Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Italy and delivering a Council opinion on the 2018 Stability Programme of Italy
Date: 2018-05-23
Institutions: European Commission, Secretariat-General
Subjects: Italy, budget deficit, corruption, credit policy, economic policy, economic reform, judicial reform, restriction on competition, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 23.5.2018 COM(2018) 411 final  Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of Italy  and delivering a Council opinion on the 2018 Stability Programme of Italy  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2018 National Reform Programme of Italy 

and delivering a Council opinion on the 2018 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 
policies1, and in particular Article 5(2) thereof, 

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

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

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 22 November 2017, the Commission adopted the Annual Growth Survey, marking 
the start of the 2018 European Semester of economic policy coordination. It took due 
account  of  the  European  Pillar  of  Social  Rights,  proclaimed  by  the  European 
Parliament, the Council and the Commission on 17 November 2017. The priorities of 
the  Annual  Growth  Survey  were  endorsed  by  the  European  Council  on  22  March 
2018.  On  22  November  2017,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the 
Commission also adopted the Alert Mechanism Report, 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, which was endorsed by the 

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OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
COM(2018) 411 final. 
P8_TA(2018)0077 and P8_TA(2018)0078. 

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European  Council  on  22  March  2018.  On  14  May  2018,  the  Council  adopted  the 
recommendation  on  the  economic  policy  of  the  euro  area  (‘recommendation  for  the 
euro area’). 

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 on the economic policy for the 
euro area, as reflected in recommendations (1) to (4) below.  
The 2018 country report for Italy5 was published on 7 March 2018. It assessed Italy’s 
progress in addressing the country-specific recommendations adopted by the Council 
on  11  July  2017,  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 7 March 20186. The Commission’s analysis leads it to 
conclude  that  Italy  is  experiencing  excessive  macroeconomic  imbalances.  In 
particular,  high  government  debt  and  protracted  weak  productivity  dynamics  imply 
risks with cross-border relevance, in a context of a high but decreasing stock of non-
performing loans and very high but improving unemployment. The need for action to 
reduce  the  risk  of  adverse  effects  on  the  Italian  economy  and  on  the  economic  and 
monetary  union,  given  the  size  and  cross-border  relevance  of  Italy’s  economy,  is 
particularly important. 

On 16 May 2018, Italy submitted its 2018 National Reform Programme and its 2018 
Stability Programme. To take account of their interlinkages, the two programmes have 
been assessed at the same time. 

Relevant country-specific recommendations have been addressed in the programming 
of  the  European  Structural  and  Investment  Funds  for  the  2014-2020  period.  As 
foreseen in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament 
and  of  the  Council7,  where  it  is  necessary  to  support  the  implementation  of  relevant 
Council  recommendations,  the  Commission  may  request  a  Member  State  to  review 
and propose amendments to its Partnership Agreement and relevant programmes. The 
Commission has provided further details on how it would make use of that provision 
in  guidelines  on  the  application  of  the  measures  linking  the  effectiveness  of  the 
European Structural and Investment Funds to sound economic governance8.  

Italy is currently in the preventive arm of the Stability and Growth Pact and subject to 
the debt rule. The 2018 Stability Programme submitted by the outgoing government is 
based  on  a  trend  scenario  assuming  unchanged  legislation.  The  headline  deficit  is 
projected by the authorities to improve from 2.3 % of GDP in 2017 to 1.6 % in 2018, 
0.8 % in 2019, and a broadly balanced budgetary position by 2020. The medium-term 
budgetary objective, set at a balanced budgetary position in structural terms, is planned 

SWD(2018) 210 final. 
COM(2018) 120 final. 
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  and 
Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 (OJ L 347, 20.12.2013, p. 320). 
COM(2014) 494 final. 

(2) 

(3) 

(4) 

(5) 

(6) 

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to  be  reached  by  2020  and  maintained  in  2021,  whereas  the  recalculated9  structural 
balance points to a small structural deficit (0.2 % of GDP) in both years. After having 
slightly  decreased  in  2017  (to  131.8 %  of  GDP,  from  132.0 %  in  2016),  the  general 
government  debt-to-GDP  ratio  is  projected  in  the  2018  Stability  Programme  to 
continue  declining  as  of  2018,  reaching  122.0 %  in  2021  also  thanks  to  projected 
privatisation proceeds of 0.3% per year over 2018-20. However, privatisation targets 
have been underachieved in recent years. Based on a no-policy change assumption, the 
Commission 2018 spring forecast expects lower real GDP growth and a higher deficit 
for 2019 than the 2018 Stability Programme. In fact, the Commission forecast does not 
incorporate a VAT hike (0.7 % of GDP) legislated as a ‘safeguard clause’ to achieve 
the budgetary targets in 2019. 

On 23 May  2018 the Commission issued a report under Article 126(3)  of the TFEU 
due  to  Italy’s  prima  facie  non-compliance  with  the  debt  rule  in  2016  and  2017.  The 
report  concluded,  following  an  assessment  of  all  the  relevant  factors,  that  the  debt 
criterion  as  defined  in  the  Treaty  and  in  Regulation  (EC)  No  1467/1997  should  be 
considered  as  currently  complied  with,  and  that  opening  of  an  excessive  deficit 
procedure  is  thus  not  warranted,  having  regard  in  particular  to  Italy's  ex-post 
compliance  with  the  preventive  arm  in  2017.  The  Commission  will  reassess 
compliance on the basis of the ex-post data for 2018 to be notified in Spring 2019. 

The Stability Programme indicates that the budgetary impact of the exceptional inflow 
of  refugees  and  the  protection  against  seismic  risks  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 2017 amounted to 
0.16 % of GDP for the exceptional inflow of refugees and 0.19 % of GDP concerning 
protection  against  seismic  risks.  The  provisions  set  out  in  Articles  5(1)  and  6(3)  of 
Regulation (EC) No 1466/97 cater for this additional expenditure, in that the inflow of 
refugees  and  the  seismic  risks  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 2017 has been reduced to take into account these additional costs.  

On 11 July 2017, the Council recommended Italy to ensure a nominal rate of reduction 
of net primary government expenditure10 by at least 0.2 % in 2018, corresponding to 
an annual structural adjustment of 0.6 % of GDP. At the same time, it was stated that 
the assessment of the 2018 Draft Budgetary Plan and subsequent assessment of 2018 
budget outcomes will need to take due account of the goal of achieving a fiscal stance 
that  contributes  to  both  strengthening  the  ongoing  recovery  and  ensuring  the 
sustainability  of  public  finances.  Following  the  Commission’s  assessment  of  the 
strength  of  the  recovery  in  Italy  while  giving  due  consideration  to  its  sustainability 
challenges, carried out in the context of its opinion on Italy’s Draft Budgetary Plan, a 
fiscal  structural  effort  of  at  least  0.3 %  of  GDP  is  required  for  2018,  without  any 
additional  margin  of  deviation  over  one  year.  This  corresponds  to  a  nominal  rate  of 

Cyclically-adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
using the commonly agreed methodology. 
Net  primary  government  expenditure  comprises  total  government  expenditure  excluding  interest 
expenditure,  expenditure  on  Union  programmes  fully  matched  by  Union  funds  revenue  and  non-
discretionary  changes  in  unemployment  benefit  expenditure.  Nationally  financed  gross  fixed  capital 
formation  is  smoothed  over  a  4-year  period.  Discretionary  revenue  measures  or  revenue  increases 
mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted 
out. 

(7) 

(8) 

(9) 

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(10) 

(11) 

(12) 

growth of net primary government expenditure not exceeding 0.5 %. Taking that into 
account  in  the  overall  assessment,  based  on  the  Commission  2018  spring  forecast, 
there  is  a  risk  of  a  significant  deviation  from  the  recommended  adjustment  path 
towards the medium-term budgetary objective in 2018. 

In  2019,  in  view  of  Italy’s  general  government  debt  ratio  above  60 %  of  GDP  and 
projected  output  gap  of  0.5 %,  the  nominal  growth  rate  of  net  primary  government 
expenditure should not exceed 0.1 %, in line with the structural adjustment of 0.6 % of 
GDP stemming from the matrix of requirements under the Stability and Growth Pact. 
Under  unchanged  policies,  there  is  a  risk  of  a  significant  deviation  from  the 
requirement  in  2019  and  for  2018  and  2019  taken  together.  Italy  is  prima  facie  not 
forecast to comply with the debt rule in 2018 and 2019. Moreover, at around 130 % of 
GDP, Italy’s high public debt ratio implies that large resources are earmarked to cover 
debt  servicing  costs,  to  the  detriment  of  more  growth-enhancing  items  including 
education, innovation and infrastructure. Overall, the Council is of the opinion that the 
necessary measures should be taken as of 2018 to comply with the provisions of the 
Stability and Growth Pact. The use of any windfall gains to further reduce the general 
government debt ratio would be prudent. 

Italy's old-age pension expenditure, at around 15 % of potential GDP, is now among 
the highest in the EU. Implicit liabilities arising from population ageing were curbed 
by  past  pension  reforms,  improving  Italy's  long-term  sustainability  also  by  gradually 
adjusting  retirement  age  to  life  expectancy.  However,  both  the  2017  and  the  2018 
budgets  contained  provisions  that  partially  reversed  those  reforms.  Italy  has  a  larger 
share of population above 65 than the EU average. This is projected to further increase 
over time, worsening Italy's old-age dependency ratio. Hence, pension expenditure is 
projected  to  increase  over  the  medium  term.  The  high  share  of  old-age  pensions  in 
public  spending  also  restraints  other  social  spending,  including  to  fight  poverty,  and 
growth-enhancing spending items like education, whose share in expenditure has been 
declining    since  the  early  2000s.  While  respecting  the  principles  of  fairness  and 
proportionality, sizeable savings could be achieved by intervening on the high pension 
entitlements not matched by contributions. 

Italy’s tax system weighs heavily on capital and labour, which has adverse effects on 
economic  growth.  Despite  the  recent  extension  of  targeted  tax  incentives,  the  tax 
burden  on  the  production  factors  is  still  among  the  highest  in  the  EU,  discouraging 
investment and employment. There is room to reduce it in a budgetary neutral way, by 
shifting  towards  tax  bases  less  detrimental  to  growth,  such  as  property  and 
consumption.  The  recurrent  property  tax  on  first  residences  was  repealed  in  2015, 
including  for  wealthier  households.  In  addition,  property  cadastral  values  are  largely 
outdated, and a reform to align them with current market values is still pending. The 
number  and  size  of  tax  expenditures,  in  particular  in  the  case  of  the  reduced  value 
added tax rates, are particularly high and their streamlining has been further postponed 
despite being required by national legislation. There is also scope to reduce the burden 
on  compliant  firms  and  households  by  reducing  the  complexity  of  the  tax  code  and 
increasing the overall level of tax compliance. The extension of mandatory electronic 
invoicing  to  all  private  sector  transactions  from  2019  is  a  positive  step  in  this 
direction.  However,  legal  thresholds  for  cash  payments  have  been  increased,  which 
could  discourage  the  use  of  electronic  payments  whose  compulsory  nature  may 
improve  tax  compliance.  Italy’s  National  Institute  of  Statistics  estimates  that  the 
shadow economy amounts to about 12.9 % of GDP, but no strategic action has been 

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(13) 

planned  to  tackle  this  challenge.  About  15.9 %  of  total  employment  is  partially  or 
completely undeclared, with peaks nearing 50 % in some sectors. 

Investment declined sharply during the crisis and has not yet returned to its 2007 level. 
Despite increasing in 2017 the level of investment is still low compared to other EU 
countries. Private investment has been particularly low, held back by structural factors. 
These include a less favourable business environment, financial constraints related to 
underdeveloped  capital  markets,  impaired  bank-lending  and  a  lack  of  high-skilled 
people  due  to,  among  other  reasons,  brain  drain  and  limited  lifelong  learning. 
Intangible  assets,  such  as  research  and  development,  innovation  and  training  of 
workers,  are  vital  for  productivity  and  economic  growth  and  can  help  explain 
differences  in  productivity  across  countries.  However,  investment  in  such  assets 
remains below the EU average. This is due to the large number of micro-firms, Italy’s 
lack  of  specialisation  in  knowledge-intensive  sectors,  limited  digitisation  and  digital 
skills. At the same time, overall public spending in research and development has been 
reduced.  Financing  of  small  and  medium-sized  companies  continues  to  be  highly 
dependent on the banking sector, and lending remains subdued despite financing costs 
at  historically  low  levels.  There  are  also  major  regional  differences  in  investment  in 
research  and  development,  in  the  take-up  of  recent  policy  incentives  for  innovative 
firms and in the quality of education. Based on the current evaluation of the results of 
the  different  industrial  measures  put  in  place  under  "Finance  for  Growth"  and 
"Industry/Enterprise  4.0"  initiatives,  it  would  seem  appropriate  to  set-up  a  long-term 
policy framework  to  sustain investment that  is  capable of strengthening the different 
factors  (credit  availability,  strong  research  basis,  high  education  and  suitable  skills) 
that  support  innovation.  It  would  also  seem  appropriate  to  consider  existing 
differences in regional industrial and education systems. 

(14)  The  efficiency  of  Italy’s  justice  system  has  improved  only  slightly  in  the  past  years, 
and  the  length  of  proceedings  remains  a  source  of  concern,  especially  at  higher 
instances. Namely, in 2016, the time needed to resolve civil and commercial litigious 
cases was still one of the highest in the EU at all instances. The backlog continued to 
increase at the Supreme Court of Cassation, where it remains among the largest in the 
EU  per  capita.  An  important  enabling  law  streamlining  civil  procedural  rules  and 
introducing stronger deterrence against vexatious litigation has been pending in Italy's 
Parliament  for  two  years.  In  addition,  among  the  measures  adopted  to  contain 
litigation  and  strengthen  procedural  discipline,  the  simplified  proceeding  (‘rito 
sommario’) has not become the default in appeal courts, and use of the inadmissibility 
filter for appeals remains inconsistent and limited in second instance, thereby failing to 
bring  the  expected  reduction  in  incoming  cases.  Rather,  in  2016  the  number  of 
incoming  civil  cases  increased  both  in  first  and  second  instance  also  due  to  steadily 
increasing  appeal  rates.  An  increasing  share  of  Cassation  appeals  was  declared 
inadmissible in 2016, confirming a recent upward trend. The Supreme Court’s ability 
to deal with its case inflow also decreased in the context of a  marked rise in its non-
criminal  incoming  cases  (including  tax  cases),  which  could  undermine  its  role. 
Adequate enforcement of procedural rules, including against the misuse of litigation, 
could also contribute to the sound and efficient administration of justice. 

(15)  Corruption  remains  a  major  challenge  for  Italy’s  business  environment  and  public 
procurement.  Italy  improved  its  anti-corruption  framework  by  revising  its  statute  of 
limitations, extending the protection of whistle-blowers to private sector workers and 
better  aligning  the  offence  of  corruption  among  private  parties  with  international 
standards.  While  the  adopted  reform  of  the  statute  of  limitations  does  not  stop 

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prescription terms after a first-instance conviction, as recommended by the Council of 
Europe’s Group of Countries against Corruption, it may reduce the scope for abusive 
criminal litigation as a delaying tactic by lawyers at higher instances. As such, it may 
alleviate  a  long-standing  concern  that  corruption  cases  get  time-barred  after  first-
instance  conviction.  Repression  of  corruption  could  be  improved  by  increasing  the 
efficiency of criminal justice. In 2014, Italy had the largest number of incoming and 
pending criminal cases in the EU at second and third instance, also due to one of the 
highest  rates  of  Cassation  appeals.  This  resulted  in  one  of  the  longest  criminal  trial 
lengths. Incentivising expedited procedures and discouraging abuses of the trial could 
help make criminal justice and the fight against corruption more effective. Moreover, 
the  National  Anti-Corruption  Authority  has  a  key  role  in  the  implementation  of  the 
new anti-corruption framework. 

Increasing the quality of the Italian public administration would have a positive impact 
on  the  business  environment  and  investment  and  firms’  ability  to  exploit  innovation 
opportunities. The great regional variation in administrations’ responsiveness towards 
firms  suggests  that  entrepreneurs  in  specific  areas  face  bigger  obstacles  when  doing 
business. In 2015, a comprehensive enabling law reforming the public administration 
was adopted, with the potential to improve efficiency for the benefit of the economy. 
By the end of 2017, the implementation of the reform was completed and now requires 
enforcement,  in  particular  in  regions  with  the  lowest  performances.  On  publicly-
owned enterprises, the reform aims to ensure that publicly-owned enterprises operate 
under  the  same  rules  as  privately-owned  entities.  The  declared  objectives  are  to: 
rationalise  publicly-owned  enterprises  via  mergers,  consolidations  of  non-profitable 
ones and privatisations; increase the efficiency of the remaining enterprises; and avoid 
future  proliferation  of  non-essential  publicly-owned  enterprises.  The  enforcement  of 
the new framework is key to achieve these objectives. In addition, local public services 
are  sheltered  from  competition  (in  and  for  the  market),  impacting  on  efficiency, 
quality  of  services  and  leading  to  consumers’  dissatisfaction.  The  2015  public 
administration reform also envisaged a new framework reforming the management of 
local public services. However, in November 2016, the Constitutional Court declared 
the  procedure  followed  to  adopt  some  legislative  decrees  unconstitutional,  including 
the one on local public services. As the deadline of the decree  expired in  November 
2016, a new legislative initiative is needed.  

Improvements to business environment would facilitate entrepreneurship, while better 
framework  conditions  for  competition  would  favour  a  more  efficient  allocation  of 
resources  and  productivity  gains.  The  2015  annual  competition  law  was  adopted  in 
August 2017 and needs to be properly implemented. However, significant barriers to 
competition  persist  in  certain  sectors,  such  as  professional  services,  local  public 
transport,  rail  and  retail  sectors.  Increasing  competitive  processes  to  award  public 
service contracts and concessions for access to public goods would positively impact 
the  quality  of  services.  In  the  area  of  public  procurement,  the  benefits  of  the  recent 
reform will depend on the reform’s timely completion, a consistent application of the 
plans  for  e-procurement  and  aggregation  and  the  actual  activation  of  the  central 
aggregation body for policy coordination (Cabina di regia per gli appalti pubblici).  

(16) 

(17) 

(18)  Market confidence in Italian banks has increased following measures taken in 2017 to 
deal with several weaker banks. On the back of the improved economic conditions and 
supervisory pressure, progress has been made with reducing non-performing loans, but 
the legacy stock still remains high. This constrains banks’ profitability and their ability 
to  internally  generate  capital.  The  pace  at  which  non-performing  loans  are  being 

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disposed  of,  which  includes  deepening  the  secondary  market  for  non-performing 
loans,  needs  to  be  maintained  in  order  to  further  strengthen  financial  stability  and 
credit  extension  to  the  real  economy.  Further  balance  sheet  restructuring  and 
consolidation,  including  for  small  and  second-tier  banks,  should  also  be  supported. 
This  includes  addressing banks’ structurally low profitability through comprehensive 
cost-cutting and business model optimisation.  

(19)  Whereas  the  various  corporate  governance  reforms  are  ongoing,  full  implementation 
of  the  reforms  of  the  large  cooperative  and  small  mutual  banks  reforms  would 
underpin  the  overall  health  of  the  banking  sector.  The  insolvency  and  foreclosure 
frameworks remain insufficiently supportive of swiftly working out and restructuring 
non-performing loans. Promptly adopting and implementing the necessary legislative 
measures  for  the  insolvency  reform  would  help  address  structural  weaknesses. 
Measures  adopted  in  2016  to  accelerate  collateral  enforcement  by  banks  are  not  yet 
being  used.  The  framework  for  collateral  enforcement  is  still  not  fully  applicable  to 
companies and households. 

(20)  Despite progress due to several policy measures adopted over the last years, access to 
finance remains an important barrier to investment and finance for growth, particularly 
for  small  and  medium-sized  companies.  Firms’  financing  remains  predominantly 
bank-based,  while  the  capital  market  is  underdeveloped  as  compared  to  other  EU 
countries.  The  share  of  small  and  medium-sized  companies  financed  by  equity  is 
particularly low, compared to the EU average. The recent reduction in the ’allowance 
for  corporate  equity’  has  further  increased  preference  for  bank  credit.  Boosting 
market-based  access  to  finance  for  firms  would  be  an  essential  ingredient  in 
diversifying firms’ financing sources in order to support investment and growth 

(21)  Labour  market  institutions  have  been  substantially  reformed  in  recent  years.  Labour 
market conditions continue to improve, as headcount employment increased by 1.0 % 
in 2017 to over 23 million people, back to pre-crisis levels. The employment rate (age 
20-64) rose to over 62 % last year, albeit largely driven by temporary jobs. However, 
this is still considerably below the EU average. The unemployment rate fell to 10.9 % 
but the total hours worked is still considerably lower than before the recession. Despite 
improvements, long-term and youth unemployment remain high, posing risks to social 
cohesion  and  growth.  At  20.1 %  in  2017,  the  proportion  of  young  people  not  in 
employment, education or  training  was still among the highest  in  the EU, with  wide 
and persistent regional differences.  

(22)  Bargaining  at  firm  or  territorial  level  remains  limited,  also  due  to  the  prevalence  of 
small firms in Italy. This may prevent wages from adapting swiftly to local economic 
conditions.  At  the  end  of  February  2018,  Confindustria  and  the  three  major  Italian 
trade unions (Cgil, Cisl and Uil) signed a framework agreement, stressing the role of 
second-level bargaining, by increasing legal certainty through setting clearer rules for 
the  representation  of  social  partners  at  negotiations.  The  tax  rebates  on  productivity-
related wage increases set by second-level agreements were strengthened in 2017, but 
their  effectiveness  is  difficult  to  evaluate.  While  the  total  number  of  collective 
agreements  is  on  the  rise,  only  a  small  share  of  them  is  signed  by  the  main  trade 
unions and employers’ associations. 

(23)  The  reform  of  active  labour  market  policies  outlined  by  the  Jobs  Act  made  little 
progress in 2017.  Training and re-qualification are particularly important in the light 
of  the  increased  flexibility  in  the  Italian  labour  market  and  the  growing  share  of 
temporary  contracts.  Generally  binding  service  standards  have  not  yet  been 

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implemented, and employment services lack staff and adequate monitoring. Increasing 
the  number  of  staff  and  ensuring  that  they  are  sufficiently  qualified  for  employment 
services and social services, is also critical for the correct implementation of the anti-
poverty  scheme  introduced  in  2018  and  for  the  Youth  Guarantee,  which  aims  to 
provide  young  people  in  need  with  an  adequate  job  or  training  offer  in  a  timely 
manner.  

(24)  The  proportion  of  women  participating  in  the  labour  market,  although  on  the  rise, 
remains  one  of  the  lowest  in  the  EU.  The  impact  of  the recent  measures,  centred  on 
non-means  tested  cash  payment  per  child  birth,  has  not  been  assessed  by  the  Italian 
authorities. Evidence suggests that these cash transfers may not be effective to increase 
women’s participation in the labour market. In addition, they are unlikely to increase 
the birth rate, which has been stagnating at very low levels over the last 20 years. A 
comprehensive  strategy  to  reconcile  family  life  and  work  is  missing.  These 
shortcomings  are  reflected  by  the  lack  of  gender  balanced  design  of  parental  leave, 
flexible working arrangements and the insufficient supply of adequate, affordable and 
quality childcare and care services. 

(25) 

Introducing  measures  to  raise  human  capital  and  skills  would  help  improve 
employability and meet future labour market needs. The overall quality of schooling in 
Italy  is  improving,  but  wide  regional  differences  persist.  The  proportion  of  students 
leaving school without a diploma remains above the EU average (30 % compared with 
the EU average of 19.7 %), particularly among foreign-born students. Implementation 
of  the  school  reform  is  broadly  on  track,  and  vocational  education  and  training  is 
improving. Tertiary education, severely underfunded with public spending accounting 
for  less  than  0.4 %  of  GDP,  is  characterised  by  high  drop-out  rates  and  prolonged 
study periods. As a consequence, educational attainment is one of the lowest in the EU 
(26.9 %  of  the  population  aged  30  to  34).  The  participation  rate  in  adult  learning 
programmes is increasing but it still remains among the lowest in the EU, especially 
for  low-skilled  adults.  Upskilling  and  reskilling  should  be  fostered,  while  employers 
should  be  encouraged  to  provide  more  learning  opportunities  for  the  workforce.  The 
implementation  of  the  comprehensive  national  ‘skills  strategy’  launched  in  October 
2017 will be crucial.   

(26)  Unlike  the  EU  trend,  the  rate  of  people  at  risk  of  poverty  or  social  exclusion  has 
continued  to  increase  and  at  30 %  in  2016  it  was  well  above  the  EU  average.  This 
especially affects children, temporary workers and migrants. Income inequality is high 
and  rising.  In  2016,  the  income  of  the  top  20 %  of  households  was  6.3  times  higher 
than that of the poorest 20 %. This ratio is even higher for people of working-age, as 
the redistributive impact of pensions is excluded. The introduction of a new permanent 
scheme  to  tackle  poverty  (Reddito  di  Inclusione)  represents  a  major  step  forward  in 
social policies. Designed as a universal transfer for people meeting certain conditions 
of  poverty,  the  scheme  is  expected  to  increase  the  currently  low  impact  of  social 
benefits on poverty reduction. The scheme is based on solid governance mechanisms 
and  will  be  subject  to  systematic  evaluation.  Importantly,  it  also  envisages  a 
substantial  reinforcement  of  the  country’s  understaffed  social  services.  Closer  co-
operation  between  social  services  and  public  employment  services,  as  well  as  the 
allocation of sufficient resources, will be crucial for the smooth implementation of the 
reform.  The  scheme  incorporates  the  former  unemployment  assistance  scheme 
(ASDI), as a first step towards rationalising social spending. Italy’s health care system 
provides  universal  coverage  and  the  health  of  the  population  is  good  overall; 
nevertheless,  self-reported  unmet  needs  for  medical  care  are  high,  and  differences 

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(27) 

(28) 

(29) 

between regions in the organisation and quality of care delivery persist. Italy has made 
some  efforts  to  ensure  appropriate  access  to  health  care,  including  by  revising  and 
expanding the minimum statutory benefit package of care services. 

In  the  context  of  the  2018  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Italy’s  economic  policy  and  published  it  in  the  2018 
country  report.  It  has  also  assessed  the  2018  Stability  Programme  and  the  2018 
National  Reform  Programme  and  the  follow-up  given  to  the  recommendations 
addressed to Italy in previous years. The Commission has taken into account not only 
their  relevance  for  sustainable  fiscal  and  socioeconomic  policy  in  Italy  but  also  the 
extent  to  which  they  comply  with  Union  rules  and  guidance,  given  the  need  to 
strengthen  the  Union’s  overall  economic  governance  by  providing  Union-level  input 
for future national decisions.  

In  the  light  of  this  assessment,  the  Council  has  examined  the  2018  Stability 
Programme and its opinion11 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  under  Article  6  of  Regulation  (EU)  No  1176/2011  are  reflected  in 
recommendations 1 to 4 below.  

HEREBY RECOMMENDS that Italy take action in 2018 and 2019 to: 

1. 

2. 

3. 

Ensure that the nominal growth rate of net primary government expenditure does not 
exceed 0.1 % in 2019, corresponding to an annual structural adjustment of 0.6 % of 
GDP. Use windfall gains to accelerate the reduction of the general government debt 
ratio.  Shift  taxation  away  from  labour,  including  by  reducing  tax  expenditure  and 
reforming  the  outdated  cadastral  values.  Step  up  efforts  to  tackle  the  shadow 
economy,  including  by  strengthening  the  compulsory  use  of  e-payments  through 
lower  legal  thresholds  for  cash  payments.  Reduce  the  share  of  old-age  pensions  in 
public spending to create space for other social spending. 

Reduce  the  length  of  civil  trials  at  all  instances  by  enforcing  and  streamlining 
procedural rules, including those under consideration by the legislator. Achieve more 
effective prevention and repression of corruption by reducing the length of criminal 
trials and  implementing  the new anti-corruption framework.  Ensure enforcement of 
the  new  framework  for  publicly-owned  enterprises  and  increase  the  efficiency  and 
quality  of  local  public  services.  Address  restrictions  to  competition,  including  in 
services, also through a new annual competition law. 

Maintain  the  pace  of  reducing  the  high  stock  of  non-performing  loans  and  support 
further  bank  balance  sheet  restructuring  and  consolidation,  including  for  small  and 
medium-sized  banks,  and  promptly  implement  the  insolvency  reform.  Improve 
market-based access to finance for firms. 

11 

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

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4. 

Step  up  implementation  of  the  reform  of  active  labour  market  policies  to  ensure 
equal access to effective job-search assistance and training. Encourage labour market 
participation  of  women  through  a  comprehensive  strategy,  rationalising  family-
support  policies and increasing the coverage  of childcare  facilities.  Foster research, 
innovation,  digital  skills  and  infrastructure  through  better-targeted  investment  and 
increase participation in vocational-oriented tertiary education. 

Done at Brussels, 

For the Council 
The President 

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