Recommendation for a COUNCIL RECOMMENDATION on Italy’s 2014 national reform programme and delivering a Council opinion on Italy’s 2014 stability programme
Date: 2014-06-02
Institutions: European Commission
Subjects: budget deficit, economic convergence, economic disparity, economic growth, economic situation, financial control, macroeconomics, multilateral surveillance, public debt, stability programme, structural adjustment













EUR-Lex - 52014DC0413 - EN











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52014DC0413

Recommendation for a COUNCIL RECOMMENDATION on Italy’s 2014 national reform programme and delivering a Council opinion on Italy’s 2014 stability programme /* COM/2014/0413 final */









 
Recommendation for a 
COUNCIL RECOMMENDATION
on Italy’s 2014 national reform programme
and delivering a Council opinion on Italy’s 2014 stability programme

 
THE COUNCIL OF THE EUROPEAN UNION,
Having
regard to the Treaty on the Functioning of the European Union, and in
particular Articles 121(2) and 148(4) thereof,
Having
regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the
strengthening of the surveillance of budgetary positions and the surveillance
and coordination of economic policies[1],
and in particular Article 5(2) thereof,
Having
regard to Regulation (EU) No 1176/2011 of the European Parliament and of the
Council of 16 November 2011 on the prevention and correction of macroeconomic
imbalances[2],
and in particular Article 6(1) thereof
Having
regard to the recommendation of the European Commission[3],
Having
regard to the resolutions of the European Parliament[4],
Having
regard to the conclusions of the European Council,
Having
regard to the opinion of the Employment Committee,
Having
regard to the opinion of the Economic and Financial Committee,
Having
regard to the opinion of the Social Protection Committee,
Having
regard to the opinion of the Economic Policy Committee,
Whereas:
(1)                   
On 26 March 2010, the European Council agreed to
the Commission’s proposal to launch a new strategy for growth and jobs, Europe
2020, based on enhanced coordination of economic policies, which will focus on
the key areas where action is needed to boost Europe’s potential for
sustainable growth and competitiveness.
(2)                   
On 13 July 2010, the Council, on the basis of
the Commission's proposals, adopted a recommendation on the broad guidelines
for the economic policies of the Member States and the Union (2010 to 2014)
and, on 21 October 2010, adopted a decision on guidelines for the employment
policies of the Member States, which together form the ‘integrated guidelines’.
Member States were invited to take the integrated guidelines into account in
their national economic and employment policies.
(3)                   
On 29 June 2012, the Heads of State or
Government decided on a Compact for Growth and Jobs, providing a coherent
framework for action at national, EU and euro area levels using all possible
levers, instruments and policies. They decided on action to be taken at the
level of the Member States, in particular expressing full commitment to achieving
the objectives of the Europe 2020 Strategy and to implementing the
country-specific recommendations.
(4)                   
On 9 July 2013, the Council adopted a
recommendation on Italy’s national reform programme for 2013 and delivered its
opinion on Italy’s stability programme for 2012-2017. On 15 November 2013, in line with Regulation
(EU) No 473/2013[5],
the Commission presented its opinion on Italy's draft
budgetary plan for 2014[6].
(5)                   
On 13 November 2013, the Commission adopted the
Annual Growth Survey[7],
marking the start of the 2014 European Semester of economic policy
coordination. On the same day on the basis of Regulation (EU) No 1176/2011, the
Commission adopted the Alert Mechanism Report[8],
in which it identified Italy as one of the Member States for which an in-depth
review would be carried out. 
(6)                   
On 20 December 2013, the European Council
endorsed the priorities for ensuring financial stability, fiscal consolidation
and action to foster growth. It underscored the need to pursue differentiated,
growth-friendly fiscal consolidation, to restore normal lending conditions to
the economy, to promote growth and competitiveness, to tackle unemployment and
the social consequences of the crisis, and to modernise public administration.
(7)                   
On 5 March 2014, the Commission published the
results of its in-depth review for Italy[9],
under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads
it to conclude that Italy is experiencing excessive macroeconomic imbalances,
which require specific monitoring and strong policy action. In particular, the
persistently high level of the public debt coupled with weak external
competitiveness on account of sluggish productivity growth, and further
exacerbated by protracted dismal growth, warrant decisive policy action and
attention.
(8)                   
On 22 April 2014, Italy submitted its 2014 national
reform programme and its 2014 stability programme. In order to take account of
their interlinkages, the two programmes have been assessed at the same time.
(9)                   
The objective of the budgetary strategy outlined
in the stability programme is the achievement of the medium-term objective of a
balanced budgetary position in structural terms by 2016, while complying with
the debt rule in the 2013-2015 transition period. The programme confirms the medium-term
objective of a balanced budgetary position in structural terms, which reflects
the requirements of the Stability and Growth Pact. The (recalculated)
structural adjustment planned in the programme is 0.2 percentage point of
GDP in 2014 and 0.4 percentage point in 2015. According to the programme, this limited
adjustment towards the medium-term objective is justified by the severe
economic conditions and the effort needed to implement an ambitious programme
of structural reforms. In particular, several structural reforms are planned,
which would have a positive impact on potential economic growth and eventually
reduce the government debt‑to‑GDP ratio in the coming years. The
structural adjustment planned in the programme would allow Italy to comply with
the debt reduction benchmark over the 2013-2015 transition period, partly
thanks to an ambitious privatisation plan to be implemented over 2014-2017
(amounting to 0.7 percentage point of GDP each year). The macroeconomic
scenario underpinning the budgetary projections in the programme, which has not
been endorsed by an independent body, is slightly optimistic, in particular for
the later years of the programme. A deviation from the adjustment path towards
the medium-term objective is planned in 2014; if repeated the following year, it
could be assessed to be significant, including on the basis of the expenditure
benchmark. Moreover, the achievement of the budgetary targets is not fully supported
by sufficiently detailed measures, in particular as of 2015. The Commission
2014 spring forecast points to non-compliance with the debt reduction benchmark
in 2014 as the projected structural adjustment (only 0.1 percentage point of
GDP) falls short of the required structural adjustment of 0.7 percentage point
of GDP. Based on the assessment of the programme and the Commission forecast
pursuant to Council Regulation (EC) No 1466/97, the Council is of the opinion
that additional efforts, including in 2014, are needed to be in compliance with
the requirements of the Stability and Growth Pact. 
(10)               
Recent action to alleviate taxation on the
factors of production has been somewhat limited. There is thus scope to further
shift the tax burden towards consumption, property and the environment, in
strict compliance with the budgetary targets. As regards consumption, improving
the structure of the tax system also crucially requires a revision of VAT
reduced rates and of direct tax expenditures, with due attention to the need to
lessen possible distributional impact. As regards property, a revision of
cadastral values in line with current market values would allow for fairer
recurrent taxation on immovable property. A recently adopted enabling law for
tax reform represents an opportunity to carry out such necessary reforms. Given
the size of the challenge, action on the composition of the tax structure needs
to be complemented by additional measures to improve tax administration and tax
compliance and decisive measures to combat tax evasion, the shadow economy and
undeclared work, which continue to weigh both on public finances and on the tax
burden for compliant taxpayers. In this respect, the enabling law for tax
reform foresees several measures to strengthen tax administration –
comprehensive estimation and monitoring system of the tax gap, simplification
measures, actions to improve relationship with taxpayers, measures to improve
local tax debt recovery and reinforcement of tax controls. The decision to
introduce pre-filled tax returns as from 2015 is an additional positive step to
enhance tax compliance. 
(11)               
Thorough and swift implementation of the
measures adopted remains a key challenge for Italy, both in terms of addressing
existing implementation gaps and preventing the accumulation of further delays.
One of the key levers to improve the implementation performance of the country,
and more generally ensure smoother policy action, lies in enhanced coordination
and a more efficient allocation of competences among the various levels of
government. This could in turn be beneficial for the management of EU funds,
where only partial and incomplete action has been undertaken so far, especially
in southern regions. The management of EU funds also continues to suffer from
deficient administrative capacity and lack of transparency, evaluation and
quality control. The quality of public service would also gain from increased
efficacy and service orientation, and corresponding changes in human resource
management. Corruption continues to weigh significantly on Italy's productive
system and on trust in the political and institutional landscape. There is a
need to review the statute of limitations. An effective fight against
corruption also requires adequate empowering of the National Anti-Corruption
Authority for the Evaluation and Transparency of Public Administrations. Inefficiencies
in civil justice persist and the impact of the measures adopted needs to be
carefully monitored.
(12)               
Drawing on the targeted asset quality review carried
out last year under the patronage of the Bank of Italy, it remains important to
improve the management of impaired assets and foster their disposal to revive
banks' capacity to expand the supply of credit to the real economy. As regards
access to finance, the main action taken so far has focused on easing firms'
access to credit, but the development of funding instruments other than bank
loans remains limited, especially for small and medium-sized enterprises. The
initiatives taken in the field of banks' corporate governance – in particular
the new principles issued recently by the Bank of Italy – are welcome. At the
same time, their impact will depend on their proper implementation by the banks
and enforcement. In particular, close monitoring of some of the largest
cooperative banks ('banche popolari') remains warranted. 
(13)               
The labour market situation further deteriorated
in 2013, with unemployment rising to 12.2% and youth unemployment reaching 40%
in Italy. Ensuring proper implementation and careful monitoring of the effect
of the labour market and wage-setting reforms adopted is key to guaranteeing
that the expected benefits in terms of enhanced exit flexibility, better
regulated entry flexibility, a more comprehensive system of unemployment
benefits and better alignment of wages on productivity materialise. Plans for
improving effectiveness of placement services through the reinforcement of
public employment services have been subject to delays and need to be
accelerated. Measures aimed at fostering job creation in the short term need to
be complemented with measures addressing segmentation. Globally, the Italian
labour market continues to be marked by segmentation and low participation,
which affects women and young people in particular. Therefore, the limited
steps taken so far need to be extended, including in line with the objectives
of a youth guarantee. Italy is witnessing declining household disposable income
combined with rising poverty and social exclusion, affecting families with
children in particular. Social expenditure in Italy remains largely oriented
towards the elderly and with little focus on activation, limiting the scope to
address the risk of social exclusion and poverty. The pilot social assistance
scheme recently introduced aims at providing a social safety net. Its envisaged
extension to the whole country will require improving the effectiveness of
social spending and services throughout the territory.
(14)               
Efforts to upgrade educational performance and
human capital endowment need to be made at all educational levels, i.e.
primary, secondary and tertiary. The teaching profession is characterised by a
single career pathway and currently offers limited prospects in terms of
professional development. Diversifying teachers' careers and better linking
their career trajectories to merit and performance, coupled with the
generalisation of school evaluation, could translate into better school
outcomes. To ensure a smooth transition between education and the labour
market, strengthening and broadening practical training, through increased
work-based learning and vocational education and training, appear crucial at
the upper secondary and tertiary levels. Following the 2013 legislative decree
on this issue, establishing a national register of qualifications is essential
in order to ensure the nation-wide recognition of skills. Building on initial
action in this direction, bringing forward the allocation of public funding to
universities on the basis of research and teaching performance would have the
merit of both contributing to upgrading the quality of universities and
potentially increasing research and innovation capacity in the country, where
it is still lagging behind.
(15)               
Some steps were made to achieve a more business-
and citizen-friendly environment, but their impact is hampered by delays in
their final approval and implementation gaps. There are still a number of
bottlenecks to competition (reserved areas of activity,
concessions/authorisation schemes, etc) in professional services, insurance,
fuel distribution, retail and postal services. A series of weaknesses affecting
the public procurement system also need to be tackled. Enhancing competition in
the area of local public services is another priority. In particular, the
current legislation stipulating that existing contracts not complying with EU law
on in-house criteria need to be rectified by 31 December 2014 needs to be
implemented.
(16)               
Infrastructure bottlenecks hamper the proper
functioning of the energy market. In transport, the lack of intermodal
infrastructure and the shortage of synergies and connections with the
hinterland for Italian ports warrant particular attention and action. In terms
of broadband coverage, Italy has underserved non-urban areas.
(17)               
In the context of the European Semester, the
Commission has carried out a comprehensive analysis of Italy’s economic policy.
It has assessed the stability programme and the national reform programme. It
has taken into account not only their relevance for sustainable fiscal and
socio-economic policy in Italy but also their compliance with EU rules and
guidance, given the need to reinforce the overall economic governance of the
European Union by providing EU-level input into future national decisions. Its
recommendations under the European Semester are reflected in
recommendations (1) to (8) below.
(18)               
In the light of this assessment, the Council has
examined Italy’s stability programme, and its opinion[10] is reflected in
particular in recommendation (1) below.
(19)               
In the light of the Commission's in-depth review
and this assessment, the Council has examined the national reform programme and
the stability programme. Its recommendations under Article 6 of Regulation (EU)
No 1176/2011 are reflected in recommendations (1) to (8) below.
(20)               
In the context of the European Semester the
Commission has also carried out an analysis of the economic policy of the euro
area as a whole. On the basis of this analysis the Council has issued specific recommendations
for the Member States whose currency is the euro. Italy should also ensure the
full and timely implementation of these recommendations.
HEREBY RECOMMENDS that Italy take
action within the period 2014-2015 to:
1.                      
Reinforce the budgetary measures for 2014 in the
light of the emerging gap relative to the Stability and Growth Pact
requirements, namely the debt reduction rule, based
on the Commission 2014 spring forecast. In 2015, significantly strengthen
the budgetary strategy to ensure compliance with the debt reduction
requirement. Thereafter, ensure that the general government debt is on a
sufficiently downward path; carry out the ambitious privatisation plan; implement
a growth-friendly fiscal adjustment based on the announced significant savings
coming from a durable improvement of the efficiency and quality of public
expenditure at all levels of government, while preserving growth-enhancing
spending like R&D, innovation, education and essential infrastructure
projects. Guarantee the independence and full operationalisation of the fiscal
council as soon as possible and no later than in September 2014, in time for
the assessment of the 2015 Draft Budgetary Plan.
2.                      
Further shift the tax burden from productive
factors to consumption, property and the environment, in compliance with the budgetary
targets. To this end, evaluate the effectiveness of the recent reduction in the
labour tax wedge and ensure its financing for 2015, review the scope of direct
tax expenditures and broaden the tax base, notably on consumption. Consider the
alignment of excise duties on diesel to those on petrol and their indexation on
inflation, and remove environmentally harmful subsidies. Implement the enabling
law for tax reform by March 2015, including by adopting the decrees leading to
the reform of the cadastral system to ensure the effectiveness of the reform of
immovable property taxation. Further improve tax compliance by enhancing the
predictability of the tax system, simplifying procedures, improving tax debt
recovery and modernising tax administration. Pursue the fight against tax
evasion and take additional steps against the shadow economy and undeclared
work.
3.                      
As part of a wider effort to improve the
efficiency of public administration, clarify competences at all levels of
Government. Ensure better management of EU funds by taking decisive action to
improve administrative capacity, transparency, evaluation and quality control
at regional level, especially in southern regions. Further enhance the
effectiveness of anti-corruption measures, including by revising the statute of
limitations by the end of 2014, and strengthening the powers of the national
anti-corruption authority. Timely monitor the impact of the reforms adopted to
increase the efficiency of civil justice with a view to securing their
effectiveness and adopting complementary action if needed. 
4.                      
Reinforce the resilience of the banking sector
and ensure its capacity to manage and dispose of impaired assets to revive
lending to the real economy. Foster non-bank access to finance for firms, especially
small and medium-sized businesses. Continue to promote and monitor efficient corporate
governance practices in the whole banking sector, with particular attention to
large cooperative banks ('banche popolari') and foundations, with a view to
improving the effectiveness of financial intermediation.
5.                      
Evaluate, by the end of 2014, the impact of the
labour market and wage-setting reforms on job creation, dismissals' procedures,
labour market duality and cost competitiveness, and assess the need for
additional action. Work towards a comprehensive social protection for the
unemployed, while limiting the use of wage supplementation schemes to
facilitate labour re-allocation. Strengthen the link between active and passive
labour market policies, starting with a detailed roadmap for action by
September 2014, and reinforce the coordination and performance of public
employment services across the country. Adopt effective action to promote
female employment, by adopting measures to reduce fiscal disincentives for
second earners by March 2015 and providing adequate care services. Provide adequate
services across the country to non-registered young people and ensure stronger
private sector's commitment to offering quality apprenticeships and
traineeships by the end of 2014, in line with the objectives of a youth
guarantee. To address exposure to poverty and social exclusion, scale-up the
pilot social assistance scheme, in a fiscally neutral way, guaranteeing
appropriate targeting, strict conditionality and territorial uniformity, and
strengthening the link with activation measures. Improve the effectiveness of
family support schemes and quality services favouring low-income households
with children.
6.                      
Implement the National System for Evaluation of
Schools to improve school outcomes in turn and reduce rates of early school
leaving. Increase the use of work-based learning in upper secondary vocational
education and training and strengthen vocationally-oriented tertiary education.
Create a national register of qualifications to ensure wide recognition of
skills. Ensure that public funding better rewards the quality of higher
education and research. 
7.                      
Approve the pending legislation aimed at
simplifying the regulatory environment for businesses and citizens and address
implementation gaps in existing legislation. Foster market opening and remove
remaining barriers to, and restrictions on competition in the professional and
local public services, insurance, fuel distribution, retail and postal services
sectors. Enhance the efficiency of public procurement, especially by
streamlining procedures including through the use of e-procurement,
rationalising the central purchasing bodies and securing the proper application
of pre- and post-award rules. In local public services, rigorously implement
the legislation providing for the rectification of contracts that do not comply
with the requirements on in-house awards by 31 December 2014. 
8.                      
Ensure swift and full operationalisation of the
Transport Authority by September 2014. Approve the list of strategic infrastructure
in the energy sector and enhance port management and connections with the
hinterland. 
Done at Brussels,
                                                                       For
the Council
                                                                       The
President
[1]               OJ L 209, 2.8.1997, p. 1.
[2]               OJ L 306, 23.11.2011, p. 25.
[3]               COM(2014) 413 final.
[4]               P7_TA(2014)0128 and P7_TA(2014)0129.
[5]               OJ L 140, 27.5.2013, p.11.
[6]               C(2013) 8005 final.
[7]               COM(2013) 800 final.
[8]               COM(2013) 790 final.
[9]               SWD(2014) 83 final.
[10]             Under Article 5(2) of Council Regulation (EC) No
1466/97.