Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of Italy and delivering a Council opinion on the 2017 Stability Programme of Italy
Date: 2017-05-22
Institutions: European Commission, Secretariat-General
Subjects: Italy, budget deficit, collective bargaining, competition policy, credit policy, economic policy, economic reform, fiscal policy, public finance, stability programme

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   EUROPEAN COMMISSION  Brussels, 22.5.2017  COM(2017) 511 final   Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of Italy  and delivering a Council opinion on the 2017 Stability Programme of Italy  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2017 National Reform Programme of Italy 

and delivering a Council opinion on the 2017 Stability Programme of Italy 

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  16 November  2016,  the  Commission  adopted  the  Annual  Growth  Survey,5 
marking  the  start  of  the  2017  European  Semester  of  economic  policy  coordination. 
The priorities of the Annual Growth Survey were endorsed by the European Council 
on  9-10 March  2017.  On  16 November  2016,  on  the  basis  of  Regulation  (EU) 
No 1176/2011,  the  Commission  adopted  the  Alert  Mechanism  Report,6  in  which  it 
identified Italy as one of the Member States for which an in-depth review would be 
carried out. On the same day, the Commission also adopted a recommendation for a 
Council  Recommendation  on  the  economic  policy  of  the  euro  area.  That 

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OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
COM(2017) 511 final. 
P8_ TA(2017)0038, P8_ TA(2017)0039, and P8_ TA(2017)0040. 
COM(2016) 725 final. 
COM(2016) 728 final. 

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Recommendation  was  endorsed  by  the  European  Council  on  9-10 March  2017  and 
adopted by the Council on 21 March 2017.7  

As a Member State whose currency is the euro and in view of the close interlinkages 
between the economies in the economic and monetary union, Italy should ensure the 
full  and  timely  implementation  of  the  Recommendation  for  the  euro  area  which  is 
reflected in recommendations 1 to 4 below. 
The  2017  country  report  for  Italy8  was  published  on  22 February  2017.  It  assessed 
Italy’s progress in addressing the country-specific recommendations adopted by the 
Council  on  12 July  2016,  the  follow-up  given  to  the  recommendations  adopted  in 
previous years and Italy’s progress towards its national Europe 2020 targets. It also 
included an in-depth  review under Article 5 of Regulation (EU)  No 1176/2011, the 
results  of  which  were  also  published  on  22 February  2017.9  The  Commission’s 
analysis  leads  it  to  conclude  that  Italy  is  experiencing  excessive  macroeconomic 
imbalances. High government debt and protracted weak productivity dynamics imply 
risks  with  cross-border  relevance,  in  a  context  of  high  non-performing  loans  and 
unemployment.  The  need  for  action  to  reduce  the  risk  of  adverse  effects  on  the 
Italian economy and, given its size and cross-border relevance, on the economic and 
monetary union, is particularly important.  

On 27 April 2017, Italy submitted its 2017 National Reform Programme and its 2017 
Stability  Programme.  To  take  account  of  their  interlinkages,  the  two  programmes 
have  been  assessed  at  the  same  time.  Italy’s  National  Reform  Programme  includes 
commitments  both  for  the  short  and  medium  term.  In  the  short  term,  the  final 
adoption  of  the  pending  laws  concerning  competition  and  the  reform  of  criminal 
process and the statute of limitations, the implementation of the anti-poverty law as 
well  as  measures  related  to  firm-level  bargaining,  tax  shift  and  privatisation  are 
planned.  In  the  medium  term,  measures  concern  public  finances,  taxation,  labour 
market,  the  banking  and  credit  system,  competition,  public  administration  and 
justice, and investment. The National Reform Programme also covers the challenges 
identified  in  the  2017  country  report  and  the  Recommendation  for  the  euro  area, 
including  the  need  to  re-launch  investment  and  ensure  the  sustainability  of  public 
finances.  If  fully  implemented  within  the  indicated  timelines,  these  measures  would 
help 
country-specific 
recommendations.  Based  on  the  assessment  of  Italy’s  policy  commitments,  the 
Commission confirms its previous assessment that at this stage no further steps are 
warranted  in  the  framework  of  the  Macroeconomic  Imbalances  Procedure.  The 
implementation  of  the  policy  reform  agenda  will  be  followed  closely  by  means  of 
specific monitoring. 

Italy’s  macroeconomic 

imbalances 

address 

and 

The relevant country-specific recommendations have been taken into account in the 
Member States’ programmes for the European Structural and Investment Funds (ESI 
Funds) covering the 2014-2020 period. As foreseen in the legislation governing the 
ESI Funds,10 where it is necessary to support the implementation of relevant country-

OJ C92/01, 24.3.2017, p. 1. 
SWD(2017) 77 final. 
COM(2017) 90 final. 
Article  23  of  Regulation  (EU)  No  1303/2013  of  the  European  Parliament  and  of  the  Council  of  17 
December  2013  laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the 
European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and 
the  European  Maritime  and  Fisheries  Fund  and  laying  down  general  provisions  on  the  European 
Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime 

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specific  recommendations,  the  Commission  may  request  a  Member  State  to  review 
and  amend  its  relevant  ESI  Funds  programmes.  The  Commission  has  provided 
further guidelines on the application of those rules.11 

Italy is currently in the preventive arm of the Stability and Growth Pact and subject 
to  the  debt  rule.  In  its  2017  Stability  Programme,  the  government  plans  an 
improvement  in  the  headline  deficit  from  2.4%  of  GDP  in  2016  to  2.1%  in  2017, 
1.2% in 2018, and a broadly balanced budgetary position by 2019. The medium-term 
budgetary  objective,  set  at  a  balanced  budgetary  position  in  structural  terms,  is 
planned  to  be  reached  by  2019  and  maintained  in  2020,  whereas  the  recalculated12 
structural  balance  points  to  a  small  structural  deficit  (0.3%  of  GDP)  in  both  years. 
After having further increased in 2016 (to 132.6% of GDP, from 132.1% in 2015), 
the general government debt-to-GDP ratio is projected in the Stability Programme to 
broadly stabilise in 2017 and to then decline as of 2018, reaching 125.7% in 2020. 
The  uncertainty  on  the  composition  and  implementation  of  the  medium-term 
budgetary  strategy  of  the  Stability  Programme  entails  downside  risks  for  both  the 
growth  projections  and  the  achievement  of  the  budgetary  targets.  In  particular,  the 
Commission 2017 spring forecast expects almost the same real GDP growth for 2018 
as the 2017 Stability Programme, in spite of a significantly higher deficit. In fact, the 
Commission forecast does not incorporate a VAT hike (0.9% of GDP) legislated as 
"safeguard  clause"  to  achieve  the  budgetary  targets  in  2018,  also  because  the  2017 
Stability  Programme  confirms  the  intention  of  not  activating  it  without  providing 
details  about  alternative  compensating  measures.  Furthermore,  the  2017  Stability 
Programme  indicates  the  intention  to  find  additional  room  for  reducing  the  tax 
burden.  

The  2017  Stability  Programme  indicates  that  the  overall  budgetary  impact  of  the 
exceptional  inflow  of  refugees  and  security-related  measures  in  2016  and  2017  is 
significant  and  provides  adequate  evidence  of  the  scope  and  nature  of  these 
additional  budgetary  costs.  According  to  the  Commission,  the  eligible  additional 
expenditure  in  2016  amounted  to  0.06%  of  GDP  for  the  exceptional  inflow  of 
refugees and to 0.06% of GDP for security-related measures. For 2017, the eligible 
expenditure  related  to  exceptional  inflow  of  refugees  is  preliminarily  estimated  at 
0.16% of GDP.13  Moreover, the Italian authorities invoked the unusual event clause 
in  2017  for  exceptional  seismic  activity.  The  eligible  expenditure  related  to 
exceptional  seismic  activity  is  preliminarily  estimated  at  0.18%  of  GDP  in  2017.14  

and  Fisheries  Fund  and  repealing  Council  Regulation  (EC)  No  1083/2006,  OJ  L  347,  20.12.2013,  p. 
320. 
COM(2014) 494 final. 
Cyclically-adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
using the commonly agreed methodology. 
This  amount  is  based  on  the  0.25%  of  GDP  overall  budgetary  cost  estimated  in  the  2017  stability 
programme  from  which  the  temporary  deviations  of  0.03%  of  GDP  and  of  0.06%  already  granted  in 
2015 and 2016, respectively, are deducted. In its opinion on the 2017 Draft Budgetary Plan of Italy the 
Commission  announced  that  it  would  stand  ready  to  consider  an  additional  deviation  due  to  the 
persistent exceptional inflow of refugees in Italy also in light of the European Council of October 2016 
which  recognised  "the  significant  contribution,  also  of  financial  nature,  made  by  frontline  Member 
States in recent years". 
In its opinion on the 2017 Draft Budgetary Plan for Italy, the Commission considered that expenditure 
earmarked  for  emergency  management  and  the  preventive  investment  plan  for  the  protection  of  the 
national territory against seismic risks could be considered of integrated nature. For the following years 
only positive incremental changes in resources earmarked for this purpose would be considered eligible 
for further possible temporary deviations. 

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The  provisions  set  out  in  Article  5(1)  and  Article  6(3)  of  Regulation  (EC)  No 
1466/97  cater  for  this  additional  expenditure,  in  that  the  inflow  of  refugees,  the 
severity of the terrorist threat and the exceptional seismic activity are unusual events, 
their impact on Italy's public finances is significant, and sustainability would not be 
compromised  by  allowing  for  a  temporary  deviation  from  the  adjustment  path 
towards  the  medium-term  budgetary  objective.  Therefore,  the  required  adjustment 
towards the medium-term budgetary objective for 2016 has been reduced by 0.12% 
of  GDP  to  take  into  account  additional  refugee-related  and  security-related  costs. 
Regarding 2017, a final assessment, including on the eligible amounts, will be made 
in spring 2018 on the basis of observed data as provided by the Italian authorities.  

For 2016, Italy was granted a temporary deviation of 0.5% of GDP from the required 
adjustment  path  towards  the  medium-term  budgetary  objective  to  take  account  of 
major  structural  reforms  with  a  positive  impact  on  the  long-term  sustainability  of 
public finances and a further 0.25% of GDP to take account of national investment 
expenditure in projects co-financed by the EU. As regards the investment clause, one 
of the eligibility criteria is the increase in public investment. Outturn data for 2016 
showed  a  decline  in  public  investment  in  2016  compared  to  2015  (by  EUR  1.6 
billion).  However,  the  Council  acknowledges  that  there  are  specific  factors  which 
constrained public investment last year. One factor was uncertainty associated with 
the  transition  to  the  new  code  of  public  procurement  and  concessions,  which  was 
revised in line with the 2016 country-specific recommendations. Moreover, and even 
more importantly, in 2016 there was a sharp fall in investment financed through EU 
funds  as  a  result  of  the  start  of  the  new  programming  period,  while  nationally 
financed  investment  marginally  increased  (by  EUR  1.1  billion).  Therefore,  as 
nationally  financed  investment  rose  in  2016  and  the  expenditure  related  to  the 
investment clause did not substitute for it, a temporary deviation of 0.21% of GDP 
can be granted to Italy in relation to the investment clause, corresponding to national 
expenditure  eligible  for  co-financing  as  reported  in  the  2017  Stability  Programme. 
Once  the  overall  additional  flexibility  of  0.83%  of  GDP  under  the  unusual  event, 
structural reform and investment clauses is taken into account, the Commission 2017 
spring  forecast  points  to  some  deviation  from  the  recommended  adjustment  path 
towards the medium-term objective in 2016.  

On  12  July  2016,  the  Council  recommended  Italy  to  achieve  an  annual  fiscal 
adjustment of 0.6 % or more of GDP towards the medium-term budgetary objective 
in  2017.  Based  on  the  Commission  2017  spring  forecast,  there  is  a  risk  of  a 
significant  deviation  from  the  recommended  adjustment  path  towards  the  medium-
term objective in 2017 and for 2016 and 2017 taken together. That conclusion would 
however  change  to  a  risk  of  some  deviation,  if  the  temporary  allowance  for  the 
unusual  event  clause  related  to  the  exceptional  inflow  of  refugees  and  to  the 
preventive investment plan for the protection of the national territory against seismic 
risks  (preliminarily  estimated  at  0.34%  of  GDP,  overall)  is  deducted  from  the 
requirement in 2017.  

In  2018,  in  the  light  of  its  fiscal  situation  and  notably  of  its  debt  level,  Italy  is 
expected to further adjust towards its medium-term budgetary objective of a balanced 
budgetary  position  in  structural  terms.  According  to  the  commonly  agreed 
adjustment  matrix  under  the  Stability  and  Growth  Pact,  that  adjustment  translates 
into  a  requirement  of  a  nominal  rate  of  reduction  of  net  primary  government 
expenditure  by  at  least  0.2  %  in  2018.  It  would  correspond  to  an  annual  structural 
adjustment of at least 0.6 % of GDP. Under unchanged policies, there is a risk of a 

(8) 

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significant deviation from the requirement in 2018. Italy is prima facie not forecast to 
comply with the debt rule in 2017 and 2018. Overall, the Council is of the opinion 
that Italy needs to stand ready to take further measures to ensure compliance in 2017 
and that further measures will be needed in 2018 to comply with the provisions of the 
Stability and Growth Pact. However, as foreseen in Regulation (EC) No 1466/97, the 
assessment of the budgetary plans and outcomes should take account of the Member 
State’s  budgetary  balance  in  the  light  of  the  cyclical  conditions.  As  recalled  in  the 
Commission 
country-specific 
recommendations, the assessment of the 2018 Draft Budgetary Plan and subsequent 
assessment  of  2018  budget  outcomes  will  need  to  take  due  account  of  the  goal  to 
achieve a fiscal stance that contributes to both strengthening  the ongoing recovery 
and  ensuring  the  sustainability  of  Italy’s  public  finances.  In  that  context,  the 
Commission intends to make use of the applicable margin of appreciation in the light 
of the cyclical situation of Italy.  

Communication 

accompanying 

these 

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Due to Italy’s prima facie non-compliance with the debt rule in 2015, on 22 February 
2017  the  Commission  issued  a  report  under  Article  126(3)  of  the  TFEU,  which 
concluded  that  "Unless  the  additional  structural  measures,  worth  at  least  0.2%  of 
GDP, that the government committed to adopt at the latest in April 2017 are credibly 
enacted  by  that  time  in  order  to  reduce  the  gap  to  broad  compliance  with  the 
preventive arm in 2017 (and thus in 2016), the current analysis suggests that the debt 
criterion  as  defined  in  the  Treaty  and  in  Regulation  (EC)  No  1467/1997  should  be 
considered  as  currently  not  complied  with.  However,  a  decision  on  whether  to 
recommend opening an excessive deficit procedure would only be taken on the basis 
of  the  Commission  2017  spring  forecast,  taking  into  account  outturn  data  for  2016 
and the implementation of the fiscal commitments made by the Italian authorities in 
February  2017."  In  April  2017,  the  Italian  government  adopted  the  requested 
additional  consolidation  measures.  Therefore,  no  further  steps  are  deemed  to  be 
necessary  for  compliance  with  the  debt  criterion  in  2015  at  this  stage.  The 
Commission will reassess Italy’s compliance with the debt criterion in autumn 2017, 
based  on  notified  data  for  2016  and  the  Commission  2017  autumn  forecast,  which 
will  incorporate  new  information  on  budgetary  implementation  in  2017  and  actual 
budgetary plans for 2018. 

Italy’s high public debt ratio is set to stabilise, but not decrease, due to the worsening 
of  the  structural  primary  balance  and  current  macroeconomic  conditions.  At  more 
than  130 %  of  GDP,  this  implies  that  significant  resources  are  earmarked  to  cover 
debt  servicing  costs,  to  the  detriment  of  more  growth-enhancing  items  including 
education, innovation and infrastructure.  

Italy’s  tax  system  is  not  supportive  of  economic  growth  and  efficiency  on  several 
grounds. Despite a recent modest reduction, the tax burden on factors of production 
remains  among the highest in  the EU. There is  scope to  shift further towards  taxes 
less  detrimental  to  growth,  in  a  budgetary  neutral  way.  The  first  residence  tax  was 
repealed in 2015, which was a step back in the process of achieving a more efficient 
tax structure. In spite of national legislation requiring it on an annual basis, the long-
awaited revision of tax expenditures, in particular with respect to the reduced value 
added tax rates, was further postponed. A reform of outdated cadastral values in line 
with current market values is still pending. Low tax compliance and the complex tax 
code increase the burden on compliant firms and households. Recent measures, such 
as  mandatory  electronic  invoicing  and  the  ʽsplit  payment’  for  purchases  by 
government  bodies,  go  in  the  right  direction.  However,  electronic  invoicing  is  not 

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compulsory  for  private  sector  transactions  and  limits  on  using  cash  have  recently 
been  raised,  so  that  the  use  of  electronic  payments  remains  well  below  the  EU 
average, to the detriment of tax compliance. 

As regards the budgetary process, a comprehensive reform was passed in 2016. The 
Commission  will  continue  to  monitor  implementation  of  the  reform,  which  would 
make the spending review a more integral part of the budgeting process. 

Italy’s  framework  conditions,  public  administration  and  business  environment  are 
still affected by a number of structural inefficiencies. These inefficiencies continue to 
slow down implementation of reforms, deter investment, create uncertainty and open 
opportunities for rent-seeking. The reforms of the civil justice system adopted over 
the  past  years  to  increase  the  efficiency  of  the  justice  system,  improve  case 
management and ensure procedural discipline, are only very slowly starting to show 
results. The length of civil justice proceedings remains a major challenge. Although 
decreasing slightly at lower instances, both the disposition time and the backlog for 
civil  and  commercial  lawsuits  continue  to  be  among  the  highest  in  the  EU  at  all 
instances. A pending reform of civil proceedings provides for a further tightening of 
admissibility  criteria  for  appeals,  streamlined  civil  procedures  at  all  instances  and 
disincentives against vexatious litigation. 

Several indicators confirm that corruption is still a major problem in Italy, despite the 
reforms adopted so far. The long-overdue reform of the statute of limitations to step 
up the fight against corruption has been pending since 2014. In its current form, the 
statute  of  limitations  leads  to  a  high  proportion  of  cases  getting  time-barred  after 
first-instance conviction. Moreover, the national anti-corruption authority has limited 
financial and human resources to exercise its powers, and the prevention framework 
remains fragmented. 

A  comprehensive  enabling  law  reforming  the  public  administration  was  adopted  in 
2015.  It  has  the  potential  to  improve  the  efficiency  and  effectiveness  of  the  public 
administration. However, following the November 2016 Constitutional Court ruling 
that  declared  the  procedure  followed  for  the  adoption  of  some  implementing 
legislative decrees unconstitutional, the implementation of key parts of the reform is 
still  pending.  In  particular,  the  ruling  concerns  three  key  areas  of  the  reform:  local 
public services, public employment, and publicly-owned enterprises. New legislative 
initiatives are needed to  reform the local public services and public  employment at 
management  level,  as  the  deadline  for  their  decrees  expired  in  November  2016. 
Regarding publicly-owned enterprises, the decree adopted before the ruling needs to 
be  amended.  The  reform  aims  to  reduce the  number  of  publicly-owned  enterprises, 
improve  their  efficiency,  and  ensure  that  they  operate  under  the  same  rules  as 
privately-owned  entities.  The  implementation  of  the  planned  privatisations  would 
also contribute to the rationalisation of publicly-owned enterprises. 

Framework  conditions  for  competition  also  remain  unfavourable.  In  particular,  the 
2015  annual  competition  law  has  not  yet  been  adopted.  Significant  barriers  to 
competition  persist  in  certain  sectors,  such  as  regulated  professions,  concessions, 
public procurement and the system of authorisations as well as local public services, 
including  transport.  In  particular,  progress  in  fostering  an  efficient,  transparent  and 
competition-driven  functioning  of  the  public  transport  market,  notably  for  railways 
under  government  concessions,  is  still  very  limited.  According  to  a  new  indicator 
developed by the Commission, the level of restrictiveness is higher in Italy than the 
EU-weighted average for most of the professions analysed. As part of a package of 

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measures to tackle barriers in services markets,15 in January 2017 specific guidance 
by  profession  to  address  this  issue  was  made  in  a  Communication  from  the 
Commission on reform recommendations for regulation in professional services. 

The  banking  sector’s  large  stock  of  non-performing  loans  remains  a  drag  on  bank 
profits and their ability to generate capital internally. This weighs on credit supply, in 
particular to small firms. The policy initiatives taken so far have not yet resulted in a 
significant  reduction  in  non-performing  loans.  Supervisory  guidance  on  non-
performing  loan  management  at  national  level  remains  underdeveloped.  Medium-
sized and small banks continue to be more vulnerable than large credit institutions. 
The  Commission  will  therefore  monitor  the  implementation  of  the  corporate 
governance  reform  of  the  largest  popolari  banks  and  small  mutual  banks,  which  is 
key  to  the  consolidation  of  the  banking  system.  The  insolvency  and  collateral 
enforcement  framework  continues  to  be  insufficiently  supportive  of  swift  non-
performing  loan  work-out  and  restructuring,  especially  in  relation  to  small  and 
micro-firms. A draft enabling law aiming at overhauling and streamlining insolvency 
and  enforcement  tools,  currently  under  discussion  in  Parliament,  could  help  to 
overcome  the  existing  inefficiencies  and  contribute  to  the  development  of  a 
secondary market for distressed debt in Italy.  

Despite the gradual improvement of the labour market, supported by reforms, long-
term and youth unemployment remain high (6.7% and 38% respectively in 2016) and 
more  than  1.2  million  young  people  are  not  in  education,  employment  or  training. 
While the implementation of Youth Guarantee has progressed a lot, some challenges 
remain to ensure a more effective and a full-scale implementation. The number and 
quality  of  offers  remain  low  and  regional  differences  in  the  delivery  are  high.  The 
reform of the active labour market policies, including its governance system, is still 
at  an  early  stage  and  employment  services  remain  weak,  with  wide  regional 
disparities. Adult learning is not sufficiently developed, which may negatively weigh 
on labour market outcomes of low-skilled people. 

The  participation  of  women  in  the  labour  market  and  their  labour  force  potential 
remains largely underutilised. The female employment rate is one of the lowest in the 
EU. Some  features  of the tax-benefit  system continue  to  discourage second earners 
from  participating  in  the  labour  force  while  access  to  affordable  care  services  (for 
children  and  the  elderly)  remains  limited,  with  wide  regional  disparities.  Paternity 
leave is among the lowest in the EU. 

Second-level bargaining is not broadly used. This hampers the efficient allocation of 
resources and the responsiveness of wages to local economic conditions. This is also 
due  to  the  existing  framework  rules  and  practices  for  collective  bargaining,  which 
entail  uncertainty  in  industrial  relations  and  leave  limited  scope  for  local-level 
bargaining.  Tax  rebates  on  productivity-related  pay  increases  have  not  proved 
effective in extending the use of second-level bargaining significantly. 

The  rate  of  people  at  risk  of  poverty  or  social  exclusion  is  well  above  the  EU 
average,  especially  for  children  and  people  with  a  migrant  background.  There  are 
also  substantial  regional  disparities.  Some  progress  has  been  made  regarding  the 
national  anti-poverty  strategy.  The  recently  adopted  Inclusion  Income  scheme  is  a 
positive step towards establishing a single comprehensive scheme against poverty. Its 
effectiveness  will  depend  on  its  proper  implementation  with  the  mobilisation  of 

15 

COM(2016)  820  final,  COM(2016)  821  final,  COM(2016)  822  final,  COM(2016)  823  final, 
COM(2016) 824 final. 

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adequate resources (including through the streamlining of various social allocations), 
appropriate  targeting  through  means-testing  and  priority  allocation  to  families  with 
children and effective procedures on the ground, both in delivering income support 
and  in  providing  well  integrated  services.  At  this  stage,  it  is  unclear  whether  the 
financial  resources  will  be  sufficient  to  address  Italy’s  poverty  challenge.  Catering 
for  additional  resources  while  respecting  the  budgetary  targets,  reducing  the 
fragmentation  of  the  social  assistance  system,  rationalising  social  spending,  and 
addressing its current bias towards pensions, remain key challenges. 

In  the  context  of  the  European  Semester  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Italy’s  economic  policy  and  published  it  in  the  2017 
country report. It has also assessed the Stability Programme and the National Reform 
Programme  and  the  follow-up  given  to  the  recommendations  addressed  to  Italy  in 
previous  years.  It  has  taken  into  account  not  only  their  relevance  for  sustainable 
fiscal and socioeconomic policy in Italy, but also their compliance with EU rules and 
guidance,  given  the  need  to  strengthen  the  EU’s  overall  economic  governance  by 
providing EU-level input into future national decisions.  

In  the  light  of  this  assessment,  the  Council  has  examined  the  Stability  Programme 
and its opinion16 is reflected in particular in recommendation 1 below. 

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  made  under  Article  6  of  Regulation  (EU)  No 1176/2011  are 
reflected in recommendations 1 to 4 below, 

(24) 

(25) 

(26) 

HEREBY RECOMMENDS that Italy take action in 2017 and 2018 to: 

1. 

2. 

3. 

4. 

16 

Pursue  its  fiscal  policy  in  line  with  the  requirements  of  the  preventive  arm  of  the 
Stability and Growth Pact, which translates into a substantial fiscal effort for 2018. 
When taking policy action, consideration should be given to achieving a fiscal stance 
that  contributes  to  both  strengthening  the  ongoing  recovery  and  ensuring  the 
sustainability  of  Italy’s  public  finances.  Shift  the  tax  burden  from  the  factors  of 
production onto taxes less detrimental to growth in a budgetary neutral way by taking 
decisive  action  to  reduce  the  number  and  scope  of  tax  expenditures,  reforming  the 
outdated  cadastral  system  and  reintroducing  the  first  residence  tax  for  high-income 
households. Broaden the compulsory use of electronic invoicing and payments. 

Reduce the trial length in civil justice through effective case management and rules 
ensuring procedural discipline. Step up the fight against corruption, in particular by 
revising  the  statute  of  limitations.  Complete  reforms  of  public  employment  and 
improve the efficiency of publicly-owned enterprises. Promptly adopt and implement 
the  pending  law  on  competition  and  address  the  remaining  restrictions  to 
competition. 

Accelerate the reduction in the stock of non-performing loans and step up incentives 
for  balance-sheet  clean-up  and  restructuring,  in  particular  in  the  segment  of  banks 
under  national  supervision.  Adopt  a  comprehensive  overhaul  of  the  regulatory 
framework for insolvency and collateral enforcement. 

With  the  involvement  of  social  partners,  strengthen  the  collective  bargaining 
framework  to  allow  collective  agreements  to  better  take  into  account  local 

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

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conditions.  Ensure  effective  active  labour  market  policies.  Facilitate  the  take-up  of 
work for second earners. Rationalise social spending and improve its composition.  

Done at Brussels, 

For the Council 
The President 

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