the same time, taxation on consumption remains rather low in Italy – the 
implicit tax rate on consumption was the fourth lowest in the EU in 2011 – largely due to the 
erosion of the tax base through the widespread use of exemptions and reduced rates, as well as 
sizeable  tax  evasion.  Labour  income  taxation  was  only  marginally  lowered  by  making  the 
labour  component  deductible  from  the  regional  tax  on  productive  activities  (IRAP),  with 
greater deductions in the case of women, young workers and for southern regions; offering tax 
incentives for productivity-related pay negotiated at firm level; and providing more generous 
allowances for dependent children. As regards taxation on immovable property, the impact of 
the  increase  adopted  in  December  2011,  through  the  reintroduction  of  recurrent  taxation  on 
primary residences and the proportional increase in the  coefficient  to revaluate  the  outdated 
cadastral  values,  was  further  amplified  by  the  higher  rates  implemented  by  most  local 
authorities  in  2012,  bringing  the  impact  of  recurrent  property  taxation  in  line  with  the  EU 
average.  The  redesign  of  property  taxation  foreseen  by  the  decree-law  adopted  on  17  May 
could  be  the  occasion  to  improve  its  distributional  impact,  without  lowering  revenues.  The 
government  also  intends  to  review  the  allocation  of  tax  powers  between  central  and  local 
governments,  concerning  both  recurrent  taxation  of  property  and  other  taxes  on  locally 
provided  services  (e.g.  waste  management).  It  is  worth  noting  that,  in  a  context  where 
significant  reductions  in  the  overall  tax  level  cannot  be  made  yet,  taxation  on  immovable 
property  appears  preferable  to  other  taxes,  since  it  is  less  harmful  to  growth  while  being 
consistent with equity objectives, if properly designed. In addition, since real estate property 
18 

 
is by nature immovable, the tax is harder to evade making the revenue generated from it more 
predictable,  and  it  is  consistent  with  the  ongoing  decentralisation  of  fiscal  powers  in  Italy. 
Finally, the inclusion of primary residences in the tax base contributes to reducing the existing 
misalignment  between  taxation  of  owner-occupied  and  rented  houses,  and  more  generally, 
between taxation of real estate and of other asset classes, such as equities and bonds.  

An  ambitious  reform  of  the  tax  system  was  in  the  pipeline  but  is  yet  to  be  adopted.  A 
draft  enabling  law  appropriately  foresees  a  streamlining  of  tax  expenditures,  which 
significantly narrow the tax base, while making the system overly complex. It also envisages 
an important revision of cadastral values, to bring them closer to market values. Such a move 
would improve the fairness of recurrent taxation on immovable property. The draft enabling 
law also envisages measures to improve tax compliance, including monitoring of the tax gap, 
a simplification of rules and, for the largest corporations, regular exchange of information and 
pre-assessment  of  taxes.  The  draft  law,  however,  has  not  yet  been  approved  by  the  Italian 
Parliament,  while  the  redesign  of  property  taxation  foreseen  by  the  May  decree-law  could 
spur the reform of cadastral values. 

Measures  have  been  taken  to  improve  tax  governance,  enhance  compliance  and  fight 
against evasion but the size of the challenge requires further action. Steps towards greater 
traceability of transactions – notably by imposing lower thresholds for the use of cash – and 
better targeting tax assessments and inspections appear promising and could effectively help 
to fight against tax evasion and enhance compliance. Similarly, the recent implementation of a 
system allowing the tax administration to crosscheck data from banks and financial operators 
with income tax statements may contribute to deterring evasion and increasing recovery. As 
also  acknowledged  in  the  national  reform  programme,  pursuing  this  effort  is  essential.  This 
will require making full use of existing instruments, monitoring their impact and undertaking 
additional action. 

3.2. 

Financial sector 

The  Italian  banking  sector  held  up  quite  well  in  the  aftermath  of  the  global  financial 
crisis,  but  its  ability  to  provide  credit  to  the  Italian  economy,  in  particular  to  small 
firms, has declined owing to the double-dip recession. The banking sector continues to play 
a  central  role  in  the  financing  of  Italian  firms,  in  particular  small  and  medium-sized 
enterprises  (SMEs).  The  double-dip  recession  has  worsened  banks'  profitability  as  non-
performing loans have been rising significantly. This, together with the fragmentation of the 
euro-area  financial  system,  implied  tighter  credit  conditions  for  firms,  especially  SMEs. 
While  restoring  the  flow  of  credit  to  the  economy  is  important,  further  large  increases  in 
firms’  leverage  could  be  challenging  for  financial  stability  and  thus  for  the  economy  as  a 
whole, warranting additional efforts to encourage equity financing. 

Access to finance 

Several  measures  have  been  taken  to  ease  Italian  firms’  access  to  funding,  also  by 
encouraging  recourse  to  non-bank  sources,  but  their  scope  has  so  far  been  limited.  In 
19 

 
 
 
2012, the Council Recommendation for Italy highlighted the need for easier access to finance 
for firms; some progress has been made in this area. The corporate sector is highly dependent 
on banks for its funding: in 2011, over 70% of Italian firms’ financial debt consisted of bank 
loans, significantly more than in other advanced economies.13 The introduction of the ACE in 
2012  carries  significant  potential  to  reduce  the  debt  bias  in  corporate  financing  by 
encouraging reliance on equity, but there is room to expand it. Other recent measures include 
setting  up  a  Fund  for  Sustainable  Growth  in  charge  of  streamlining  subsidies  to  firms, 
allowing  SMEs  to  access  capital  markets  through  mini-bonds  with  tax-deductible  interest 
payments,  introducing  crowd-funding  to  support  innovative  start-ups  and  offering  tax 
incentives  for  the  use  of  project  bonds  for  infrastructure  investment.  Action  has  also  been 
undertaken to accelerate the payment of commercial debt and ensure swifter payment by the 
public  administration  to  suppliers  of  goods  and  services  (see  section  3.5).  In  addition,  the 
Central Guarantee Fund, which provides government-guaranteed loans to SMEs, is refinanced 
up  to  2014  and  an  additional  EUR  10  billion  is  devoted  to  SMEs’  funding  through  a  state-
controlled  joint-stock  company  (Cassa  Depositi  e  Prestiti).  These  measures  appear  relevant 
and credible, but their ambition needs to be weighed against Italy’s limited fiscal space. 

Banking sector 

The  capacity  of  Italian  banks  to  support  economic  activity  and  adjustment  has 
weakened  due  to  the  protracted  recession.  Against  the  background  of  growing 
vulnerabilities in the banking sector, as flagged in the 2013 in-depth review for Italy (see Box 
1),  some  initiatives  have  been  taken,  notably  to  improve  asset  quality,  and  further  policy 
attention is warranted. 

13 Bank of Italy, ‘Annual report 2011’, 2012. 

20 

 
                                                            
Low  cost  efficiency  and  increasing  non-performing  loans  affect  the  profitability  of  the 
Italian banking sector. From an international perspective, Italian banks are characterised by 
low profitability due to structurally low operational efficiency, but also small income margins 
and  high  loan-loss  provisions  due  to  the  increasing  stock  of  non-performing  loans  in  the 
context  of  the  double-dip  recession.  The  Bank  of  Italy  has  launched  a  round  of  on-site 
inspections, which has already resulted in some higher provisioning. The relatively high level 
of  non-performing  loans  also  reflects  the  slow  recovery  procedures  in  Italy  as  well  as  the 
difficulties experienced in repossessing collateral and a strict definition adopted by the Bank 
of Italy. 

Corporate  governance  of  some  categories  of  banks  could  hinder  the  effectiveness  of 
financial  intermediation.  In  Italy,  cooperative  and  mutual  banks  (banche  popolari  e 
cooperative) play an important role in financing the real economy, especially SMEs, yet their 
organisational  structure  often  appears  to  be  weak.  Moreover,  for  some  of  the  largest 
cooperative banks, the restrictions on ownership and voting rights may not provide adequate 
incentives to control the banks’ management and hence to invest in their equity. Similarly, the 
de  facto  control  of  some  commercial  banks  by  banking  foundations,  which  are  non-profit 
entities  strongly  embedded  in  local  business  and  politics,  may  lead  to  concentration  of 
management power and internal control shortcomings. 

Italy’s  bank  resolution  framework  has  proven  its  effectiveness  in  the  past,  but  would 
gain from the availability of complementary powers for the Bank of Italy. Italy has a long 
experience with bank resolution tools, in particular special administration. The effectiveness 
of  its  bank  resolution  regime  would  be  further  enhanced  by  progress  in  the  field  of  EU 
legislation on bank recovery and resolution. Notwithstanding these points, the Bank of Italy’s 
powers to replace the senior management of banks could be extended outside cases of special 
administration.  This  complementary  power  would  enhance  the  Bank  of  Italy’s  ability  to 
address problems in banks in a preventive manner. 

3.3. 

Labour market, education and social policies 

Further  efforts  are  needed  to  obtain  a  well-performing  educational  system  and  labour 
market, as both play a crucial role in restoring competitiveness and fostering growth, as 
stressed  in  the  AGS.  The  labour  market  reform  adopted  in  June  2012  relevantly  and 
ambitiously addresses some important shortcomings that were raised in the 2012 CSR, while 
some  efforts  to  improve  the  performance  of  education  have  been  made.  However,  the 
educational system in Italy still shows severe weaknesses in terms of quality and outcomes, 
which in turn hamper a smooth transition to work, while access to the labour market remains 
difficult for young people and women. 

Labour market 

Important steps have been taken to enhance  the  functioning  of  the  labour  market  and 
the wage bargaining framework, however there remains scope for action to address the 
vulnerable  situation  of  young  people  and  women  on  the  labour  market.  In  2012,  two 
CSRs  covered  the  labour  market  and  wage  bargaining  and  urged  Italy  to  address  youth 
unemployment,  tackle  labour  market  segmentation,  encourage  female  labour  market 
participation and promote the responsiveness of wages to productivity developments. Italy has 
21 

 
made  some  progress  with  respect  to  these  CSRs.  Although  the  measures  adopted  so  far  are 
broadly relevant to addressing the aforementioned challenges, some of them – notably those 
aimed  at  encouraging  the  participation  of  young  people  and  women  in  the  labour  market  – 
lack ambition relative to the size of the challenges, while credibility of action depends on the 
effective implementation and monitoring of the enacted measures. 

In line with the 2012 CSR, Italy adopted an ambitious reform in June 2012, with a view 
to addressing the rigidities and segmentation of the labour market. The segmentation of 
the Italian labour market, with many young workers in precarious employment, hampers job 
reallocation  and  is  a  source  of  inequity.  The  June  2012  labour  market  reform  strives  to 
improve  exit  flexibility  and  introduces  disincentives  to  the  use  (or  abuse)  of  temporary  and 
atypical  contracts.  It  also  gradually  introduces  an  integrated  and  more  comprehensive 
insurance-based system of unemployment benefits, which will become fully operational as of 
2017. Given its broad scope, the reform is ambitious and relevant to the 2012 CSR and the 
Europe 2020 target of a 67-69% employment rate, where Italy still lags behind the EU, with 
an employment rate of 61% in 2012. The success of the new legislation as regards dismissals 
will  depend  on  its  interpretation  by  the  labour  courts.  Furthermore,  the  impact  of  the  new 
constraints on the use of fixed-term and atypical contracts needs to be monitored as regards its 
impact on reducing segmentation and sustaining job creation. 

The effective implementation of the labour market reform still requires the adoption of 
some enacting legislation, while careful monitoring of its functioning is essential. Before 
producing  all  its  anticipated  benefits,  the  reform  still  requires  the  adoption  of  enacting 
decrees,  in  particular  to  strengthen  active  labour  market  policies.  Moreover,  the  envisaged 
close  monitoring  of  the  impact  of  the  reform,  the  modalities  of  which  are  described  in  the 
national  reform  programme,  needs  to  be  ensured.  Finally,  enhancing  the  efficiency  and 
strengthening the role of public employment services, deemed crucial in the national reform 
programme, will also be instrumental to the success of the reform in promoting an efficient 
activation strategy and to the successful delivery of a Youth Guarantee.14 

Youth  unemployment  is  on  the  rise,  calling  for  a  more  ambitious  effort.  Youth 
unemployment  has  climbed  since  the  onset  of  the  crisis  and  further  deteriorated  in  2012, 
reaching 35.3%.15 Young tertiary graduates are also affected, with an unemployment rate of 
19%  in  2012,  against  12%  across  the  euro  area.  Various  initiatives  have  been  launched  to 
support youth employability, from reforming the apprenticeship system to introducing fiscal 
incentives  to  recruit  high-skilled  young  people  –  which  are,  however,  not  yet  operational, 
pending the adoption of the required implementing acts – and reprogramming structural funds 
through  the  Cohesion  Action  Plan.  In  addition,  measures  adopted  last  October  allow  older 
workers to shift from full-time to part-time employment, in order to favour the recruitment of 
young people with apprenticeship or permanent contracts. Although relevant, these actions are 
limited  in  scope  and  some  gaps  in  implementation  hamper  their  effectiveness.  If  properly 
deployed, the Youth Guarantee could prove helpful to combat youth unemployment.  

14 The Council Recommendation of 22 April 2013 on establishing a Youth Guarantee (2013/C 120/01) calls for 
Youth  Guarantee  schemes  that  ensure  that  all  young  people  under  the  age  of  25  years  receive  a  good-quality 
offer of employment, continued education, an apprenticeship or a traineeship within four months of becoming 
unemployed or leaving formal education. 
15 Report ‘Youth Employment Action Teams – Update for the Spring European Council, 14-15 March 2013’. 

22 

 
                                                            
Obstacles  to  women’s  access  to  the  labour  market  persist.  At  57%  in  2012,  women’s 
participation  in  the  labour  force16  in  Italy  remains  significantly  below  the  EU  average  of 
69.5% and the employment gender gap was the second highest in the EU in 2011. However, 
there  was  a  slight  increase  in  the  female  employment  rate  from  46.5%  in  2011  to  47.1%  in 
2012. The government introduced a National Plan for Families in June 2012, which includes 
measures to increase the availability, quality and affordability of childcare and long-term care 
services and to better reconcile work and family life. Similarly, some provisions of the labour 
market  reform  encourage  women’s  recruitment,  prevent  discrimination  against  pregnant 
women and facilitate their return to work. The Cohesion Action Plan also includes measures 
to  promote  access  to  childcare  and  elderly  care  facilities  in  Italy’s  southern  regions.  Albeit 
relevant,  these  measures  have  a  limited  scope  and  many  of  them  are  not  yet  operational. 
Moreover,  high  marginal  effective  tax  rates  for  second-earners,  particularly  in  low-income 
households, compared with those for single individuals, could also deter labour market entry. 

Efforts  to  further  foster  decentralisation  of  wage  bargaining  should  be  conducive  to 
greater  responsiveness  of  wages  to  productivity  developments  and  local  labour  market 
conditions.  In  November  2012,  the  social  partners  signed  an  agreement  (the  so-called 
productivity pact) that acknowledges the need to link wages set in national contracts not only 
to expected inflation, but also to the economic and competitive conditions of the country and 
sector  concerned  and  promotes  further  decentralisation  of  collective  bargaining  by 
strengthening  the  second  tier  of  bargaining.  The  agreement  also  calls  for  a  more  prominent 
role  of  collective  bargaining  in  regulating  certain  subjects  that  impact  on  productivity, 
currently  defined  exclusively  or  prevalently  by  law,  and  it  commits  the  parties  to  a 
redefinition  of  the  rules on  representativeness  in  collective  bargaining.  Although  the  largest 
trade union, CGIL, did not sign the pact, it has agreed to entrust productivity-related pay to 
the  decentralised  level  of  bargaining.  The  government  is  supporting  the  agreement  with  tax 
rebates  on  productivity-related  pay  set  in  second  tier  contracts.  The  2013-15  budget  law 
earmarked EUR 2.1 billion over 2013-14 to these tax rebates.  

If  properly  implemented,  the  productivity  pact  could  lay  the  foundations  for  a  more 
stable  and  effective  industrial  relations  system.  However,  the  agreement  only  sets  out 
broad  guidelines,  and  requires  further  social  partners’  agreements  to  be  underpinned  by 
specific commitments and to be fully implemented. An enacting decree adopted last January 
lays  down  criteria  for  the  applicability  of  the  tax  rebates  on  productivity-related  pay,  by 
linking it to measurable results in terms of productivity, profitability, efficiency and quality, 
based on indicators to be specified in the contract, or by making it subject to a combination of 
organisational and technological changes that are expected to lead to such improvements. By 
doing so, the decree represents an important step to prevent deadweight losses and misuses. In 
April,  the  Italian  authorities  and  the  social  partners  indicated  that  agreed  changes  in  the 
distribution of working hours are a sufficient condition to benefit from the rebates. Although 
this  may  extend  the  number  of  firms  potentially  benefitting  from  the  scheme,  it  could 
substantially limit the effectiveness of the tax incentives in fostering productivity at systemic 
level. Steps have been taken also to strengthen union representativeness at the firm level, with 

16  The  rate  of  participation  in  the  labour  force  includes  working-age  people  who  are  either  employed  or 
unemployed and looking for a job. 

23 

 
                                                            
a  further  agreement  signed  in  April  by  the  major  trade  unions,  now  being  discussed  with 
employers’ organisations.  

After controls have been stepped up, there is still scope for pursuing the fight against the 
shadow economy and undeclared work. The shadow economy was estimated to account for 
between  16.3%  and  17.5%  of  GDP17  in  2008,  while  undeclared  work  represented  12.2%  of 
total employment,18 with peaks in southern regions. So far, the main concrete step to bring the 
shadow economy and undeclared work into the open has been the transposition of Directive 
2009/52/EC providing for minimum standards on sanctions and measures against employers 
of  illegally  staying  third-country  nationals.  Nevertheless,  its  implementation  has  yet  to  be 
monitored and it covers only third-country nationals, hence the importance of determination 
in the fight against the shadow economy and undeclared work, as also stated in the national 
reform programme. 

Education 

Some measures have been adopted with a view to improving the quality of the education 
system, but more ambition is needed. In 2012, the Council Recommendation called on Italy 
to  improve  the  performance  of  education  and  transition  to  work.  Some  progress  has  been 
made  towards  addressing  this  CSR:  the  measures  adopted  so  far  are  indeed  relevant  and 
credible, but their scope remains narrow compared with the size of the challenge. 

The  early  school  leaving  rate  in  Italy  remains  well  above  the  EU  average.  The  early 
school leaving rate declined further in 2012 – to 17.6%, from 18.2% in 2011 – but remains 
markedly above the EU average of 12.8% and the Europe 2020 target of 15-16%. With a rate 
of  44%  in  2011,  third-country  nationals  weigh  heavily  on  the  overall  early  school  leaving 
score  in  Italy.  While  there  is  not  yet  evidence of  a  comprehensive  strategy  to  address  early 
school  leaving,  short-term  action  to  tackle  this  issue  could  be  taken  through  the  Cohesion 
Action  Plan,19  which  identifies  education  as  a  priority  area,  as  confirmed  in  the  national 
reform  programme.  In  the  medium  to  long  term,  improving  school  quality  and  outcomes 
would  contribute  to  reducing  early  school  leaving.  The  main  measure  in  this  area  was 
approved  in  March  2013  and  establishes  a  national  system  for  the  evaluation  of  school 
institutions, which will be coordinated by the school evaluation agency (INVALSI) and could 
prove useful, if endowed with adequate resources. 

Enhancing  the  performance  of  education  crucially  depends  on  the  quality  of  teaching. 
The teaching profession in Italy follows a single career pathway with salary progression based 
on seniority only, limited prospects in terms of professional development, no comprehensive 
assessment of performance and, compared with other countries, low salary levels relative to 
other graduate jobs.20 

17 ISTAT, 2010. 
18 ISTAT, 2010. 
19 The Cohesion Action Plan was adopted at the end of 2011, with the ambition to improveof improving the use 
of structural funds through the prioritisation and the redirection of resources towards four key areas (education, 
employment,  railway  transport  and  the  digital  agenda),  later  extended  notably  to  childcare  and  elderly  care 
structures.  
20 OECD, ‘Education at a Glance’, 2012. 

24 

 
                                                            
Italy  continues  to  underperform  as  regards  the  Europe  2020  target  for  tertiary 
education. Despite some slight progress since 2009, Italy’s tertiary attainment rate is still the 
lowest  at  EU  level,  at  21.7%  in  2012  against  35.8%  in  the  EU.  In  order  to  help  students  to 
make a more informed choice and hence contribute to reducing tertiary dropout rates, a single 
web  portal  displaying  the  range  of  available  university  courses  was  launched  in  July  2012. 
However, this measure is limited in scope, while targeted action to tailor the supply of high-
level skills to labour market needs, notably through career and counselling services, remains 
insufficient. However, the implementation of the 2010 university reform is progressing. The 
evaluation  and  accreditation  system  led  by  the  university  and  research  evaluation  agency 
(ANVUR)  will  be  gradually  introduced  from  the  2013-14  academic  year.  This  will  help  to 
implement  one  of  the  principles  of  the  reform,  according  to  which  an  increasing  share  of 
public  funding  for  universities  must  be  allocated  on  the  basis  of  teaching  and  research 
performance. In 2012, performance-related funding represented only 13% of total funding, up 
from 7% in 2009.   

Facilitating  the  transition  from  education  to  work  has  been  at  the  core  of  several 
initiatives. The June 2012 labour market reform aims to make apprenticeships a major port of 
entry towards stable jobs. To the same end, in December 2012 an agreement was concluded 
with  Germany  to  foster  cooperation  on  mobility  and  work-based  learning  in  vocational 
education  and  training.  Moreover,  the  recent  establishment  of  62  higher  technical  institutes 
(ITS) providing short-cycle tertiary qualifications in a number of key sectors of the economy 
is a relevant first step to develop a vocational higher education system, in line with the AGS 
priority  on  tackling  unemployment.  However,  avenues  for  action  remain  to  be  explored  in 
order to upgrade the vocational education system, both at upper secondary and tertiary level. 

If  properly  implemented,  the  measures  adopted  to  encourage  the  nation-wide 
recognition  of  skills  could  lead  to  better  use  of  competencies  acquired  throughout  the 
life. As foreseen by the labour market reform, a legislative decree setting up a national system 
for the certification of skills, including the recognition of non-formal and informal learning, 
was adopted in January 2013. It now requires proper implementation, bearing in mind that the 
regions have exclusive regional responsibility for training policies. 

Social policies 

In  line  with  the  priorities  identified  in  the  AGS,  Italy  increasingly  needs  to  tackle  the 
social consequences of the economic crisis. Italy took action to support vulnerable groups, in 
a  context  where  protracted  recession  is  putting  increasing  pressure  on  social  cohesion. 
Between 2008 and 2011, the risk of poverty or social exclusion rose by around 3 percentage 
points, to almost 30%, and the increase was particularly pronounced between 2010 and 2011. 
In addition, the risk of slipping into poverty is high, while the transition out of poverty is low.  

Adequate distribution of social transfers and tailored policies are decisive to cope with 
increasing social needs. The effectiveness of social protection systems in reducing the risk of 
poverty and social exclusion depends on the composition of social protection expenditure. In 
Italy, the structure of social transfers is largely oriented towards the elderly and dominated by 
pension expenditure, which represented 16% of GDP in 2010, one of the highest shares in the 
EU. Social transfers excluding pensions are thus insufficient to reduce the total rate of poverty 
25 

 
 
risk, and there is no nation-wide minimum income scheme in place.21 Against the background 
of growing social vulnerability and in view of the Europe 2020 target on poverty and social 
exclusion, Italy is introducing the ‘new social card’, a state-sponsored credit card linked to a 
compulsory social reinsertion personalised programme, in 12 cities as a pilot experiment for 
12  months,  starting  in  2013  and  envisages  to  extend  it,  as  indicated  in  the  national  reform 
programme. Although possibly relevant, this measure is limited in scope compared with the 
scale of the challenge. Fostering employability is key to favouring social inclusion and hence 
mitigating  the  negative  social  impact  of  the  crisis.  It  is  crucial  that  the  reform  agenda  is 
informed by the principle of social equity and encompasses measures aimed at enhancing the 
efficiency and effectiveness of social transfers. 

3.4. 

Structural measures promoting growth and competitiveness 

Stimulating  competitiveness  is  at  the  core  of  the  AGS  and  remains  a  crucial  challenge 
for  Italy,  despite  the  wide-ranging  measures  already  adopted.  Measures  to  encourage 
competition,  liberalise  sheltered  market  segments,  promote  transparency  and  ensure  that  the 
market  operates  smoothly  in  network  industries,  are  crucial  to  address  Italy’s  productivity 
challenge.  By  delivering  lower  prices,  such  reforms  would  also  support  the  economic 
recovery  and  households’  disposable  income.  The  low  innovation  capability  of  the  Italian 
economy  also  calls  for  measures  to  foster  research  and  innovation,  as  recommended  in  the 
2012 CSR. Notwithstanding the adoption of several key measures in these areas, the scope of 
the challenge leaves room for further action. 

Market opening in services 

Notable  effort  has  been  made  towards  liberalisation  in  the  services  sector.  In  2012,  the 
Council Recommendation for Italy flagged the importance of implementing the liberalisation 
measures adopted in the services sector. Some progress has been made in this respect: most of 
the measures that had been adopted before July 2012 have been followed up by the required 
enacting legislation, and some further relevant measures have been taken, but implementation 
on  the  ground  is  proving  challenging  and  there  remains  scope  for  action.  Besides,  some 
backward  steps  in  the  liberalisation  of  professional  services  and  local  public  services  have 
been taken. 

The reform of the regulated professions is an important step forward, but does not bring 
the liberalisation process to an end. The reform of the regulated professions removed some 
restrictions on fees and access, namely by abolishing minimum tariffs and making it easier for 
young  people  to  start  practising.  However,  there  remain  important  barriers  to  access  and 
‘reserves of activities’, i.e. whereby the exercise of a service activity is limited to the holders 
of a specific professional qualification, as well as restrictions on shareholding in professional 
companies that might constrain their establishment, financing and growth. In addition, some 
professional orders still need to define rules to make the new provisions applicable. Finally, a 
reform  of  the  legal  profession  adopted  in  December  2012  reversed  some  of  the  measures 

21 While acknowledging the possible relevance of introducing a national statutory minimum income scheme in 
Italy, the working group on socio-economic/European matters established in April 2013 by the President of the 
Italian Republic recognises that important budgetary constraints limit the feasibility of this avenue and suggests 
instead assessing the feasibility of the introduction of such a scheme in the context of a wider overhaul of social 
assistance benefits in Italy. 

26 

 
                                                            
applicable to lawyers as part of the general reform of the professional orders. In particular, the 
reform  introduces  a  new  reserved  activity  for  lawyers,  establishes  restrictive  conditions  for 
setting  up  professional  law  firms  and  de  facto  reintroduces  minimum  tariffs  in  the  event  of 
litigation,  through  reference  to  a  tariff  scale  set  and  regularly  updated  by  the  Ministry  of 
Justice. Careful monitoring of the implementing rules is needed to limit incompatibilities with 
the general thrust of the reform of the regulated professions.  

The law on the organisation of non-regulated professions is positive but may entail some 
barriers  to  competition.  A  law  adopted  in  January  2013  regulates  the  formation  of 
associations on a voluntary basis for the exercise of non-regulated professions and allows self-
certification  of  skills  based  on  technical  standards  defined  at  national  level,  with  a  view  to 
to  clients.  However,  criteria  for 
improving 
memberships and technical standards, if excessively restrictive, could result in obstacles to the 
entry  of  potential  competitors,  in  particular  with  respect  to  professionals  qualified  in  other 
Member States.  

transparency  and  providing  guarantees 

The process of liberalisation of local public services has come to a halt. As highlighted by 
the  Italian  Competition  Authority,  local  public  services  in  Italy  remain,  to  a  large  extent, 
sheltered  from  competition,  as  they  are  managed  through  direct  concession  without  public 
tendering. This contributes to fragmentation and inefficiencies in supply. The measures aimed 
at liberalising the provision of local public services were repealed by the Italian Constitutional 
Court  in  July  2012  on  the  ground  of  incompatibility  with  the  results  of  the  June  2011 
referendum  on  the  matter.  The  national  reform  programme  argues  that  the  current  legal 
uncertainty on the rules governing local public services is the main obstacle to development 
and investment and calls for an urgent reform of the sector. 

The  liberalisation  measures  adopted  so  far  are  a  step  in  the  right  direction  but  more 
remains  to  be  done.  As  highlighted  by  the  Italian  Competition  Authority,  barriers  and 
restrictions  to  competition,  as  well  as  sheltered  market  segments,  are  still  present  in  other 
sectors,  including  in  fuel  distribution,  insurance  and  postal  services.  According  to  the 
Commission calculations,22 significant gains in GDP, of between 1.4% and 2.2%,23 could be 
achieved with an additional reduction of obstacles to competition in the areas covered by the 
Services Directive.24 

22 http://ec.europa.eu/economy_finance/publications/economic_paper/2012/pdf/ecp_456_en.pdf 
23 Depending on the scenario: 2.2% corresponds to an ambitious scenario where Member States reduce the level 
of restrictions to that of the five best countries in the EU per sector – close to the full abolition of barriers – while 
1.4% could be obtained under a moderately ambitious scenario. 
24 The end of 2011 is taken as the starting point, so this does not take into account the measures adopted by Italy 
in 2012. 

27 

 
                                                            
Despite their potential for facilitating cross-border service provision, the points of single 
contact are not yet working optimally in Italy. The points of single contact established in 
Italy,  in  compliance  with  the  Services  Directive,  to  reduce  administrative  formalities  for 
service provision through a one-stop-shop, are difficult to access for non-residents, due to lack 
of  adequate  information  and  the  limited  number  of  electronic  procedures.  According  to  the 
Commission calculations,25 the establishment of points of single contact gave rise to a 0.1% 
GDP increase, and further action could generate additional gains, of 0.3% of GDP in the long 
term. 

Network industries 

industries  still  need  to  be  made  operational.  In  2012, 

Some  important  measures  to  improve  competition  and  infrastructure  capacity  in 
network 
the  Council 
Recommendation  contained  one  CSR  recommending  Italy  to  further  improve  market  access 
and develop appropriate infrastructure capacity in network industries. Some progress has been 
made towards this CSR with relevant and ambitious measures, but their implementation has 
been delayed and there remains room for action. 

In  the  transport  sector,  several  competition-enhancing  measures  are  still  to  be  fully 
implemented,  while  scope  for  action  remains.  The  repeal  of  the  provisions  on  the 
liberalisation  of  local  public  services  last  July  halted  the  plan  to  liberalise  regional  railway 
services, which meant to make these services subject to public tendering procedures, with a 
temporary exemption regime for existing direct concessions. Moreover, the new independent 
regulatory Transport Authority was not set up by the deadline of 31 May 2012. The Authority 
was  expected  to  release  a  report,  by  June  2013,  setting  out  plans  for  the  unbundling  of  the 
transport  operator  from  the  infrastructure  manager  in  the  railway  sector.  With  a  view  to 
improving  the  efficiency  of  the  port  system  and  facilitating  the  development  of  adequate 
infrastructure,  Italy  adopted  measures  to  increase  the  financial  autonomy  of  port  authorities 
and  simplify  the  administrative  framework  for  approving  strategic  infrastructure  projects. 
However,  a  comprehensive  strategy  for  port  management  is  still  lacking,  while  fostering 
synergies  and  interconnections  with  the  hinterland  could  also  help  to  upgrade  maritime 
transport. 

Important steps have been taken to improve the functioning of the energy market and 
foster infrastructure investment. The ongoing unbundling of the incumbent operator from 
the network manager in the gas sector represents important progress towards addressing the 
2012 CSR. If timely completed by the stipulated deadline of September 2013, it would be a 
milestone  in  enhancing  competition,  increasing  transparency  and  improving  market 
functioning  in  the  gas  sector,  which  is  all  the  more  crucial  as  electricity  generation  relies 
heavily on gas-fired power plants. Furthermore, important measures were adopted in August 
2012 to streamline authorisation procedures for energy infrastructure, the implementation of 
which,  though,  is  under  the  competence  of  the  local  authorities.  By  contrast,  little  progress 
was made to improve the quality of the water network, whose poor condition, particularly in 
the  south  of  Italy,  generates  leakages  and  contributes  to  the  pollution  of  surface  and 
underground water, thus leading to a water productivity index well below the EU average.26 

25 http://ec.europa.eu/economy_finance/publications/economic_paper/2012/pdf/ecp_456_en.pdf 
26 The water productivity index measures the value of goods produced per metric cube of water used. 

28 

 
                                                            
Moreover,  there  are  still  insufficient  incentives  to  increase  waste  recycling  and  reduce 
landfill. 

High  energy  prices  continue  to  weigh  on  household  budgets  and  company  balance 
sheets. Despite the measures adopted, electricity and gas prices for households and industrial 
customers  remain  high,  due  to  still  insufficient  competition  in  the  gas  sector  and  remaining 
infrastructure  bottlenecks.  Italy’s  heavy  reliance  on  long-term  contracts  for  gas  imports  and 
the limited development of the gas spot markets further contribute to high energy prices. In 
particular,  the  2010  report  by  the  European  Regulators’  Group  for  Electricity  and  Gas 
highlighted  the  low  level  of  free  pipeline  import  capacity  in  Italy,  which  indicates  that  gas 
transport  routes  are  operating  at  near  full  capacity.  The  easing  of  the  capacity  constraint 
observed over the last two years seems to result from a depressed domestic demand for gas in 
the  context  of  the  recession,  rather  than  by  greater  infrastructure  capacity.  The  situation  is 
similar as regards electricity, with significant north-south disparities, in terms of facilities and 
length of the lines.  

The actions envisaged in the National Strategy for Energy could help to further enhance 
market functioning in the energy sector, improve infrastructure and develop renewable 
sources, in line with the Europe 2020 targets. A National Strategy for Energy was approved 
in March 2013 and now needs to be translated into concrete actions. It intends to reduce costs, 
ensure security of supply, promote industrial development in the energy sector and encourage 
the  development  of  renewable  energy  sources,  with  a  view  to  meeting  the  Europe  2020 
environmental  targets  and  fostering  energy  efficiency.  In  particular,  the  strategy  sets 
ambitious objectives for reducing greenhouse gas emissions. From 2005 to 2011, greenhouse 
gas  emissions  fell  by  13%  in  sectors  not  covered  by  the  Emissions  Trading  Scheme  (ETS), 
hence reaching the target for 2020. Nevertheless, the latest available Italian projections point 
to a reversal of this positive trend in the coming years.  

and 

opening 

infrastructure 

Limited  market 
affect 
telecommunications. Although noticeable progress has been achieved since the late 1990s in 
opening up the telecommunication sector to competition, some restrictions are still in place. 
The Italian Competition Authority advocates better use of the spectrum, while also suggesting 
the  unbundling  of  the  network  owner  from  the  provider  of  telecommunication  services  as  a 
potential avenue for action. It also highlights infrastructure weaknesses as one of the causes of 
the low broadband penetration in Italy.  

shortcomings 

also 

If properly implemented, the reform of rules on ‘golden shares’ could help to improve 
market  functioning  in  a  range  of  network  sectors.  Last  year,  a  revision  of  the  rules 
governing  ‘golden  shares’  –  particularly  in  energy,  transport  and  telecommunications  –  was 
initiated for the purpose of aligning them with European legislation. The envisaged new rules 
stipulate the automatic repeal of any existing ‘golden share’ clause in state-owned companies’ 
statutes, while maintaining some special powers. However, the required legislation still needs 
to be adopted before the reform can produce benefits. 

Research and innovation 

Limited  progress  has  been  made  in  the  area  of  research  and  innovation.  The  2012 
Council  Recommendation  called  for  easier  access  to  finance  for  firms  as  a  key  driver  to 
29 

 
stimulate innovation. The 2013-15 budget law introduces a tax credit to promote research and 
development  (R&D)  within  firms.  Measures  to  encourage  the  creation  and  development  of 
innovative start-ups were taken27, but the focus on innovative start-ups limits the number of 
firms concerned. Moreover, a Fund for Sustainable Growth was set up to promote R&D and 
innovation and the internationalisation of firms. Although relevant and credible, the level of 
ambition  of  these  measures  appears  insufficient  to  improve  Italy’s  performance  in  terms  of 
innovation28,  reduce  the  gap  with  the  EU  average  in  terms  of  R&D  intensity  and  meet  the 
Europe 2020 target – with 1.25% of GDP invested in R&D in 2011, Italy is still far from the 
objective  of  1.53%  of  GDP  to  be  achieved  by  2020.  The  framework  for  project  financing 
remains  cumbersome  for  companies,  while  measures  to  facilitate  equity  investment  and 
venture  capital,  such  as  the  introduction  of  the  ACE,  are  limited  in  scope.  Ultimately, 
fostering innovation also crucially depends on enhancing the skill level in the labour force. 

3.5.  Modernisation of public administration 

Enhancing the efficiency of the public administration remains a challenge. An effective 
and efficient public administration contributes to the quality and functioning of the business 
environment  and  favours  absorption  of  structural  funds.  Despite  the  adoption  of  several 
measures  aimed  at  reducing  the  administrative  burden  and  improving  transparency  and 
efficiency,  there  remains  large  scope  to  improve  the  quality  of  the  Italian  public 
administration. In particular, heavy inefficiencies in civil justice result in lengthy proceedings 
and a large backlog of cases, as shown by the Commission’s EU justice scoreboard.29 

Business environment 

The  significant  measures  aimed  at  improving  the  quality  of  the  business  environment 
will  start  bearing  fruit  only  when  fully 
the  Council 
Recommendation  for  Italy  advocated  further  administrative  simplification  and  increased 
efficiency  of  civil  justice.  Some  progress  has  been  made  towards  addressing  this  CSR. 
However,  some  relevant  measures  aimed  at  administrative  simplification  are  still  in  the 
pipeline, while some of the adopted ones have not yet been implemented. This is also the case 
for some of the relevant and ambitious measures taken in the area of civil justice, where there 
have also been some backward steps.  

implemented.  In  2012, 

In  line  with  the  2012  CSR,  the  administrative  simplification  effort  has  been  pursued. 
Taking  forward  the  steps  taken  at  the  beginning  of  2012,  a  draft  law  on  simplification  was 
adopted  by  the  government  in  October  2012  and  envisages,  inter  alia,  the  setting-up  of  a 
simplified  framework  for  infrastructure  investment.  Some  of  the  measures  aimed  at 
facilitating  entrepreneurship  have  started  to  produce  an  impact:  more  than  5 000  simplified 
limited liability companies for entrepreneurs under 35 years of age and 2 000 limited liability 
companies  with  reduced  capital  for  entrepreneurs  over  35  years  of  age  have  indeed  been 
created  since  they  were  launched  in  August  and  June  2012  respectively.  This  was  further 
enriched  with  steps  towards  the  completion  of  the  Digital  Agenda,  through  increased 

27 Innovative start-ups are defined as companies that invest more than 30% of their production costs in research 
or  more  than 30%  of whose  workforce  are  researchers or  PhDs or  that have  been  assigned  industrial  property 
rights. 
28 Italy still ranks as a moderate innovator in the Commission’s 2013 Innovation Union Scoreboard. 
29 COM(2013) 160 final. 

30 

 
                                                            
computerisation  of  procedures,  more  e-government  services  and  the  establishment  of  the 
Agency for Digital Italy, which is, however, not yet fully operational. 

Some obstacles to reaping the benefits of administrative simplification remain, mainly in 
the  form  of  gaps  in  implementation.  The  screening  of  ex  ante  authorisation  schemes  for 
starting  a  business  and  subsequent  repeal  and  substitution  with  ex  post  controls  of 
unnecessary  ones,  as  foreseen  in  earlier  legislation,  have  so  far  not  been  translated  into 
practice. Moreover, the draft law on simplification from October 2012 has not been approved 
by  the  Italian  Parliament.  This  results  in  a  still  heavy  administrative  burden  weighing  on 
businesses. In particular, despite the measures adopted in this area, Italy’s ranking as regards 
the ease of starting a business worsened significantly over the last year.30 Moreover, despite 
the availability of e-government  services, citizens and small firms continue to make very low 
–  below  EU  average  –  use  of  them,  with  very  limited  progress  since  2010.  This  can  be 
explained  by  the  overall  low  level  of  information  and  communication  technology  skills  and 
low public awareness of the availability of such services.  

Action  was  taken  to  promote  the  internationalisation  of  businesses  and  attract  foreign 
investment.  Action  in  this  field  notably  builds  on  the  creation  of  the  Italy  Desk,  which 
consists  of  a  one-stop  access  point  for  foreign  investors  on  administrative  requirements 
related to investment projects. If properly deployed and taken up by firms and investors, this 
measure could in turn favour a more business-friendly environment. 

Action  to  enhance  the  efficiency  of  the  judicial  system  has  been  determined,  yet 
challenges remain. In line with the 2012 CSR calling for the implementation of the planned 
reorganisation of courts, enacting legislation adopted in August 2012 started a crucial revision 
of  the  territorial  distribution  of  judicial  offices,  aimed  at  rationalising  and  enhancing  the 
efficiency  of  Italy’s  judicial  geography.  Rigorous  implementation  by  the  September  2013 
deadline will be fundamental to allow this reform to deploy its benefits. This key measure was 
complemented by action to reduce the length and costs of proceedings and curb the high level 
of litigation, principally by fostering the specialisation of courts – the 21 courts specialised in 
company  law  became  operational  last  September  –  setting  up  accelerated  procedures  and 
introducing  disincentives  to  the  use  of  the  judicial  service.  Initiatives  to  modernise  and 
digitalise the judicial service are also helping to improve efficiency. Given the high level of 
litigation  in  Italy,  out-of-court  dispute  settlements  carry  a  strong  potential  for  reducing  the 
length of civil proceedings and alleviating judges’ and courts’ workload. This was underlined 
in the 2012 CSR and in the national reform programme. However, in October 2012 the Italian 
Constitutional Court rejected provisions that make mediation compulsory in a number of civil 
fields. 

The  anticorruption  law  represents  an  important  and  long-awaited  step  in  the  right 
direction, but some issues remain unaddressed. The pervasiveness of corruption generates 
heavy costs for Italy’s productive system, estimated at EUR 60 billion by the Italian Court of 
Auditors  in  2012,  and  erodes  citizens’  trust  in  the  government  and  the  institutions.  By 
establishing  a  dedicated  authority,  introducing  new  offences  and  increasing  transparency 

30 As evidenced by the 2013 edition of Doing Business by the World Bank, where Italy ranks 84th (out of 185 
economies) as regards the framework for starting a business (in terms of time, cost and the number of procedures 
involved in creating a company), against 76th in 2012. 

31 

 
                                                            
obligations in administrations, the anticorruption law approved in November 2012 represents 
a  positive  step  towards  a  more  favourable  business  environment  in  Italy.  Nevertheless,  not 
only  does  the  law  still  require  implementing  acts  but  it  also  does  not  tackle  some  critical 
issues.  Namely,  the  short  prescription  terms  in  the  statute  of  limitations  is  depicted  by  the 
Group  of  States  against  Corruption  (GRECO)  as  a  major  weakness  of  the  Italian  criminal 
system.  To  embed  integrity  in  the  public  administration,  additional  improvements  in  the 
prosecution of some common offences against the public administration, such as accounting 
fraud and ‘self-laundering’, are also important. 

The  institutional  framework  for  handling  state  aid  displays  some  weaknesses.  Unlike 
other  Member  States,  Italy  coordinates  the  recovery  of  illegal  aid  and  infringement 
proceedings  centrally,  but  the  central  government  has  no  power  to  coordinate  notifications, 
legislation and data collection. Additional gaps compared with other Member States concern 
the  lack  of  control  mechanisms  and  knowledge  about  aid  granted,  and  weaknesses  in  the 
recovery of illegal aid, as underlined by the Italian Competition Authority. Italy has adopted a 
new law addressing some of these issues, but its effects remain to be seen. 

The  coordination  between  the  various  layers  of  government  needs  to  be  clarified.  The 
implementation of the adopted measures and the appropriate application of EU legislation  has 
often  been  hampered  by  insufficient  coordination  between  the  central  and  local  levels  of 
government  and  lack  of clarity on  the division of responsibilities across them. For instance, 
this  has  undermined  the  correct  implementation  of  the  Services  Directive,  especially  in  the 
tourism and retail sectors. Building on the 2001 reform of Title V of the Italian Constitution, 
which governs the allocation of regulatory and spending powers across government levels, a 
constitutional amendment bill was adopted last October, with the ambition of further revising 
this chapter of the Constitution. In particular, the constitutional amendment bill brings some 
competences31  back  to  the  central  level  and  strives  to  reduce  conflicts  over  the  division  of 
responsibilities. This reform has not yet been approved by the Italian Parliament.   

Late payment of commercial credits 

Italy’s transposition of the EU directive on late payments in commercial transactions is a 
positive  step  in  improving  relations  between  the  public  administration  and  service 
providers. Italy has the second worst record in the EU for delayed payment of commercial 
credits,  in  particular  by  the  public  sector.  Timely  implementation  of  Directive  2011/7/EU, 
which  applies  to  contracts  signed  from  1  January  2013  onwards,  is  expected  to  reduce 
payment  times,  both  among  private  commercial  partners  and  between  private  suppliers  and 
the  government,  and  will  help  to  avoid  the  further  accumulation  of  commercial  debt  by  the 
public  administration.  The  accumulated  stock  of  commercial  debt  owed  by  the  general 
government  sector  is  estimated  to  be  sizeable,  at  around  5.8%  of  GDP  in  2011,  although  it 
also covers commercial credits that are still within contractual payment time limits.  

The  government  adopted  a  plan  to  accelerate  payment  of  the  substantial  stock  of 
commercial  debt,  notably  by  regional  and  local  authorities,  over  2013-14.  The  plan 
increases the cash resources of subnational governments, which owe most of the commercial 

31  Among  these  competences  are  coordination  of  public  finances  and  the  tax  system,  the  main  transport 
networks, education, foreign trade, and the national production, transport and distribution of energy. 

32 

 
                                                            
debt  arrears,  and  is  thus  expected  to  be  more  effective  than  the  measures  taken  in  2012  to 
promote the certification of credit claims and use them as guarantee to obtain bank credit. It is 
important to ensure that debt is effectively paid to creditors to improve the liquidity of firms 
and that adequate safeguards against moral hazard by the administrations responsible for the 
debt overhang are put in place. 

Structural funds 

The efficiency of Italy’s response to enhance the absorption of structural funds contrasts 
with  the  lack  of  initiative  to  improve  the  management  of  funds.  In  2012,  the  Council 
Recommendation highlighted the importance of improving the absorption and management of 
structural funds particularly in the south of Italy, as part of the effort to enhance the efficiency 
of public expenditure. Some progress has been made in this field. The implementation of the 
Cohesion  Action  Plan  is  on  track  and  led  to  an  increase  in  the  absorption  of  funds  by  10 
percentage points in 12 months, from 21% to 31%. However Italy has not yet taken structural 
and  long-lasting  measures  to  address  the  deficiencies  in  the  management  of  funds  in  the 
southern  regions,  as  shown  by  the  experience  of  the  dedicated  task  forces  in  Sicily  and 
Campania,  notably  as  regards  project  conception,  preparation  and  implementation  capacity, 
and the prevention and early detection of irregularities in the use of EU funding. In view of 
the  next  programming  period  and  as  underlined  in  the  Commission’s  position  paper  on  the 
development  of  partnership  agreements  and  programmes  in  Italy  over  2014-20,  the 
persistence of these problems is a major source of concern as it inhibits the regular flow of EU 
assistance to Italy’s less developed regions and their chances of developing. 

33 

 
 
4.  OVERVIEW TABLE 

2012 commitments 

Summary assessment 

Country-specific recommendations (CSRs) 

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

towards 

from  2015  will 

Some  progress  has  been  made 
addressing this CSR. 
On  10  April,  the  government  presented  the  new 
Economic and Financial Planning Document (DEF) 
for  2013-17,  with  a  worsened  economic  and 
budgetary  outlook.  The  deficit  reached  3.0%  of 
GDP  in  2012  (EDP  deadline  set  by  the  Council). 
The  government  deficit  is  planned  to  decrease 
slightly  to  2.9%  of  GDP  in  2013,  to  allow  for  the 
liquidation  of  commercial  debt  of  around  0.5%  of 
GDP,  and  to  fall  to  1.8%  in  2014,  1.5%  in  2015, 
0.9% in 2016 and 0.4% in 2017. The deficit targets 
require  some  additional 
as 
consolidation measures. Also due to the payment of 
commercial  debt,  the  debt  is  projected  to  rise  to 
130.4%  of  GDP 
this  year  and  fall  steadily 
thereafter, to 117.3% in 2017. 
Consolidation  measures  taken  so  far  are  ambitious 
but the achievement of fiscal commitments could be 
at  stake,  not  only  due  to  the  fragile  economic 
outlook  but  also  because  of  possible  relaxation  of 
the  fiscal  stance.  Italy  must  pursue  the  fiscal 
consolidation  effort  in  a  growth-friendly  manner 
and in full consistency with the requirements of the 
strengthened  Stability  and  Growth  Pact. 
In 
particular,  Italy  should  ensure  the  planned  high 
structural  primary  surpluses,  which  are  key  to 
putting 
the  debt-to-GDP  ratio  on  a  steadily 
declining path. 

in 

the 

that 

specification 

CSR  2:  Ensure 
the 
implementing  legislation  of  the  key  features  of  the 
balanced  budget  rule  set  out  in  the  Constitution, 
including  appropriate  coordination  across  levels  of 
government,  is  consistent  with  the  EU  framework. 
Pursue  a  durable  improvement  of  the  efficiency  and 
quality  of  public  expenditure  through  the  planned 
spending  review  and  the  implementation  of  the  2011 
the 
Cohesion  Action  Plan 
absorption and management of EU funds, in particular in 
the South of Italy. 

improving 

leading 

to 

in  broad  consistency  with 

The  part  of  the  CSR  dedicated  to  the  balanced 
budget rule has been fully addressed, while some 
progress  has  been  made  towards  addressing  the 
recommendation  on  public  expenditure  and 
structural funds. 
In  line  with  the  CSR,  the  secondary  legislation 
related to the introduction of a balanced budget rule 
in the Italian Constitution was adopted in December 
the  EU 
2012, 
strengthened fiscal framework. 
A spending review law was adopted last August and 
complemented  by  measures  to  cut  the  costs  of 
elected  bodies  and  further  expenditure  reshuffling 
provisions  in  the  December  2012  budget  law  for 
2013-15. However, some of the measures provided 
for  in  the  spending  review  have  not  yet  been 
adopted and/or implemented. 
As  regards  the  implementation  of  the  Cohesion 
Action  Plan,  while  the  part of  the  recommendation 
regarding 
positive 
developments,  the  management  issue,  especially  in 
the south of Italy, remains unaddressed. 

absorption 

seen 

has 

34 

 
further  action 

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

towards 

Some  progress  has  been  made 
addressing this CSR. 
Some  measures  have  been  taken  to  tackle  early 
school  leaving  and  tertiary  education  dropout  rates 
and to adapt the supply of high-level skills to labour 
market needs, yet they are still insufficient. Nation-
wide  recognition  of  skills  and  qualifications  has 
been  implemented  through  the  national  system  for 
the  certification  of  skills.  Several  measures  have 
been introduced to favour the creation of innovative 
start-ups  and  the  recruitment  of  high-skilled  young 
people but their scope is limited and some of them 
still lack implementing legislation.  

CSR 4: Adopt the labour market reform as a priority to 
tackle  the  segmentation  of  the  labour  market  and 
establish  an  integrated  unemployment  benefit  scheme. 
labour  market 
Take  further  action 
to 
participation  of  women, 
the 
provision  of  childcare  and  elderly  care.  Monitor  and  if 
needed  reinforce  the  implementation  of  the  new  wage 
setting framework in order to contribute to the alignment 
of wage growth and productivity at sector and company 
level. 

incentivise 
in  particular  through 

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

35 

towards 

Some  progress  has  been  made 
addressing this CSR. 
In  line  with  the  CSR,  an  ambitious  reform  of  the 
labour  market  was  adopted  in  June  2012,  but  still 
requires  the  adoption  of  implementing  decrees  for 
some  of  its  provisions.  Although  measures  were 
adopted  to  encourage  female  participation  in  the 
labour  market, 
remains  narrow. 
their  scope 
Furthermore,  the  measures  regarding  the  provision 
of  childcare  and  elderly  care  remain  at  a  general 
stage and have limited scope. 
On  wage  bargaining,  an  agreement  was  signed  by 
the social partners – with the exception of the CGIL 
trade  union  –  in  November  2012.  It  promotes 
decentralised bargaining and acknowledges the need 
to  link  wages  not  only  to  inflation  but  also  to  the 
economic and competitive conditions of the country 
of  the  sector  concerned.  This  agreement  is  a 
promising step to contribute to a better alignment of 
wages  to  productivity  developments  and  sustain 
competitiveness.  However,  since  it  sets  out  only 
guidelines,  requiring  further  agreements  by  social 
partners  for 
its 
effectiveness  remains  to  be  seen.    The  government 
is  supporting  the  agreement  with  tax  rebates  on 
productivity-related  pay,  recently  enacted  with 
decree law endorsed by social partners. 

implementation, 

the  practical 

towards 

labour  and  capital 

Limited  progress  has  been  made 
addressing this CSR. 
After  the  ambitious  measures  adopted  over  2010-
11, progress towards further shifting the tax burden 
to  property  and 
from 
consumption  has  been  limited.  Relevant  measures 
were contained in a draft enabling law for reforming 
the tax system to improve tax compliance, simplify 
the tax system and enhance its efficiency – notably 
by bringing cadastral values closer to market values 
for property taxation – but remained at the stage of 
projects  since  the  law  has  not  been  adopted  by  the 
Italian  Parliament.  Italy  has  implemented  targeted 
measures  to  enhance  the  tools  available  to  the  tax 
administration  to  efficiently  tackle  tax  evasion. 
Their  impact  will  depend  on  the  administration’s 
capacity  to  make  use  of  these  tools.  The  shadow 

 
 
CSR  6:  Implement  the  adopted  liberalisation  and 
simplification  measures  in  the  services  sector.  Take 
further  measures  to  improve  market  access  in  network 
infrastructure  capacity  and 
industries,  as  well  as 
interconnections.  Simplify 
regulatory 
the 
framework  for  businesses  and  enhance  administrative 
capacity.  Improve  access  to  financial  instruments,  in 
particular  equity,  to  finance  growing  businesses  and 
innovation. Implement the planned reorganisation of the 
civil  justice  system,  and  promote  the  use  of  alternative 
dispute settlement mechanisms. 

further 

economy  and  undeclared  work  remain  pressing 
challenges. 

towards 

Some  progress  has  been  made 
addressing this CSR. 
Important  measures  have  been  adopted  to  improve 
market  functioning  in  services  –  in  particular 
professional  services  –  and  network  industries  – 
notably  through  the  ongoing  unbundling  in  the  gas 
sector.  Yet,  risks  can  be  identified  as  regards  the 
proper implementation of some of them (the reform 
of the legal profession potentially conflicts with the 
general  reform  of  the  regulated  professions;  the 
Transport  Authority  has  not  yet  been  set  up; 
enacting  decrees  are  still  needed  for  the  reform  of 
the  discipline  governing  ‘golden  shares’), 
the 
liberalisation  of  local  public  services  halted,  and 
areas  for further  action remain,  for  instance  in  fuel 
distribution, insurance, and postal services. Besides, 
only limited progress has been registered regarding 
the  improvement  of  infrastructure  in  the  electricity 
and gas sectors. 
has 
Work 
continued,  together  with  greater  digitalisation  of 
public  services,  with  a  view  to  improving  the 
efficiency  of  the  public  administration  and  the 
business  environment.  However,  the  draft  law  on 
simplification expected to supplement this effort has 
not been approved by the Italian Parliament. 
Several tools were introduced to ease firms’ access 
to finance and improve research and innovation, but 
remain limited in scope. 
As regards the judicial system, the enacted revision 
of  the  judicial  geography  is  a  key  step  in  order  to 
optimise  the  organisation  of  the  courts.  It  was 
complemented  by  measures  to  accelerate  court 
proceedings,  foster  the  specialisation  among  courts 
and  judges,  reduce  litigation  and  modernise  the 
judicial  service.  However, 
introduction  of 
compulsory  mediation  in  a number  of  civil  matters 
was repealed by the Italian Constitutional Court. 

administrative 

simplification 

the 

on 

Europe 2020 (national targets and progress) 

Employment rate target: 67-69 % 

R&D target: 1.53 % of GDP 

-13 % 
Greenhouse  gas 
(compared with 2005 emissions); ETS emissions are not 
covered by this national target 

(GHG)  emissions 

target: 

The employment rate was 61.2% in 2011 and 61.0% 
in  2012.  No  progress  has  been  achieved  towards 
meeting the target. 

Gross domestic expenditure on R&D was 1.26% of 
GDP  in  2010  and  1.25%  of  GDP  in  2011.  No 
progress  has  been  achieved  towards  meeting  the 
target. 

The  change  in  non-ETS  greenhouse  gas  emissions 
between 2005 and 2011 was -13%. According to the 
latest  available  projections,  the  total  change  over 
2005-20  will  be  -9%  and  the  target  would  thus  be 
missed.  So  far,  substantial  progress  has  been 
achieved  towards  meeting  the  target, but  it  may  be 
reversed. 

36 

 
Renewable energy target: 17 % 
Share of renewable energy in the transport sector: 10 % 

Indicative  national  energy  efficiency  target:  20  Mtoe 
primary  energy  reduction  by  2020  and  15  Mtoe  final 
energy reduction by 2020. 

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 

The  share  of  total  renewable  energy  in  gross  final 
energy  consumption  was  11.5%  in  2011  and  4.7% 
in  the  transport  sector.  Some  progress  has  been 
achieved towards meeting the target. 

Italy has set an indicative national energy efficiency 
target  in  accordance  with  Articles  3  and  24  of  the 
Energy  Efficiency  Directive  (2012/27/EU).  The 
savings  achieved  amounted  to  5.12  Mtoe  in  2011. 
Some  progress  has  been  achieved  towards  meeting 
the target. 

The early school leaving rate (the percentage of the 
population  aged  18-24  with  at  most 
lower 
secondary education and not in further education or 
training)  was  18.2%  in  2011  and  17.6%  in  2012. 
Some  progress  has  been  achieved  towards  meeting 
the target. 

The  tertiary  educational  attainment  rate  was  20.3% 
in 2011 and 21.7% in 2012. Some progress has been 
achieved towards meeting the target. 

People  at  risk  of  poverty  or  social  exclusion  (in 
thousand  of  persons):  14  757  000  in  2010  and 
17 126 000 in 2011. No progress has been achieved 
towards meeting the target. 

37 

 
 
5.  ANNEX 

Table I. Macroeconomic 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-
2009

2010

2011

2012

2013

2014

1.8
0.4
3.0
2.2
11.2
19.3
21.9

-4.4
117.2
-102.5
45.8
50.2
9.3

1.5
1.5
2.5
1.6
8.8
20.6
20.7

-2.8
105.8
-94.0
44.4
47.2
5.6

3.0
0.9
2.1
-0.2
7.0
20.8
19.4

-3.5
107.6
-92.4
45.4
48.9
4.8

1.7
-1.8
1.6
2.1
8.4
19.4
16.5

-4.5
119.3
-99.5
46.1
50.5
4.6

0.4
-1.6
2.9
-1.0
8.4
19.4
16.4

-3.8
120.8
-94.2
46.2
50.0
5.0

-2.4
-3.1
3.3
-5.3
10.7
18.2
17.1

-3.0
127.0
n.a
47.7
50.7
5.5

-1.3
-4.0
1.6
-2.5
11.8
17.8
17.8

-2.9
131.4
n.a
48.2
51.1
5.3

0.7
-3.2
1.5
0.6
12.2
18.2
18.4

-2.5
132.2
n.a
47.7
50.2
5.5

-0.3

-1.0

-1.4

-0.5

-0.4

1.4

2.5

2.0

n.a
n.a
8.9
19.8

n.a
n.a
8.9
19.8

n.a
n.a
8.1
19.5

-83.9
-2.7
10.4
23.9

1.1
n.a
31.4
11.4
24.4
7.9

-119.8
27.4
10.3
20.6

-107.1
-13.1
11.4
23.9

-129.4
23.8
10.6
21.1

-126.4
0.8
11.1
22.1

1.0
168.1
31.2
11.8
23.9
8.2

7.1
186.0
28.8
18.9
20.7
14.2

3.3
195.2
30.3
14.4
21.9
10.8

1.3
180.6
31.1
12.0
24.0
8.6

3.7
204.5
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 goods and services (index, 2000=100)
Market performance of exports (index, 2000=100)
Notes:
1 The output gap constitutes the gap between the actual and potential gross domestic product at 2005 market prices.
2 The indicator on 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.

-0.1
11.7
0.9
-0.6
0.1
45.2
44.7
5.0
91.7
101.7
110.4

2.4
5.2
3.5
-1.0
0.2
47.5
42.3
4.7
92.4
103.5
133.2

-3.5
30.3
-1.9
-0.5
0.0
41.0
48.6
5.4
104.0
97.6
90.9

-3.1
25.0
-1.5
-0.6
0.0
40.8
48.8
5.4
104.3
94.4
92.0

1.1
n.a
2.7
-0.7
0.2
n.a
n.a
n.a
104.6
94.5
94.3

-0.4
n.a
1.2
-0.7
0.1
40.4
49.1
5.3
102.7
93.4
93.9

-1.6
25.9
-0.5
-0.3
0.1
42.4
47.3
5.7
103.1
98.4
96.8

1.3
n.a
3.0
-0.8
0.2
n.a
n.a
n.a
104.1
94.9
93.6

1.4
n.a
31.4
10.7
25.0
8.0

1.5
n.a
31.2
10.5
25.2
8.2

Source :
Commission services’ 2013 spring forecasts (COM); Stability programme (SP).

38 

 
 
 
 
 
 
 
 
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)

2012
COM SP
-2.4
-2.4
-4.3
-4.2
-8.0
-8.0
2.3
2.3
-7.7
-7.7

2013
COM SP
-1.3
-1.3
-1.7
-2.0
-2.6
-3.5
1.6
2.2
-0.3
-2.2

2014
COM SP
1.3
1.4
4.1
3.3
4.7

0.7
0.4
2.5
3.8
3.8

-4.7
-0.6
3.0
-3.1
-0.3
10.7
-1.3
3.3
1.6
1.0

-4.8
-0.6
3.0
-3.2
-0.3
10.7
-1.3
3.3
1.6
1.0

-2.2
-0.3
1.1
-4.0
-0.8
11.8
-0.2
1.6
1.5
1.2

-1.9
-0.1
0.7
-4.2
-0.4
11.6
-1.0
2.0
1.8
1.0

0.6
0.0
0.1
-3.2
0.0
12.2
0.4
1.5
1.5
1.1

1.4
0.1
-0.2
-3.1
0.4
11.8
0.7
2.0
1.9
1.2

2015
SP
1.5
1.1
3.2
4.1
4.4

1.3
0.1
0.1
-2.0
0.7
11.6
0.7
1.9
1.8
1.5

2016
SP
1.3
1.1
2.6
4.0
4.1

1.2
0.0
0.1
-1.2
0.6
11.4
0.6
1.8
1.8
1.6

2017
SP
1.4
1.2
2.4
3.9
3.8

1.2
0.0
0.1
-0.4
0.8
10.9
0.5
1.8
1.8
1.6

-0.4

-0.4

1.1

0.2

1.3

-0.2

-0.1

-0.1

0.0

Note:
1In percent of potential GDP, with potential GDP growth recalculated by Commission services on the basis of the programme 
scenario using the commonly agreed methodology.

Source :
Commission services’ 2013 spring forecasts (COM); Stability programme (SP).

39 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table III. Composition of the budgetary adjustment 

(% of GDP)

2012

2013

2014

2015

2016

2017

COM COM SP

COM1

SP

SP

SP

SP

47.7

48.2

48.2

47.7

48.0

47.7

47.5

47.3

14.9
15.1
13.8
3.8

15.0
15.2
14.0
3.9

50.7

51.1

15.3
15.0
14.0
3.9

51.1

14.9
15.0
13.9
3.9

15.4
15.0
13.9
3.7

50.2

49.8

15.5
14.7
13.8
3.7

49.4

15.4
14.7
13.7
3.7

15.3
14.8
13.6
3.6

48.8

48.3

45.2

45.7

45.8

44.6

44.2

43.6

42.8

42.2

-3.0

Change: 
2012-
2017

SP

-0.4

0.4
-0.3
-0.2
-0.2

-2.4

6

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

6

Expenditure
of which:
- Primary expenditure

of which:

-3.1

9.5
5.2
22.7
0.8
1.7
3.0
6.0
-0.9
5.1
0.0
-0.9

9.8
5.2
22.9
0.9
1.7
3.2
5.8
-1.5
4.3
-0.1
-1.4

10.1
5.4
23.2
1.0
1.6
3.4
5.5
-2.5
3.1
-0.1
-2.4

10.0
5.3
23.0
0.9
1.7
3.2
5.6
-1.8
3.8
-0.1
-1.7

10.4
5.4
23.1
1.0
1.8
4.1
5.3
-2.9
2.4
-0.2
-2.7

10.4
5.5
23.1
1.0
2.1
3.7
5.3
-2.9
2.4
-0.2
-2.7

10.6
5.7
22.6
1.0
1.9
3.4
5.5
-3.0
2.5
0.1
-3.1

9.2
5.1
22.6
0.8
1.6
2.9
6.1
-0.4
5.7
0.0
-0.4

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 (SB)3
Change in SB
Two year average change in SB 
Structural primary balance3
Change in structural primary balance
Expenditure benchmark
Applicable reference rate4
Deviation5 (% GDP)
Two-year average deviation (% GDP)
Notes:
1On a no-policy-change basis.
2Output gap (in % of potential GDP) and cyclically-adjusted balance according to the programme as recalculated by Commission 
services on the basis of the programme scenario using the commonly agreed methodology.
3Structural (primary) balance = cyclically-adjusted (primary) balance excluding one-off and other temporary measures.

-0.7
-0.2
0.4

-0.3
-0.3
0.0

-0.2
0.1
-0.1

-0.4
1.0
1.6

-0.5
0.9
1.6

-1.4
2.2
1.1

-0.2
0.1
0.1

0.0
0.4
0.7

5.5
-0.1

4.9
0.0

5.6
0.7

4.8
0.7

4.9
0.8

5.8
0.3

5.9
0.2

-0.81

-1.07

-0.81

-0.81

-1.07

-1.07

0.04

0.04

-1.9

-3.4

-1.2

-0.2

-1.3

-2.0

-1.4

-0.2

-0.6

-0.3

-4.0

-4.2

-0.7

-0.6

-2.0

-0.4

-3.1

-0.1

-0.4

-0.4

-0.3

-3.2

-0.7

-0.4

-0.2

0.0

4.1

0.1

0.1

0.1

0.1

0.0

-1.4
-0.5
0.0
-0.2
-0.3
-0.5
0.6
2.6
3.2
-0.1
2.7

2.7

1.2

1.3
-
-

1.8
-

-

-
-

4 Reference medium-term rate of potential GDP growth. The (standard) reference rate applies from year t+1, if the country has reached 
its M TO in year t. A lower  rate applies as long as the country is adjusting towards its M TO, including in year t.The reference rates 
applicable to 2014 onwards have been updated in 2013. 
5 Deviation of the growth rate of public expenditure net of discretionary revenue measures and revenue increases mandated by law from 
the applicable reference rate. The expenditure aggregate used for the expenditure benchmark is obtained following the commonly agreed 
methodology. A positive sign implies that expenditure growth exceeds the applicable reference rate. 
6Revenue and expenditure (total and sub-components) as from 2015 provided in the programme according to unchanged legislation 
Source :
Stability programme (SP); Commission services’ 2013 spring forecasts (COM); Commission services’ calculations.

40 

 
 
 
 
 
 
Table IV. Debt dynamics 

(% 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.
Acc. financial assets
Privatisation

Val. effect & residual

Average
2007-2011

113.2
2.9

2012

127.0
6.2

2013

2014

COM

131.4
4.4

SP

130.4
3.4

COM

132.2
0.8

SP

129.0
-1.4

2015
SP

125.5
-3.5

2016
SP

121.4
-4.1

2017
SP

117.3
-4.1

-1.3
3.6

4.9
0.6
-1.9
0.5

0.0
0.5
-0.1
0.0

-2.5
6.5

5.5
2.9
-2.0
2.1

0.1
2.0
-0.5
0.0

2012

-2.4
5.1

5.3
1.7
-1.9
1.7

0.0
1.7
0.0
0.0

2013

-2.4
4.6

5.3
1.6
-2.3
1.1

0.0
1.1
-1.0
0.0

S P4

COM / 
S P3
n.r.
0.9

-3.1
2.6

5.5
-0.9
-2.0
1.2

0.2
1.0
0.0
0.0

-3.8
1.6

5.6
-1.6
-2.4
0.8

0.2
0.6
-1.0
0.0

-4.3
1.7

5.8
-1.9
-2.2
-0.9

-0.4
-0.5
-1.0
0.0

-5.1
2.1

6.0
-1.6
-2.3
-1.1

-0.5
-0.6
-1.0
0.0

-5.7
2.4

6.1
-1.6
-2.1
-0.7

-0.1
-0.6
-1.0
0.0

2014

2015

2016

2017

S P4

S P

S P

S P

COM / 
S P3
n.r.
0.4

n.r.
n.r.

n.r.
0.9

Gap to the debt benchmark5,6
S tructural adjustment7
To be compared to:
Required adjustment8
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, accumulation of financial assets and valuation and other residual effects. 

-1.6
n.r.

-0.7
n.r.

-1.6
n.r.

n.r.
0.4

-0.5

-0.6

-0.1

n.r.

n.r.

n.r.

n.r.

0.0

3 Assessment of the consolidation path set in SP assuming growth follows the COM  forecasts.
4Assessment of the consolidation path set in the SP assuming growth follows the SP projections.
5Not relevant for M ember Sates that were subject to an EDP procedure in November 2011 and for a period of three years following 
the correction of the excessive deficit.
6Shows the difference between the debt-to-GDP ratio and the debt benchmark. If positive, 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 EDP that were ongoing 
in November 2011.

8Defines the remaining annual structural adjustment over the transition period which ensures that – if followed – Italy will comply 
with the debt reduction benchmark at the end of the transition period, assuming that COM  (SP) budgetary projections for the 
previous years are achieved.

Source :
Stability programme (SP); Commission services’ spring 2013 forecasts (COM); Commission services’ calculations.

41 

 
 
 
 
 
 
 
 
 
 
 
Table V. Sustainability indicators 

S2

of which:

Initial budgetary position (IBP)

Long-term cost of ageing (CoA)

of which:

Pensions

Health care

Long-term care

Others

S1 (required adjustment)*

of which:

Initial budgetary position (IBP)

Debt requirement (DR)

Long-term cost of ageing (CoA)

S0 (risk for fiscal stress)**

Debt,  % of GDP (2012)

Age-related expenditure, % of GDP (2012)

IT

EU27

No-policy 
change 
scenario 

Programme 
(SCP) 
scenario

No-policy 
change 
scenario 

Programme 
(SCP) 
scenario

-2.1

-2.8

0.7

-0.3

0.6

0.6

-0.2

1.1

-2.6

4.1

-0.3

-3.2

-4.2

0.9

-0.1

0.6

0.6

-0.2

-0.3

-4.0

4.1

-0.4

3.0

0.8

2.2

1.0

0.9

0.6

-0.4

2.2

0.0

1.9

0.3

0.28

127.0

28.1

:

87.0

25.8

1.3

-0.9

2.2

1.1

0.8

0.6

-0.3

0.5

-1.8

1.9

0.4

Note: 
The 'No-policy change' scenario depicts the sustainability gap under the assumption that the budgetary position evolves 
according to the Commissions' spring 2013 forecast until 2014. The 'Programme (SCP)' 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.              
** The critical threshold for the S0 indicator is 0.44. 

Source : 
Commission services; 2013 stability programme.                                                                                                                               

140

130

120

110

100

90

80

70

60

50

40

(% of GDP)

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

COM no-policy change scenario
COM + Shock ( -1p.p. in the short-term/long-term interest rate on maturing and new debt from 2015)
COM + Shock (+1p.p. in the short-term/long-term interest rate on maturing and new debt from 2015)
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
SCP scenario

0
9
9
1

2
9
9
1

4
9
9
1

6
9
9
1

8
9
9
1

0
0
0
2

2
0
0
2

4
0
0
2

6
0
0
2

8
0
0
2

0
1
0
2

2
1
0
2

4
1
0
2

6
1
0
2

8
1
0
2

0
2
0
2

2
2
0
2

4
2
0
2

6
2
0
2

8
2
0
2

0
3
0
2

42 

 
 
 
 
 
 
Table VI. Taxation indicators 

Total tax revenues (incl. actual compulsory social contributions, % of GDP)

40.5

41.7

42.7

43.0

42.5

42.5

2002

2006

2008

2009

2010

2011

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

10.4

10.6

10.1

10.1

10.6

10.8

6.2

0.7

2.3

1.3

6.2

0.8

2.2

1.4

5.9

0.8

1.9

1.5

5.7

0.8

2.1

1.6

6.3

0.8

2.0

1.5

6.2

0.8

2.1

1.6

18.0

18.1

19.3

19.5

19.3

19.2

2.1

7.4

2.6

2.9

2.2

8.3

2.5

2.8

2.3

8.8

2.2

2.5

2.6

7.9

3.0

2.7

2.7

7.5

2.4

2.6

2.6

7.4

2.6

2.8

43.1

42.8

40.6

37.4

41.7

41.3

Note: 
1 Tax revenues are broken down by economic function, i.e. according to whether taxes are raised on consumption, labour or capital. See European Commission 
(2013) Taxation trends in the European Union, for a more detailed explanation.
2 This category comprises taxes on energy, transport and pollution and resources included in taxes on consumption and capital.
3 The VAT efficiency is measured via the VAT revenue ratio. The 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 (2012), Tax reforms in EU M ember States, European Economy 6/2012 and Taxation Papers 34/2012 for a more detailed 
explanation.

Source: Commission

43 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table VII. Financial market indicators 

Total assets of the banking sector (% of GDP)

234.5

246.5

244.6

257.6

269.6

2008

2009

2010

2011

2012

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)
              - return on equity (%) 1), 3)
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)4)
Private debt (% of GDP)
Gross external debt (% of GDP)5)
            - Public
            - Private

Long term interest rates spread versus Bund (percentage points)*

Credit default swap spreads for sovereign securities (5-year)*
Notes: 

1) Latest data (June 2012).
2) A change in the definition of the Non Performing Loan was made in 2012.
3) After extraordinary items and taxes.
4) Covered countries are CY, EL, ES, LV, HU, IE, PT and RO.
5) Latest data 2012Q3.
* M easured in percentage points.

Source :

31.2

13.4

6.3
10.4

4.9

5.8

0.0

31.0

12.3

9.5
11.7

4.0

2.4

5.9

39.8

…

10.0
12.1

3.7

3.9

7.5

39.5

…

11.7
12.7

-13.0

1.0

4.4

…

…

12.9
13.3

1.0

1.4

-0.2

136.6

131.2

123.0

125.7

117.4

1.7

4.9

0.9

4.8

1.6

4.3

5.9

4.2

7.3

3.5

102.9

109.5

116.0

115.9

119.0

45.0
23.0

0.7

88.4

52.2
25.0

1.1

52.1
25.6

1.3

42.5
25.0

2.8

44.6
25.6

4.0

108.2

164.4

299.4

399.9

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).

44 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 
15 years and more)
Part-time employment of women  (% of women employment, 15 
years and more)
Part-time employment of men  (% of men employment, 15 years 
and more)
Fixed term employment (% of employees with a fixed term 
contract, 15 years and more)
Transitions from temporary 
to permanent employment
Unemployment rate1 (% of labour force, 
age group 15-74)
Long-term unemployment rate2 (% of labour force)
Youth unemployment rate 
(% of youth labour force aged 15-24)
Youth NEET rate (% of population aged 15-24)

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)
Formal childcare (from 1 to 29 hours; % over the population less 
than 3 years)
Formal childcare (30 hours or over; % over the population less 
than 3 year)
Labour productivity per person employed (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)

Real unit labour cost growth (annual % change)

2007

2008

2009

2010

2011

2012

62.8

63.0

61.7

61.1

61.2

61.0

1.3

49.9

75.8

33.8

13.6

26.9

5.0

0.3

50.6

75.4

34.4

14.3

27.9

5.3

-1.6

49.7

73.8

35.7

14.3

27.9

5.1

-0.7

49.5

72.8

36.6

15.0

29.0

5.5

0.3

49.9

72.6

37.9

15.5

29.3

5.9

-0.3

50.5

71.6

40.4

17.1

31.1

7.2

13.2

13.3

12.5

12.8

13.4

13.8

3.0

6.1

2.9

20.3

16.2

19.7

18.6

10.0

15.0

0.7

0.1

0.3

-0.1

1.6

-0.7

2.4

6.7

3.1

21.3

16.6

19.7

19.2

12.0

16.0

-0.8

-0.7

-0.7

1.2

4.5

2.0

3.3

7.8

3.5

25.4

17.7

19.2

1.6

8.4

4.1

27.8

19.1

18.8

2.1

8.4

4.4

29.1

19.8

18.2

:

10.7

5.7

35.3

21.1

17.6

19.0

19.8

20.3

21.7

9.0

6.0

9.0

16.0

16.0

17.0

-2.7

-1.7

-2.2

-0.4

4.0

1.9

2.8

0.1

2.4

2.4

-0.2

-0.6

0.2

0.0

0.1

-0.1

1.1

-0.2

:

:

-1.3

-1.1

-1.0

-0.6

2.1

0.5

Notes:
1 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.

2 Long-term unemployed are unemployed persons for at least 12 months.

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

45 

 
 
 
 
 
 
 
 
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
At-risk-of-poverty or social exclusion1 
(% of total population)
At-risk-of-poverty or social exclusion of children 
(% of people aged 0-17)
At-risk-of-poverty or social exclusion of elderly 
(% of people aged 65+)
At-Risk-of-Poverty rate2 (% of total population)
Severe Material Deprivation3  (% of total population)
Share of people living in low work intensity households 4 (% of 
people aged 0-59)
In-work at-risk-of poverty rate (% of persons employed)
Impact of social transfers (excluding pensions) on reducing 
poverty
Poverty thresholds, expressed in national currency at constant 
prices 5
Gross disposable income (households)

Relative median poverty risk gap (60% of median equivalised 
income, age: total)

2006

2007

2008

2009

2010

6.84

1.50

15.39

1.14

0.51

0.02

25.47

1.59

6.60

1.52

15.54

1.24

0.45

0.02

25.43

1.68

6.93

1.56

16.07

1.28

0.51

0.02

26.42

1.75

7.30

1.73

17.13

1.44

0.79

0.02

28.47

1.98

7.30

1.70

17.33

1.31

0.84

0.02

28.57

0.00

2007

2008

2009

2010

2011

26.0

29.3

25.3

19.8

6.8

10.0

9.8

17.8

25.3

29.1

24.4

18.7

7.5

9.8

8.9

20.1

24.7

28.8

22.8

18.4

7.0

8.8

10.3

20.7

24.5

28.9

20.3

18.2

6.9

10.2

9.4

21.9

28.2

32.2

24.1

19.6

11.2

10.4

10.7

19.7

9003

9194

8878

8982

8855

1074439

1095209

1065726

1073912

1098825

22.4

23.0

22.6

24.5

26.0

Notes:
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 household with zero or very low work intensity (LWI).
2 At-risk-of poverty rate (AROP): 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 (excluding 
dependent children) work less than 20% of their total work-time potential during the previous 12 months.

5 For EE, CY, M T, SI, SK, thresholds in nominal values in Euros; HICP -  index 100 in 2006 (2007 survey refers to 2006 incomes)

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

46 

 
 
 
 
 
 
 
 
Table IX. Product market 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, steam and 
air conditioning supply (annual growth in %)
Labour productivity1 in the construction sector 
(annual growth in %)
Total number of patent2 applications per million of 
labour force

2003-
2007

0.6

2.4

3.5

2008

2009

2010

2011

2012

-1.4

-3.9

2.5

-2.8

-12.4

11.7

4.9

-1.5

7.3

0.1

1.5

3.7

-2.1

-2.2

n.a.

-0.8

-3.1

-7.1

-1.2

-0.8

-1.1

194.1

185.9

183.8

177.9

n.a.

n.a.

Policy indicators

Enforcing contracts 3 (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)

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 Industries 5
(Index; 0=not regulated; 6=most regulated)

2003-
2007
1318

15

1.1

2008

2009

2010

2011

2012

1210

1210

1210

1210

10

1.2

10

1.3

6

1.3

6

1.3

16.6

19.2

19.0

19.8

20.3

1210

6

n.a.

21.7

4.53

4.56

4.70

4.50

n.a.

n.a.

2007

2008

2009

2010

2011

2012

n.a.

n.a.

1.4

2.6

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

2.0

n.a.

n.a.

n.a.

n.a.

n.a.

Notes:
1 Labour productivity is defined as gross value added (in constant prices) divided by the number of persons employed.
2 Total number of patent applications to the European Patent Office (EPO) per million of labour force
3 The methodologies, including the assumptions, for this indicator are presented in detail on the website 
http://www.doingbusiness.org/methodology. 

4 The methodologies of 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 Energy, Transport and Communications Regulation (ETCR).
*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). 

47 

 
 
 
 
 
 
 
Table X. Green Growth 

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

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

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

%
HHI
HHI
%

2002-
2006

0.15
0.46
0.65
n.a.
-1.6%
n.a.
n.a.
14.2%
7.0%

0.15
9.5
n.a.
n.a.
n.a.
n.a.
52.4%
n.a.
n.a.
n.a.

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

2007

2008

2009

2010

2011

0.14
0.42
0.61
n.a.
-1.9%
9
-0.6
13.0%
6.3%

0.14
9.8
n.a.
0.03
0.02%
0.02%
61.9%
40.8%
0.45
1.28

85.1%
0.14
0.35
6.5%

0.14
0.42
0.60
0.14
-2.2%
8
7.4
11.6%
5.9%

0.13
9.6
0.14
0.04
0.04%
0.03%
42.4%
40.8%
0.44
1.24

85.3%
0.13
0.34
7.5%

0.14
0.40
0.56
n.a.
-2.7%
8
-5.8
12.4%
6.3%

0.13
8.4
0.15
0.03
0.03%
0.02%
46.3%
37.7%
0.44
1.24

82.8%
0.13
0.34
9.4%

0.14
0.40
n.a.
0.13
-3.3%
8
-3.3
11.9%
6.1%

0.13
n.a.
0.14
0.03
0.04%
0.02%
46.6%
38.3%
n.a.
n.a.

83.8%
0.11
0.33
10.3%

0.14
n.a.
n.a.
n.a.
-3.8%
8
5
n.a.
n.a.

n.a.
n.a.
0.16
0.03
0.04%
0.02%
n.a.
38.9%
n.a.
n.a.

81.3%
n.a.
0.31
11.5%

Country-specific notes: 
The year 2012 is not included in the table due to lack of data.
General explanation of the table items:
Source: Eurostat unless indicated otherwise; ECFIN elaborations indicated 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 2005 EUR) 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP
Electricity and gas prices medium industrial users: consumption band 500  - 2000M Wh and 10000 - 100000 GJ;  figures excl. VAT.
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 activity (kgoe) divided by transp industry gross value added (2005 EUR)
Transport carbon intensity:  greenhouse gas emissions in transport activity divided by gross value added of the transport sector
Energy import dependency: net energy imports divided by gross inland energy consumption incl. energy consumption 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 renewable energy in energy mix: %-share in  gross inland energy consumption, expressed in tonne oil equivalents

*Provisional data (15 April 213). Commission Services and EEA.

** For 2007 average of S1 & S2 for DE, LU, NL, FI, SE & UK. Other countries only have S2.

*** For 2007 average of S1 & S2 for IT, NL, FI, SE & UK. Other countries only have S2.

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