Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of Italy and delivering a Council opinion on the 2019 Stability Programme of Italy
Date: 2019-06-05
Institutions: European Commission, Secretariat-General
Subjects: Italy, economic policy, economic reform, fiscal policy, investment, judicial reform, moonlighting, public expenditure, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 5.6.2019  COM(2019) 512 final  Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of Italy and delivering a Council opinion on the 2019 Stability Programme of Italy    
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2019 National Reform Programme of Italy and delivering a Council opinion on 
the 2019 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 Commission, 

Having regard to the resolutions of the European Parliament, 

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 21 November 2018, the Commission adopted the Annual Growth Survey, marking 
the start of the 2019 European Semester for 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  21  March 
2019.  On  21  November  2018,  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  date,  the  Commission  also  adopted  a  recommendation  for  a  Council 
recommendation on the economic policy of the euro area, which was endorsed by the 
European  Council  on  21  March  2019.  On  9  April  2019,  the  Council  adopted  the 

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2 

OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 

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(2) 

(3) 

(4) 

(5) 

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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 for the euro area, as reflected 
in  recommendations  (1)  to  (5)  below.  In  particular,  measures  in  the  area  of  public 
administration,  justice  and  competition  will  help  address  the  first  euro  area 
recommendation  in  what  concerns  resilient  product  markets  and  the  quality  of 
institutions; focusing economic policy related to investment in the specified areas and 
using  windfall  gains  to  reduce  public  debt  will  help  address  the  second  euro  area 
recommendation as regards supporting investment and rebuilding buffers; measures to 
improve employability and shift the tax burden away from productive factors will help 
address  the  third  euro  area  recommendation  as  regards  the  functioning  of  the  labour 
market,  and  measures  to  improve  banks’  balance  sheets  will  help  address  the  fourth 
euro area recommendation as regards the reduction of non-performing loans. 
The  2019  country  report  for  Italy3  was  published  on  27  February  2019.  It  assessed 
Italy’s  progress  in  addressing  the  country-specific  recommendations  adopted  by  the 
Council  on  13  July  2018,  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  27  February  20194.  The  Commission’s 
analysis  led  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. 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 
significant. 

On 19 April 2019, Italy submitted its 2019 National Reform Programme and its 2019 
Stability  Programme.  In  order  to  take  account  of  their  interlinkages,  the  two 
programmes  have  been  assessed  at  the  same  time.  Italy’s  2019  National  Reform 
Programme  only  partly  addresses  the  structural  issues  raised  by  the  2018  country-
specific  recommendations,  and  details  on  the  few  new  commitments  it  contains,  as 
well  as  on  the  timeline  for  their  implementation,  are  often  missing.  However,  its 
reform  strategy  builds  on  major  reforms  already  in  the  pipeline  in  different  areas, 
showing broad continuity compared to past National Reform Programmes. 

Relevant country-specific recommendations have been addressed in the programming 
of  the  European  Structural  and  Investment  Funds  ('ESI  Funds')  for  the  2014-2020 
period.  As  provided  for  in  Article  23  of  Regulation  (EU)  No  1303/2013  of  the 
European  Parliament  and  of  the  Council5,  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 

SWD(2019) 1011 final. 
COM(2019) 150 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). 

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(6) 

(7) 

(8) 

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 ESI Funds to sound economic governance6.  

Italy is currently in the preventive arm of the Stability and Growth Pact and subject to 
the  debt  rule.  In  its  2019  Stability  Programme  the  government  expects  the  headline 
deficit  to  increase  from  2.1%  of  GDP  in  2018  to  2.4%  in  2019,  and  to  gradually 
decline  thereafter  to  2.1%  in  2020  and  1.5%  by  2022.  These  projections  assume  a 
VAT  hike  (1.3%  of  GDP  in  2020  and  1.5%  of  GDP  from  2021)  legislated  as  a 
‘safeguard  clause’  to  achieve  the  budgetary  targets  from  2020.  Based  on  the 
recalculated  structural  balance7,  the  medium-term  budgetary  objective  –  which  has 
been  changed  from  a  balanced  budgetary  position  in  structural  terms  in  2019  to  a 
surplus of 0.5% of GDP in structural terms as of 2020 – is not planned to be reached 
within  the  programme  period.  After  having  increased  in  2018  (to  132.2%  of  GDP, 
from 131.4% in 2017), the general government debt-to-GDP ratio is projected in the 
2019  Stability  Programme  to  increase  by  0.4  percentage  point  of  GDP  to  132.6%  in 
2019,  and  to  decline  to  128.9%  by  2022.  These  projections  assume  privatisation 
proceeds  of  1%  of  GDP  in  2019  and  0.3%  in  2020.  The  macroeconomic  scenario 
underpinning  those  budgetary  projections  is  plausible.  However,  in  recent  years  the 
VAT hikes legislated as ‘safeguard clauses’ have been systematically repealed without 
targets  have  been 
adequate  alternative  financing  measures,  and  privatisation 
underachieved. Based on a no-policy change assumption, the Commission 2019 spring 
forecast expects lower nominal GDP growth and a higher government deficit for 2020 
than the 2019 Stability Programme. The Commission forecast does not incorporate the 
VAT hike legislated as a ‘safeguard clause’ in 2020. 

On 5 June 2019, the Commission issued a report prepared in accordance with Article 
126(3)  of  the  TFEU  due  to  Italy's  non-compliance  with  the  debt  rule  in  2018.  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 not complied with, and that a debt-based EDP is thus warranted. 

Following  the  request  in  the  revised  2019  Draft  Budgetary  Plan,  the  2019  Stability 
Programme confirms that the budgetary impact of the collapse of the Morandi bridge 
in Genoa and of exceptionally adverse weather conditions that occurred in 2018 was 
significant and provides adequate evidence of the scope and nature of these additional 
budgetary  costs.  In  particular,  the  2019  Stability  Programme  indicates  that  the  2019 
budget  comprises  exceptional  expenditure  amounting  to  about  0.2%  of  GDP  in 
relation  to  an  extraordinary  maintenance  programme  for  the  road  network  and  a 
preventive plan to limit hydrogeological risks. Due to the direct link with the collapse 
of  the  Morandi  bridge  in  Genoa  and  the  adverse  weather  conditions  of  2018,  the 
specific 
road-maintenance  and 
hydrogeological  risk  prevention  could  be  considered  in  application  of  the  ‘unusual 
event  clause’.  According  to  the  Commission,  the  eligible  additional  expenditure  in 
2019 amounts to 0.18% of GDP for these measures. 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  collapse  of  the  Morandi  bridge  in  Genoa  and  the  exceptionally  adverse 
weather  conditions  are  considered  unusual  events,  their  impact  on  Italy’s  public 
finances is significant and sustainability would not be compromised by allowing for a 

treatment  of  expenditure 

for  extraordinary 

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COM(2014) 494 final. 
Cyclically-adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
using the commonly agreed methodology. 

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(9) 

(10) 

(11) 

temporary  deviation  from  the  adjustment  path  towards  the  medium-term  budgetary 
objective.  A  final  assessment,  including  on  eligible  amounts,  will  be  made  in  spring 
2020 on the basis of observed data for 2019 as provided by the Italian authorities. 

On 13 July 2018, the Council recommended  Italy  to ensure that the nominal growth 
rate  of  net  primary  government  expenditure8  does  not  exceed  0.1%  in  2019, 
corresponding  to  an  annual  structural  adjustment  of  0.6%  of  GDP.  Based  on  the 
Commission  2019  spring  forecast,  there  is  a  risk  of  a  significant  deviation  from  the 
recommended adjustment path towards the medium-term budgetary objective in 2019. 
That  conclusion would not  change even if the budgetary impact  of the  extraordinary 
maintenance programme for the road network following the collapse of the Morandi 
bridge  in  Genoa  and  of  a  preventive  plan  to  limit  hydrogeological  risks  following 
exceptionally adverse weather conditions were subtracted from the requirement of the 
preventive arm of the Stability and Growth Pact in 2019.  

In  2020,  in  view  of  Italy's  general  government  debt  ratio  above  60%  of  GDP  and 
projected output gap of -0.1%, the net primary government expenditure should decline 
by  0.1%  in  nominal  terms,  in  line  with  the  structural  adjustment  of  0.6%  of  GDP 
stemming from the matrix of requirements under the Stability and Growth Pact. Based 
on the Commission 2019 spring forecast under unchanged policies, there is a risk of a 
significant deviation from the requirement in 2020. Italy is prima facie not forecast to 
comply  with  the  debt  rule  in  2019  and  2020.  Moreover,  at  around  132%  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 2019 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 important. 

Italy's  tax  system  continues  to  weigh  heavily  on  the  factors  of  production,  to  the 
detriment of economic growth. The high tax burden on labour and capital discourages 
employment and investment. While the 2019 budget has slightly lowered taxation on 
self-employed  workers,  it  has  also  temporarily  raised  the  tax  burden  on  firms  on 
balance. Tax bases less detrimental to growth, such as property and consumption, are 
underused,  leaving  room  to  shift  the  tax  burden  away  from  labour  and  capital  in  a 
budgetary neutral way. The recurrent property tax on first residences was repealed in 
2015,  including  for  wealthier  households.  In  addition,  land  and  property  values  (or 
‘cadastral’  values),  which  serve  as  the  basis  for  calculating  property  tax,  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 rates for 
value added tax, are high, and their streamlining has been systematically postponed in 
recent  years.  There  is  also  scope  to  alleviate  the  burden  on  compliant  firms  and 
households by reducing the complexity of the tax code and increasing the overall level 
of tax compliance. In particular, the VAT gap (the difference between theoretical VAT 
revenues  and  those  actually  collected)  is  among  the  highest  in  the  EU.  One  of  the 
reasons for this is the high level of tax evasion, which is especially related to omitted 

8 

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 

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(12) 

billing  and  invoicing.  The  mandatory  electronic  transmission  of  receipts  for  all 
commercial transactions with final consumers is a positive step in remedying the gap. 
However,  legal  thresholds  for  cash  payments  have  been  increased  in  recent  years, 
which  could  discourage  the  use  of  electronic  payments.  Encouraging  electronic 
payments  instead  could  raise  incentives  to  issue  bills  and  invoices  and  thus  improve 
tax compliance.  

Italy's expenditure on old-age pensions, at around 15% of GDP in 2017, is among the 
highest  in  the  Union,  and  is  expected  to  increase  in  the  medium  term  due  to  the 
worsening  old-age  dependency  ratio.  The  2019  budget  and  the  decree  law 
implementing the new early retirement scheme in January 2019 backtrack on elements 
of past pension reforms, worsening the sustainability of public finances in the medium 
term.  These new provisions will further increase pension expenditure in  the medium 
term.  Between  2019  and  2021,  the  new  early  retirement  scheme  (‘quota  100’)  will 
allow people to retire at age 62 if they have paid 38 years of contributions. In addition, 
the scope of the existing provisions for early retirement has been extended, including 
by suspending until  2026 the indexation to  life expectancy of the  required minimum 
contribution,  which  past  pension  reforms  had  introduced.  For  those  provisions,  the 
2019 budget earmarked funds worth 0.2% of GDP in 2019 and 0.5% of GDP in 2020 
and  2021,  but  additional  costs  are  also  expected  in  the  following  years.  The  high 
public  spending  for  old-age  pensions  restrains  other  social  and  growth-enhancing 
spending items like education and investment, and limits margins to reduce the overall 
high tax burden and the high public debt. Furthermore, broadening the possibility for 
early  retirement  might  negatively  affect  labour  supply,  in  a  context  where  Italy  is 
already lagging behind the EU average for the participation of its older workers (55-
64)  in  employment,  thereby  hampering  potential  growth  and  worsening  the 
sustainability of public debt. To limit the increase in spending on pensions, previously 
legislated  pension  reforms  to  curb  implicit  liabilities  arising  from  population  ageing 
should be fully implemented. Furthermore, savings could be achieved by intervening 
on  the  high  pension  entitlements  not  matched  by  contributions,  while  respecting  the 
principles of fairness and proportionality. 

(13)  Despite the economic slowdown, employment continued to increase in 2018, albeit at 
a  slightly  slower  pace  than  in  the  previous  year.  The  number  of  persons  in 
employment  reached  23.2  million  at  the  end  of  the  year,  exceeding  pre-crisis  levels. 
The employment rate (20-64 years) rose to 63% last year, but is still far below the EU 
average  (73.2%).  Moreover,  regional  gaps  are  substantial  and  the  labour  market 
remains segmented, with the share of temporary contracts having further increased in 
2018. The unemployment rate declined to 10.6%. Long-term and youth unemployment 
remain high, weighing on potential growth and social cohesion. Inactivity is prevalent 
among  women,  the  low-skilled  and  young  people.  Moreover,  the  share  of  young 
people (15-24) neither in employment nor in education or training, at 19.2% in 2018, 
is  the  highest  in  the  EU.  Involuntary  part-time  is  also  widespread,  pointing  to 
persisting slack in the labour market.  

(14) 

Income  inequality  and  risk  of  poverty  are  high,  with  wide  regional  and  territorial 
disparities. In 2017, 28.9% of the population was at risk of poverty or social exclusion, 
above  both  the  pre-crisis  levels  and  well  above  the  2017  EU  average  (22.4%). 
Children,  especially  those  with  a  migrant  background,  are  particularly  affected.  In-
work  poverty  is  high  and  rising,  in  particular  among  temporary  workers  and  people 
with a migrant background. The self-employed, who represent 20.8% of the workforce 
(against  the  EU  average  of  13.7%),  are  generally  less  protected  against  social  risks 

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than employees. Access to affordable and adequate housing is also a challenge and the 
provision  of  social  services  remains  underdeveloped  and  fragmented.  The  impact  of 
social transfers on reducing poverty and inequality reduction is one of the lowest in the 
EU.  The  anti-poverty  scheme  introduced  in  2018  has  been  replaced  by  a  new  major 
scheme  (citizenship  income),  which  keeps  an  active  inclusion  approach,  subject  to 
certain  conditions.  However,  the  reform  may  prove  difficult  to  implement,  putting  a 
considerable  burden  on  the  public  administration,  namely  on  employment  and  social 
services. Its actual impact will depend on how effective policies are in getting people 
into work or training, the extent to which personalised social services are provided and 
on  controls.  In  particular,  the  actual  capacity  to  reach  out  those  most  in  need  will 
influence the impact on the reduction of poverty and social exclusion. The outcome of 
the health system is overall good, despite below-EU average spending. Nevertheless, 
the provision of healthcare largely varies across regions,  affecting access, equity and 
efficiency, and could be improved through better administration and by monitoring the 
delivery  of  standard  levels  of  services.  More  home  and  community-based  care  and 
long-term  care  is  key  to  provide  support  to  people  with  disabilities  and  other 
disadvantaged groups. 

(15)  Undeclared work is widespread in Italy, especially in the southern regions. According 
to  the  estimates  of  the  National  Institute  of  Statistics,  the  unobserved  economy  was 
worth  about  EUR  210  billion  (12.4%  of  GDP)  in  2016.  Around  37.2%  of  it  is 
attributable  to  undeclared  work.  This  affects  in  particular  vulnerable  groups,  such  as 
migrants, women and minors. The new Labour Inspectorate Agency, operational since 
2017,  devoted  particular  attention  to  the  phenomenon  of  "caporalato"  in  the 
agriculture  sector,  characterised  by  a  high  incidence  of  irregularity  and  by  a  risk  of 
labour  exploitation,  especially  for  irregular  migrants.  A  close  monitoring  of  the 
measures recently adopted as well as additional steps are needed to tackle and prevent 
undeclared  work  and  labour  exploitation  and  to  ensure  fair  and  safe  working 
conditions.  Finally,  it  is  important  to  ensure  that  the  operationalisation  of  the 
citizenship income maximises the incentives to regular work and the transformation of 
undeclared work into regular employment, both through close monitoring and positive 
incentives. 

(16) 

Improving  public  employment  services,  by  providing  more  resources  and  better 
quality services, is crucial for implementing the reform on the new citizenship income 
scheme. In this context of the new citizenship income scheme for low-income earners 
and unemployed persons, effective active labour market policies are an important tool 
for reducing labour market frictions and incentivising people to look for a job. In this 
respect,  it  is  critical  that  employment  services  be  equipped  with  sufficient  and 
qualified  staff.  Effective  job  search  assistance  aiming  to  enhance  training  and 
upskilling  is  crucial  to  improve  labour  mobility  and  provide  workers  with  the  right 
skills  for  future  labour  market  challenges  and  an  increasingly  challenging  and 
competitive working environment. Some steps to make active labour market policies 
more  effective  have  been  recently  taken,  such  as  the  definition  of  monitoring 
indicators  and  minimum  standards,  the  adoption  of  a  strategy  for  the  long-term 
unemployed  and  the  development  of  a  qualitative  profiling  tool.  Nonetheless,  the 
overall  efficiency  of  public  employment  services  and  their  capacity  to  find  jobs  for 
people remain weak, performance varies widely between regions and integration with 
social and educational policies is limited. Cooperation with employers is also weak. 

(17)  The  gender  employment  gap  in  Italy  remains  one  of  the  highest  in  the  EU  and  the 
employment rate of women, albeit  slightly increasing, is  substantially lower than the 

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the  parental 

leave  system 

EU average (53.1% against 67.4% in 2018). Investment in care services and women's 
participation  in  the  job  market  remains  insufficient,  as  well  as  measures  to  promote 
equal  opportunities  and  adequate  work-life  balance  policies.  However,  a 
comprehensive strategy to promote women's participation in the labour market is still 
missing. While the compulsory paternity leave  was  marginally extended from  4 to  5 
together  with 
remains 
days, 
underdeveloped  childcare  and  long-term  care  services,  tends  to  prevent  women  with 
children or other family members in need of care from working. In 2017, only 28.6% 
of  children  under  three  years  of  age  were  in  formal  early  childhood  education,  well 
below the EU average. Investment in childcare, health and long-term care should take 
into  account  the  wide  geographical  disparities  in  the  availability  of  services. 
Furthermore, a high tax wedge for second earners reduces the financial incentive for 
women  to  take  up  work.  Higher  labour-force  participation  of  women,  as  much  as 
higher  participation  rates  in  general,  could  foster  economic  growth  by  lifting  labour 
supply,  alleviate  poverty  and  mitigate  the  social  and  financial  risks  rising  from 
population aging.  

inadequate.  This, 

(18)  The initially envisaged reform of the collective bargaining framework aimed to bring 
wages  and  salaries  more  in  line  with  economic  conditions  at  the  regional  and  firm 
level.  In  March  2018  Confindustria  signed  a  framework  agreement  with  the  three 
major  Italian  trade  unions  (Cgil,  Cisl  and  Uil)  in  order  to  expand  second-level 
bargaining. Moreover, the agreement increases legal certainty by setting clearer rules 
for  the  representation  of  social  partners  at  negotiations  and  establishes  an  improved 
algorithm  for  setting  wage  minima.  The  first  implementation  agreement  on 
representativeness,  health  and  work  safety  was  signed  at  end  of  2018  by  the 
employers’ association and the three major trade unions.  

(19) 

Investment  in  education  and  skills  is  crucial  to  promote  smart,  inclusive  and 
sustainable growth. Italy's sluggish productivity trend is affected by the weaknesses of 
the education and training system and the weak demand for high skills. Improving the 
quality of the education and training system is a major challenge. The school drop-out 
rate  (early  school  leaving)  remains  well  above  the  EU  average  (14.5%  vs  10.6%  in 
2018) and there  are wide regional and territorial disparities in  educational  outcomes. 
While the share of funding allocated to primary and secondary education is broadly in 
line  with  the  EU  average,  further  efforts  to  attract,  effectively  recruit  and  motivate 
teachers could contribute to improve learning outcomes. The recruitment system is too 
knowledge-based  rather  than  skills-based,  while  the  training  component  is  limited. 
Moreover,  Italian  teachers’  salaries  remain  low  compared  to  international  standards 
and relative to workers with tertiary education. Salary increases are slower than among 
international  peers  and  career  prospects  are  more  limited,  based  on  a  single  career 
pathway.  Furthermore,  promotions  are  based  exclusively  on  seniority  rather  than 
merit.  This  results  in  a  very  low  attractiveness  of  the  teaching  profession  for  highly 
qualified  persons  and  discouragement  of  the  teaching  staff,  which  in  turn  has  a 
negative impact on the learning outcomes of students. The apprenticeship system was 
gaining momentum in recent years, but adopted measures have scaled it down. Italian 
students  and adults  are  amongst  the worst performers in  the EU in  key  competences 
and  basic  skills.  Adult  participation  in  learning  is  very  limited  and  decreasing,  in  a 
context  where  the  employment  gap  between  the  high-  and  low-skilled  is  among  the 
highest in the EU. Upskilling is particularly needed for digital skills. There has been 
limited  progress  in  digital  skills  and  infrastructure.  Investment  in  human  capital  is  a 
pre-requisite for boosting public and private investment and current measures to boost 
digital  skills  and  adult  learning  lack  a  comprehensive  approach.  Basic  and  advanced 

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digital  skill  levels  are  below  the  EU  average  –  only  44%  of  individuals  between  16 
and 74 years have basic digital skills (57% in the EU). 

(20)  Weak  investment  in  skills  is  slowing  down  Italy’s  transition  to  a  knowledge-based 
economy, holding back productivity growth and limiting the potential to improve non-
price competitiveness and GDP growth. Education gaps also help to explain the lower 
productivity  of  Italy’s  micro  and  small  firms  compared  to  peer  countries.  Tertiary 
education  is  underfinanced  and  understaffed,  and  the  scope  of  vocational-oriented 
higher  education  is  limited  despite  high  employability  rates.  The  proportion  of 
university graduates remains low (27.9% of the population aged 30 to 34 in 2018) and 
is  coupled  with  a  relatively  low  availability  of  tertiary  graduates,  especially  in 
scientific and technical fields, targeted investments in skills are a pre-requisite to boost 
both public and private investment, particularly in intangibles. There is a need to boost 
studies  in  fields  relevant  to  knowledge-intensive  sectors  and  to  strengthen  specific 
skills, such as digital and financial ones. 

(21)  The adoption by smaller firms of strategies to increase productivity, such as product, 
process and organisational innovation, remains limited, particularly in southern Italy. 
Investment  in  intangibles  has  been  considerably  below  the  Union  average  since  the 
early  2000s.  Business  expenditure  on  research  and  development  is  almost  half  the 
average level of the euro area. Public support for business expenditure on research and 
development remains low, although it is improving thanks to the increased role of tax 
incentives.  Public  expenditure  on  research  and  development  is  also  below  the  euro 
area average. Low innovation could also slow down the transition to a green economy. 
Improving  Italy’s  innovation  performance  requires  further  investment  in  intangibles, 
as  well  as  a  stronger  focus  on  technology  transfer,  taking  into  account  regional 
weaknesses  and  the  size  of  the  firms.  Public  support  for  business  expenditure  on 
research  and  development  can  be  improved  through  a  balanced  mix  of  direct  and 
indirect measures and an in-depth assessment of the existing temporary tax incentives, 
to make the most efficient ones permanent. Measures to support knowledge (such as 
technological clusters) and cooperation among firms help smaller firms in particular to 
tackle these difficulties and increase their low productivity. 

(22) 

is  due 

inefficiencies, 

to  administrative  delays,  spending 

Investment  is  needed  to  raise  the  quality  and  sustainability  of  the  country’s 
infrastructure.  In  the  transport  sector,  Italy  has  not  delivered  on  its  infrastructure 
investment  strategy  (Connettere  l’Italia).  Very  limited  progress  has  been  made  in 
implementing  the  planned  investments  in  rail,  road  and  sustainable  urban  mobility. 
This 
incomplete 
implementation  of  the  Code  on  procurement  and  concessions  and  litigation.  The  EU 
transport  scoreboard  shows  that  the  quality  of  Italy’s  infrastructure  is  below  the  EU 
average. The state of repair is a clear source of concern, as shown by the collapse of 
the Morandi bridge in Genoa. The government has prioritised maintenance and safety 
with a plan to monitor the maintenance status of all infrastructure and the creation of a 
new agency in charge of safety of rail and road infrastructure. In this respect, for 2019 
Italy  was  granted  an  allowance  of  EUR  1 billion  under  EU  fiscal  rules  for  an 
investment plan to secure road infrastructure similar to the Morandi bridge. Investing 
in  sustainable  transport  and  infrastructure  is  also  a  way  of  tackling  environmental 
challenges. Sustained green investment is needed to achieve of the ambitious 2030 EU 
energy and climate targets. The Integrated National Energy and Climate Plan is a key 
source  of  guidance  to  establish  investment  needs  in  the  area  of  decarbonisation  and 
energy.  Investments  are  needed  to  improve  the  energy  infrastructure,  which  would 
contribute  to  a  more  resilient,  clean,  secure  and  flexible  energy  system,  while 

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enhancing  market  integration  and  reducing  price  gaps.  The  Italian  electricity  grid  is 
not  yet sufficiently equipped to cope with increased exchanges across borders and to 
cope with the magnitude of variable renewables as projected for 2030. Investment in 
prevention  for  hydrogeological  and  seismic  risks  is  needed  to  reduce  emergency 
expenditure, including for infrastructure. For 2019, Italy was granted an allowance of 
EUR  2.1  billion  with  respect  to  EU  fiscal  rules  to  ensure  prevention  against  major 
hydrogeological risks. Lastly, insufficient effective investment is being made in waste 
management  and  water  infrastructure  in  southern  Italy,  while  scarcity  and  drought 
risks continue. The fragmentation of the sector, together with the weak credit profile of 
smaller  operators,  remains  a  barrier  to  investment.  Investment,  including  in  climate 
change  response,  environmental  sustainability  and  risk  prevention  as  well  as  rural 
connectivity  would  also  contribute  to  address  regional  disparities.  In  rural  areas,  the 
broadband  network  is  also  less  advanced.  On  ultrafast  (100  Mbps  and  above) 
broadband coverage, Italy still lags behind (only 24% compared to the EU average of 
60%)  and  ranks  near  the  bottom  (27th)  with  a  still  very  moderate  growth  rate.  Both 
ultrafast broadband coverage and take-up show results much below the EU averages. 

(23)  The  weak  capacity  of  the  public  sector,  especially  at  the  local  level,  to  administer 
funding  represents  an  investment  barrier  across  sectors,  due  to  complex  procedures, 
the  overlapping  of  responsibilities  and  poor  management  of  public  employment. 
Inadequate  skills  in  the  public  sector  constrain  the  capacity  to  assess,  select  and 
manage  investment  projects.  This  also  undermines  the  implementation  of  EU  funds, 
where  Italy  lags  behind  compared  to  the  Union  average.  The  lower  quality  of 
governance in southern Italy seriously limits its spending and policy-making capacity. 
Improving the administrative capacity is  a pre-condition  for the effective delivery of 
public  investment  and  the  use  of  EU  funds,  with  positive  spillovers  on  private 
investment  and  GDP  growth.  Such  improvements  could  give  more  impact  to 
investments  in  broadband,  transport,  water  management  and  the  circular  economy, 
especially  in  southern  Italy.  The  latter  lags  behind  mainly  in  terms  of  intangible 
investment.  The  improvement  of  administrative  capacity  of  central  and  local  bodies 
would have positive impact on the planning, evaluation and monitoring of investment 
projects, as well as on identifying and addressing possible bottlenecks.  

(24) 

Increasing  the  efficiency  of  Italy’s  public  administration  and  its  responsiveness  to 
business  would  have  a  positive  impact  on  the  business  environment,  investment  and 
the  ability  of  firms  to  exploit  innovation  opportunities.  In  2015,  a  comprehensive 
enabling  law  reforming  the  public  administration  was  adopted.  The  reform  tackled 
most sources of inefficiency such as the length and complexity of procedures, the lack 
of  transparency,  the  ineffective  management  of  public  employment,  the  inefficient 
management of public-owned enterprises, and low digitalisation. By the end of 2017, 
most  of  the  reform  was  implemented  and  enforcement  is  ongoing,  supported  by  the 
new  “Concretezza”  law.  However,  inconsistent  planning,  scarce  financial  resources 
and insufficient coordination are delaying the implementation of digital public services 
in key areas like online payment systems, which would help reducing complexity and 
increasing transparency. The high average age and low average digital skills of public 
employees  is  further  slowing  down  the  process.  Nevertheless,  when  clear  goals  and 
effective enforcement are combined, results are evident as was the case for the rapid 
development of the electronic market for public administrations and e-invoicing. The 
2015  public  administration  reform  also  envisaged  a  new  framework  reforming  the 
in  November  2016  Italy’s 
management  of 
Constitutional Court declared the procedure followed to adopt a number of legislative 
decrees, including the one on local public services, unconstitutional. A new legislative 

local  public  services.  However, 

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initiative is thus needed to promote the efficiency and quality of local public services, 
including by prioritising competitive bids over in-house solutions or direct grants. 

(25)  The  Economic  and  Financial  Document  2018  (DEF  2018)  identified  project 
preparation  and  quality  improvement  of  the  project  cycle  as  critical  factors  for 
relaunching  effective  investment  spending  in  Italy.  In  the  same  document,  the 
constitution of a specific grant fund for project preparation and project review of key 
infrastructure projects was reported. Another grant fund was foreseen for preparation 
of smaller projects implemented by local bodies. However, implementing decrees on 
both funds have not been issued yet, and the allocation assigned to these funds may be 
lower than the one initially presented in the DEF 2018. In the budget law for 2019, the 
creation  of  a  "Centrale  per  la  progettazione"  is  mentioned  but  this  body  is  not 
operational  yet  and  its  creation  seems  to  require  a  longer-term  effort.  In  terms  of 
functionality,  it  is  not  clear  how  the  Centrale  per  la  progettazione  will  interact  with 
municipalities and other local bodies. 

(26) 

Improvements  to  the  business  environment  would  facilitate  entrepreneurship,  and 
better framework conditions for competition would favour a more efficient allocation 
of  resources  and  productivity  gains.  The  2015  annual  competition  law,  adopted  in 
August  2017,  needs  to  be  properly  implemented.  Moreover,  significant  barriers  to 
competition persist in certain sectors, such as business services and retail. Improving 
the  quality  of  the  regulatory  framework  would  ensure  a  level  playing  field  for  both 
innovative  platforms  and  traditional  operators,  unleashing  the  full  potential  of  the 
collaborative  economy  and  fairer  competition  in  all  sectors.  Increasing  competitive 
processes to award public service contracts and concessions for access to public goods 
would  positively  affect  the  quality  of  services.  Lack  of  regulatory  stability  in  the 
public  procurement  system  could  jeopardise  some  key  benefits  of  previous  reforms 
and  contribute  to  defer  investment.  Market  surveillance  of  products  is  spread  over 
various organisations, has many overlaps and lacks systems for efficient coordination. 
This reduces the effectiveness of controls in preventing unfair competition from non-
compliant business. 

(27)  The low efficiency of Italy's civil justice system remains a source of concern. In 2017, 
the  time  needed  to  resolve  civil  and  commercial  litigious  cases  in  Italy  was  still  the 
highest in the EU at all instances. While the length of proceedings showed an increase 
in  first  instance  compared  to  2016,  past  reforms  are  starting  to  positively  affect  trial 
length at higher instances, but there is still room to limit abuses of the trial and ensure 
a  more  efficient  functioning  of  courts.  At  the  Supreme  Court  of  Cassation,  a  high 
number  of  incoming  cases  coupled  with  lower  clearance  rates  of  its  tax  section 
negatively  affects  the  Court’s  efficiency  and  raises  concerns  about  the  tax  justice 
system  at  first  and  second  instance.  Overall,  adequate  enforcement  of  simpler 
procedural rules could help to decisively speed up civil trials. In this regard, a reform 
to streamline the civil procedure has been announced, but has not yet been presented to 
the  Parliament.  Other  challenges  are  the  still  limited  and  inconsistent  use  of  the 
inadmissibility  filter  for  appeals  in  second  instance,  the  numerous  vacancies  for 
administrative staff, and the remaining differences across courts in the effectiveness of 
case management. 

(28) 

Italy  has  recently  made  some  progress  in  improving  its  anti-corruption  framework, 
including through better protection for whistle-blowers, a stronger role of the National 
Anti-corruption  Authority  in  implementing  it,  and  a  new  anti-corruption  law  of 
January  2019.  The  latter  aims  to  boost  the  detection  and  repression  of  corruption 
through  stricter  penalties,  better  investigation  techniques  and  a  leniency  scheme  for 

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(29) 

those  who  denounce  corruption.  The  law  also  suppresses  prescription  terms  after  a 
first-instance conviction, but only as of 2020. The latter is a long-awaited positive step 
in  line  with  international  standards.  However,  the  repression  of  corruption  remains 
ineffective  in  Italy,  mainly  because  the  length  of  criminal  proceedings  remains 
excessive in the absence of a much-needed reform of the criminal trial, including the 
appeal  system to  avoid  abuse of litigation. Moreover,  gaps persist in  the prosecution 
framework for specific offences, such as embezzlement of public money.  

Italian  banks  have  continued  to  make  good  progress  in  repairing  their  balance  sheet 
despite  renewed  market  pressure.  However,  due  to  their  high  exposure  to  the 
sovereign,  market  volatility  has  adversely  affected  their  capital  positions,  putting 
pressure  on  funding  costs  and  making  their  access  to  unsecured  wholesale  funding 
more difficult.  Continued reduction of the legacy  stock of non-performing loans and 
unlikely-to-pay loans remains warranted especially for small and second-tier banks, in 
order  to  further  safeguard  financial  stability  and  strengthen  credit  extension  to  the 
economy.  Having  banks,  especially  smaller  ones,  advance  on  meeting  regulatory 
funding  requirements  would  also  boost  the  system's  resilience  to  external  shocks. 
Addressing banks’ structurally low profitability by increasing efficiency and business 
model  optimisation  is  also  important.  A  timely  implementation  of  the  insolvency 
reform  decrees  would  help  accelerate  the  still  slow  foreclosure  and  collateral 
enforcement  procedures  and  further  boost  the  resilience  of  the  banking  sector.  Any 
compensation granted by the State to shareholders and retail  holders of subordinated 
debt  of  banks  subject  to  past  administrative  liquidation  procedures  should  be  strictly 
targeted at addressing the social effects of past mis-selling. Governance in the banking 
system  should  be  further  improved,  by  promptly  completing  the  2015  reform  of  the 
large cooperative banks after legal clarity has been established. 

(30)  Bank credit remains the dominant source of corporate financing. However, smaller and 
innovative firms still struggle to access credit, especially in southern Italy. The capital 
market  is  underdeveloped in  comparison  to  other Member States,  also  due to  factors 
constraining demand, such as low financial education, fear of losing control over the 
business  and  burdensome  administrative  requirements.  Several  measures  were 
introduced in the last few years to improve access to finance, mostly focusing on the 
bank  credit  channel,  although  market-based  measures  such  as  mini-bonds,  the 
alternative  investment  market,  venture  capital  and  direct  public  support  also  helped 
smaller and innovative firms to gain access to finance. The abolition of the allowance 
for corporate equity by the 2019 budget may reduce incentives for firms to use equity 
financing. Effectively boosting non-bank access to finance requires taking into account 
the  needs  of  smaller  and  innovative  firms  as  well  as  the  capacity  of  investors  to 
evaluate  investment  projects.  Diversifying  financing  sources  would  better  protect 
firms’ investment from shocks in the banking sector, while supporting innovation and 
growth. 

(31)  The programming of EU funds for the period 2021-2027 could help address some of 
the  gaps  identified  in  the  recommendations,  in  particular  in  the  areas  covered  by 
Annex D to the country report9. This would allow Italy to make the best use of those 
funds  in  respect  of  the  identified  sectors,  taking  into  account  regional  disparities. 
Strengthening the country’s administrative capacity for the management of these funds 
is an important factor for the success of this investment. 

9 

SWD(2019) 1011 final. 

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(32) 

(33) 

(34) 

In  the  context  of  the  2019  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Italy’s  economic  policy  and  published  it  in  the  2019 
country  report.  It  has  also  assessed  the  2019  Stability  Programme  and  the  2019 
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 
Union  rules  and  guidance.  This  reflects  the  need  to  strengthen  the  Union’s  overall 
economic governance by providing Union-level input into future national decisions.  

In  the  light  of  this  assessment,  the  Council  has  examined  the  2019  Stability 
Programme and its opinion10 is reflected in particular in recommendation (1). 

In the light of the Commission’s in-depth review and this assessment, the Council has 
examined  the  2019  National  Reform  Programme  and  the  2019  Stability  Programme. 
Its recommendations under Article 6 of Regulation (EU) No 1176/2011  are reflected 
in  recommendations  (1)  to  (5)  below.  Those  recommendations  also  contribute  to  the 
implementation  to  the  first  four  of  the  Recommendations  on  the  economic  policy  of 
the euro area. Fiscal policies referred to in recommendation (1) contribute inter-alia to 
address imbalances linked to high government debt. 

HEREBY RECOMMENDS that Italy take action in 2019 and 2020 to: 

1. 

2. 

3. 

4. 

5. 

10 

Ensure a nominal reduction of net primary government expenditure of 0.1% in 2020, 
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.  Fight  tax  evasion,  especially  in  the  form  of  omitted  invoicing, 
including  by  strengthening  the  compulsory  use  of  e-payments  including  through 
lower  legal  thresholds  for  cash  payments.  Implement  fully  past  pension  reforms  to 
reduce  the  share  of  old-age  pensions  in  public  spending  and  create  space  for  other 
social and growth-enhancing spending. 

Step  up  efforts  to  tackle  undeclared  work.  Ensure  that  active  labour  market  and 
social policies are effectively integrated and reach out notably to  young people and 
vulnerable  groups.  Support  women’s  participation  in  the  labour  market  through  a 
comprehensive strategy, including through access to quality childcare and long-term 
care. Improve educational outcomes, also through adequate and targeted investment, 
and foster upskilling, including by strengthening digital skills.  

Focus  investment-related  economic  policy  on  research  and  innovation,  and  the 
quality  of  infrastructure,  taking  into  account  regional  disparities.  Improve  the 
effectiveness  of public administration, including by investing in  the skills of public 
employees,  by  accelerating  digitalisation,  and  by  increasing  the  efficiency  and 
quality  of  local  public  services.  Address  restrictions  to  competition,  particularly  in 
the retail sector and in business services, also through a new annual competition law. 

Reduce  the  length  of  civil  trials  at  all  instances  by  enforcing  and  streamlining 
procedural rules, including those under consideration by the legislator. Improve the 
effectiveness of the fight against corruption by reforming procedural rules to reduce 
the length of criminal trials.  

Foster  bank  balance  sheet  restructuring,  in  particular  for  small  and  medium-sized 
banks,  by  improving  efficiency  and  asset  quality,  continuing  the  reduction  of  non-

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

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performing loans, and diversifying funding. Improve non-bank financing for smaller 
and innovative firms. 

Done at Brussels, 

For the Council 
The President 

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