REPORT FROM THE COMMISSION Italy Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2019-06-05
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Italy, budget deficit, budget policy, budgetary control, budgetary expenditure, gross domestic product, macroeconomics, public debt, stability pact, structural adjustment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 5.6.2019  COM(2019) 532 final  REPORT FROM THE COMMISSION Italy  Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union  
 
 
REPORT FROM THE COMMISSION 

Italy 

Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of 
the European Union 

1. 

INTRODUCTION 

Article 126 of the Treaty on the Functioning of the European Union (TFEU) lays down the 
excessive  deficit  procedure  (EDP).  That  procedure  is  further  set  out  in  Council  Regulation 
(EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit 
procedure1,  which  is  part  of  the  Stability  and  Growth  Pact  (SGP).  Specific  provisions  for 
euro-area Member States under EDP are laid down in Regulation (EU) No 473/20132. 

According  to  Article  126(2)  TFEU,  the  Commission  has  to  monitor  compliance  with 
budgetary discipline on the basis of two criteria, namely: (a) whether the ratio of the planned 
or actual government deficit to gross domestic product (GDP) exceeds the reference value of 
3%;  and  (b) whether  the  ratio  of  government  debt  to  GDP  exceeds  the  reference  value  of 
60%,  unless  it  is  sufficiently  diminishing  and  approaching  the  reference  value  at  a 
satisfactory pace.3 

Article 126(3) TFEU provides that, if a Member State does not fulfil the requirements under 
one or both of the above criteria, the Commission has to prepare a report. That report must 
also  “take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”.  

This report, which represents the first step in the EDP, analyses Italy's compliance with the 
debt criterion of the Treaty in 2018, with due regard to the economic background and other 
relevant factors. 
On 23 May 2018, the Commission issued a report under Article 126(3) TFEU4, as Italy did 
not make sufficient progress towards compliance with the debt criterion in 2017. The report 

1  OJ L 209, 2.8.1997, p. 6. This report also takes into account the  “Specifications on the implementation of the 
Stability and Growth Pact and guidelines on the format and content of stability and convergence programmes”, 
adopted 
at: 
http://data.consilium.europa.eu/doc/document/ST-9344-2017-INIT/en/pdf  

and  Financial  Committee 

the  Economic 

15  May 

available 

2017, 

on 

by 

2  Regulation  (EU)  No  473/2013  of  the  European  Parliament  and  of  the  Council  on  common  provisions  for 
monitoring and assessing draft budgetary plans and ensuring the  correction of excessive deficit of the Member 
States in the euro area (OJ L 140, 27.5.2013, p. 11). 

3  The  concepts  of  “sufficiently  diminishing”  and  “satisfactory  pace”  are  defined  in  Article  2(1a)  of  Regulation 
(EC)  1467/97  as  being  fulfilled  if  “the  differential  [of  the  debt  ratio]  with  respect  to  the  reference  value  has 
decreased over the previous three years at an average rate of 1/20th per year as a benchmark”. The Regulation 
also  provides  that  “the  requirement  under  the  debt  criterion  shall  also  be  considered  to  be  fulfilled  if  the 
budgetary forecasts of the Commission indicate that the required reduction in the differential will occur over the 
three-year period encompassing the two years following the final year for which data is available”. Regulation 
(EC) 1467/97 further provides that “the influence of the cycle on the pace of debt reduction” should be taken 
into account.  Those elements have been translated into a  debt reduction benchmark, as  set out in the Code of 
Conduct on the SGP and endorsed by the Council. Compliance with the debt benchmark is assessed on the basis 
of three different configurations: the backward-looking, the forward-looking and the debt reduction benchmark 
adjusted for the impact of the cycle. 

4  Commission  Report  COM(2018)  428  final  of  23.5.2018:  "Italy  -  Report  prepared  in  accordance  with  Article 

126(3) of the Treaty on the Functioning of the European Union". 

1 

 
 
 
 
                                                 
concluded that the criterion should be considered as complied with at the time, having regard 
in  particular to  Italy's  ex-post compliance with  the preventive arm in  2017. The report also 
noted  a  risk  of  significant  deviation  from  the  adjustment  path  towards  the  medium-term 
budgetary  objective  recommended  by  the  Council  for  2018,  based  on  both  the  government 
plans  and  the  Commission  2018  spring  forecast.  The  report  indicated  that  the  Commission 
would reassess compliance based on the ex post data for 2018 to be notified in spring 2019. 

The Commission issued another report under Article 126(3) TFEU in November 20185, as it 
identified  in  Italy’s  Draft  Budgetary  Plan  for  2019  a  case  of  “particularly  serious  non-
compliance” with the fiscal recommendation addressed to it by the Council on 13 July 2018, 
thereby justifying a reassessment of Italy’s compliance with the debt reduction benchmark in 
2017.  However,  the  government  put  an  end  to  the  situation  of  “particularly  serious  non-
compliance” with the preventive arm of the SGP, which had urged the reassessment, through 
the amendments it introduced in its 2019 budget in the course of December 2018. 
The  data  notified  by  the  authorities  in  April  20196  and  subsequently  validated  by  Eurostat7 
show that Italy’s general government deficit declined to 2.1% of GDP in 2018 (from 2.4% in 
2017), while general government debt increased to 132.2% of GDP (from 131.4% in 2017), 
i.e.  above  the  60%  of  GDP  reference  value.  For  2019,  Italy’s  2019  Stability  Programme 
projects  the  debt-to-GDP  ratio  to  continue  rising  only  slightly  up  to  132.6%.  In  2020,  it 
projects  a  decline  (of  1.3  percentage  points)  in  the  debt-to-GDP  ratio  to  131.3%.  The 
Commission  2019  spring  forecast  expects  Italy’s  debt-to-GDP  ratio  to  increase  more 
markedly, to 133.7% in 2019 and 135.2% in 2020. 

Based on notified data and the Commission 2019 spring forecast, Italy did not comply with 
the debt reduction benchmark in 2018 (gap of some 7 ½% of GDP) (see Table 1). Overall, 
Italy's lack of compliance with the debt reduction benchmark in 2018 provides evidence of a 
prima  facie  existence  of  an  excessive  deficit  within  the  meaning  of  the  SGP  before 
considering all factors as set out below. Moreover, based on both the government plans and 
the Commission 2019 spring forecast, Italy is not expected to comply with the debt reduction 
benchmark either in 2019 (gap of some 5% and 9% of GDP, respectively) or in 2020 (gap of 
some 4 ½% and 9 ¼% of GDP respectively). 

The Commission has therefore prepared this report to comprehensively assess the departure 
from the debt reduction benchmark and examine whether the launch of  an excessive deficit 
procedure is warranted after all relevant factors have been considered. Section 2 of the report 
examines  the  deficit  criterion.  Section  3  examines  the  debt  criterion.  Section  4  deals  with 
public investment and other relevant factors, including the assessment of compliance with the 
required adjustment path towards the medium-term budgetary objective (MTO). In particular, 
that section stresses Italy’s non-compliance with the recommended adjustment path towards 
the medium-term budgetary objective in 2018 based on ex post data (section 4.1). The report 
is based on the Commission 2019 spring forecast, released on 7 May 2019, which takes into 

5  See  Commission  Report  COM(2018)  809  final  of  21.11.2018:  "Italy  -  Report  prepared  in  accordance  with 

Article 126(3) of the Treaty on the Functioning of the European Union". 

6  According to Regulation (EC) No 479/2009, Member States have to report to the Commission twice a year their 
planned  and  actual  government  deficit  and  debt  levels.  The  most  recent  notification  of  Italy  can  be  found  at: 
http://ec.europa.eu/eurostat/web/government-finance-statistics/excessive-deficit-procedure/edp-notification-
tables  
7  Eurostat 

available 

67/2019 

release 

2019, 

April 

news 

No 

at: 

23 

of 

https://ec.europa.eu/eurostat/documents/2995521/9731224/2-23042019-AP-EN/bb78015c-c547-4b7d-b2f7-
4fffe7bcdfad  

2 

 
 
                                                 
account Italy’s 2019 Stability Programme (SP) submitted to the Commission and the Council 
on 19 April 2019. 

Table 1: General government deficit and debt (% of GDP) a 

2. 

DEFICIT CRITERION 

Italy made a sizeable fiscal effort between 2010 and 2013, raising its primary surplus to over 
2%  of  GDP  and  exiting  the  excessive  deficit  procedure  in  2013,  by  keeping  its  headline 
deficit  within  the  3%  of  GDP  deficit  threshold  as  of  2012.  However,  its  fiscal  stance  has 
gradually eased since 2014, with the structural primary balance deteriorating significantly. 
In  2018,  Italy’s  primary  surplus  stabilised  at  1.6%  of  GDP,  while  the  headline  deficit 
reached 2.1% of  GDP, the lowest  since 2007.  However,  both  the headline and the primary 
balance are set to deteriorate in 2019 mainly due to the macroeconomic slowdown and the 
measures  included  in  the  2019  budget,  before  further  worsening  in  2020  on  a  no-policy-
change basis.  

Italy’s general government deficit was reported at 2.1% of GDP in 2018. According to both 
the Stability Programme and the Commission 2019 spring forecast, it is projected to respect 
the  Treaty  reference  value  of  3%  of  GDP  in  2019.  However,  the  reference  value  will  be 
exceeded  in  2020  according  to  the  Commission  forecast,  under  a  no-policy-change 
assumption.8  The  Stability  Programme  projects  the  general  government  deficit  at  2.4%  of 
GDP in 2019 and 2.1% in 2020, before further declining to 1.8% of GDP in 2021 and 1.5% in 
2022. The increase in the general government deficit projected for 2019 largely results from 
the  macroeconomic  slowdown  and  the  budgetary  measures  in  the  2019  budget,  with  a  net 
deficit-increasing impact of around 0.5% of GDP.9 The decrease in the general government 
deficit planned for 2020 is largely due to the impact (around 1.3% of GDP) of higher VAT 
rates legislated for 2020 as a safeguard clause.  

8 The no-policy-change assumption departs from the hypothesis of unchanged legislation for instance as regards 
policy measures that are formally legislated but not included in the Commission forecast to the extent that they 
are assessed as not credible enough or not sufficiently detailed. As an example, since its 2016 autumn forecast, 
the Commission does not include higher VAT rates legislated as a “safeguard clause” to ensure the attainment of 
future fiscal targets, as Italy’s budget laws have systematically repealed those hikes for the coming year, mostly 
without specifying alternative financing measures. 

9 That amount includes the repeal of the VAT hike (worth 0.7% of GDP) legislated for 2019 as a safeguard clause 
and  the  activation  of  the  spending-freezing  mechanism  (worth  2  billion  EUR  or  0.11%  of  GDP  in  2019) 
assumed by Italy’s 2019 Stability Programme. 

3 

COMSPCOMSPDeficit criterionGeneral government balance-2.5-2.4-2.1-2.5-2.4-3.5-2.1General government gross debt131.4131.4132.2133.7132.6135.2131.3Gap to the debt reduction benchmark5.86.77.69.05.19.24.5Change in structural balance-1.0-0.4-0.1-0.2-0.1-1.20.2Required MLSAn.r.n.rn.rn.r.n.r.n.r.n.r.2019Debt criterion2016201820202017Source: Commission services, Italy's 2019 SP and Commission 2019 spring forecasta In percent of GDP unless otherwise specified; "n.r." indicates "not relevant"Notes: 
 
 
                                                 
The Commission 2019 spring forecast projects that Italy's general government deficit will be 
2.5% of GDP in 2019 and rise to 3.5% in 2020. Although the net deficit-increasing impact of 
the measures in the 2019 budget is in line with the projections in the Stability Programme, the 
headline deficit forecast by the Commission for 2019 is slightly higher than the latter, mainly 
due to a more prudent underlying trend of public expenditure. The higher deficit forecast by 
the Commission for 2020 under a no-policy-change assumption compared to the government 
plans is mainly explained by the fact that the Commission does not include the higher VAT 
rates legislated for 2020 as a safeguard clause, given the systematic repeals recorded in recent 
years and the lack of details on possible alternative measures.  

Thus,  Italy  currently  complies  with  the  deficit  criterion  as  defined  in  the  Treaty  and  in 
Regulation  (EC)  No  1467/97,  although  there  is  a  risk  that  the  deficit  criterion  will  not  be 
complied  with  in  2020  based  on  the  Commission  2019  spring  forecast,  under  a  no-policy-
change assumption. 

3. 

DEBT CRITERION 

After growing by 5 percentage points per year on average during the double-dip recession of 
2008-2013, Italy's public debt-to-GDP ratio hovered around 131.5% over 2014-2017 before 
increasing  to  132.2%  in  2018.  Based  on  the  Stability  Programme,  it  is  expected  to  slightly 
rise to 132.6% in 2019 and decline to 131.3% in 2020 on the back of rather solid nominal 
growth,  a decrease in  the headline deficit thanks to  VAT hikes, and ambitious privatisation 
proceeds. By contrast, the Commission expects the debt ratio to rise in both 2019 and 2020, 
up  to  over  135%,  due  to  a  large  debt-increasing  “snowball”  effect,  a  declining  primary 
surplus, and underachieved privatisation proceeds. While refinancing risks remain limited in 
the short term, the high public debt remains a source of vulnerability for Italy’s economy. 

Following the abrogation of the EDP in June 2013, Italy was subject to a three-year transition 
period towards compliance with the debt reduction benchmark, starting in 2013 and ending in 
2015. After the end of the transition period, the debt reduction benchmark became applicable 
in 2016. Based on notified data and the Commission forecast, the gap to the debt benchmark 
amounted to 7.6% in 2018. Moreover, based on the Stability Programme, Italy does not plan 
to comply with the debt reduction benchmark either in 2019 (gap to the debt benchmark of 
5.1% of GDP) or in 2020 (gap to the debt benchmark of 4.5% of GDP). That conclusion is 
confirmed, with larger gaps, based on the Commission forecast (gap to the debt benchmark of 
9.0% and 9.2% of GDP, respectively). 

More in detail, Italy’s debt-to-GDP ratio reached 132.2% in 2018, i.e. 0.8 percentage points 
higher than in 2017. As summarised in Table 2, that increase was mainly due to a large debt-
increasing stock-flow adjustment (0.9% of GDP) also related to a marked rise in the Treasury 
liquidity reserves. The debt-reducing impact of the higher primary surplus (1.6% of GDP, up 
from 1.4% in 2017) almost entirely offset a debt-increasing “snowball” effect (1.5%). In fact, 
as shown in Graph 1, the real implicit cost of debt10 remained above Italy’s real GDP growth 
in  2018  (0.9%),  although  it  slightly  shrank  (to  2%,  down  from  2.4%  in  2017)  thanks  to  a 
gradual pass-through of higher spot yields at issuance (1.1% in 2018, up from 0.7% in 2017)11 

10 The real implicit cost of debt at time t can be defined as the nominal yield paid by the government to service the 
outstanding debt at time t-1, net of the impact of inflation at time t. In Table 2, the yearly change in debt-to-GDP 
ratio due to the real implicit cost of debt can be obtained by adding the respective contributions from interest 
expenditure (debt-increasing) and GDP deflator (debt-decreasing). 

11 It was 1.33% on average between January and April 2019 

4 

 
 
                                                 
into the servicing  cost  of the outstanding debt  stock12 and moderately rising inflation (GDP 
deflator  growth  of  0.8%).  The  increase  in  the  spot  yields  at  issuance  in  2018  (and  in  early 
2019) reflects higher risk premia on Italy’s public debt, with sovereign spreads undergoing an 
upward  level  shift  in  the  order  of  around  100  basis  points  since  May  2018.  As  such, 
compared to the projections in the Commission 2018 spring forecast, interest expenditure in 
2018 turned out higher by around EUR 2.2 billion (at EUR 65 billion instead of 62.8 billion). 

For 2019, the Stability Programme projects the debt-to-GDP ratio to further rise to 132.6%, 
i.e. by 0.4 percentage points compared to the 2018 level. The projected dynamics are mainly 
the  result  of  a  debt-increasing  “snowball”  effect  (2%  of  GDP)  due  to  weakening 
macroeconomic conditions  (nominal GDP growth decreasing to  1.2%,  from  1.7% in  2018), 
although  the  primary  surplus  (1.2%  of  GDP)  and  ambitious  privatisation  proceeds  (1%  of 
GDP)  largely  offset  it.  The  Commission  expects  Italy’s  debt  ratio  to  rise  much  more 
markedly  in  2019,  to  133.7%.  The  difference  is  due  partly  to  a  larger  debt-increasing 
"snowball"  effect  (2.6%),  related  to  more  prudent  assumptions  as  regards  nominal  GDP 
growth (0.8% in lieu of 1.2%) and partly to a debt-increasing stock-flow adjustment largely 
explained  by  the  assumed  underachievement  of  the  privatisations  projected  by  the 
government (0.1% of GDP in lieu of 1%).  

For 2020, the Stability Programme projects the debt-to-GDP ratio to decrease to 131.3% i.e. 
by 1.3 percentage points compared to the 2019 level. The projected dynamics are mainly the 
result of a large projected primary surplus (1.6% of GDP) and a neutral “snowball” effect on 
the back of the assumed marked rise in nominal GDP growth (2.8%), despite a slightly debt-
increasing stock-flow adjustment (0.3%). The Commission, instead, expects Italy’s debt ratio 
to keep rising in 2020, to 135.2%. The difference is due to a much lower primary balance (a 
primary deficit of 0.2% of GDP) as the Commission does not incorporate in its forecast the 
increase  in  VAT  rates  legislated  as  a  safeguard  clause,  and  a  much  larger  debt-increasing 
“snowball”  effect  (1.4%),  related  to  more  prudent  assumptions  as  regards  nominal  GDP 
growth (1.8% in lieu of 2.8%). Moreover, the Commission assumes an underachievement of 
the  privatisations  projected  by  the  government  (zero  in  lieu  of  0.3%  of  GDP).  Risks  to  the 
debt  projections  in  both  the  Commission  forecast  and  the  Stability  Programme  could  be 
related  to  a  worse-than-anticipated  macroeconomic  outlook,  a  stronger  deterioration  of  the 
primary  balance,  lower  inflation  and/or  privatisation  proceeds,  and  higher-than-expected 
interest spending. 

Overall, as shown in Graph 1, despite weakening real GDP growth in 2018 (solid blue line), 
the still decreasing real implicit cost of public debt (dashed black line) was enough to contain 
the  debt-increasing  “snowball”  effect  (yellow  shade)  to  1.2%  in  2018  (up  from  0.7%  in 
2017), i.e. broadly in line with the pre-crisis average (1.2% over 2000-2007), after a couple of 
years in which it was below the latter (¾% over 2016-2017). While being an unicum within 
the Union at the current juncture, the positive interest-rate-growth-rate differential, leading to 
a debt-increasing “snowball” effect, thus offers only a partial explanation for Italy’s lack of 
compliance with the debt reduction benchmark in 2018, mainly through its forward-looking 
configuration. In fact, in 2019 the “snowball” effect is set to rise to 2%, i.e. markedly above 
the  historical  average,  mainly  due  to  weakening  macroeconomic  conditions.  As  such,  it 
represents one of the main factors behind Italy’s projected lack of compliance with the debt 
reduction benchmark in a forward-looking configuration. 

12 That is related to the average duration of the Italian public debt and its rollover period. 

5 

 
 
                                                 
Overall, this analysis thus suggests that prima facie the debt criterion for the purpose of the 
Treaty  and  Regulation  (EC)  No  1467/97  is  not  fulfilled  in  2018,  2019  and  2020,  whether 
based  on  the  Stability  Programme  or  the  Commission  2019  spring  forecast,  before 
consideration is given to all relevant factors as set out below. 

6 

 
 
Table 2: Debt dynamics a

Graph 1: Drivers of “snowball effect” on government debt 

Source: Commission 2019 spring forecast and Ministry of Finance (MEF) data. The real spot yield at 
issuance for 2019 includes data only up to April 2019 

7 

201620172018COMSPCOMSPGovernment gross debt ratio131.4131.4132.2133.7132.6135.2131.3Change in debt ratio b (1 = 2+3+4)-0.20.00.81.60.41.5-1.3Contributions:• Primary balance (2)-1.4-1.4-1.6-1.2-1.2-0.2-1.6• “Snowball” effect (3)1.00.91.52.62.01.40.0of which:Interest expenditure3.93.83.73.63.63.73.6Real GDP growth-1.5-2.2-1.1-0.1-0.3-0.9-1.0Inflation (GDP deflator)-1.5-0.7-1.1-0.9-1.3-1.4-2.6• Stock-flow adjustment (4)0.30.40.90.1-0.30.30.3of which:Cash/accruals difference-0.31.40.20.40.40.40.0Net accumulation of financial assets0.5-1.00.2-0.3-0.7-0.10.0of which privatisation proceeds-0.10.00.0-0.1-1.00.0-0.3Valuation effect & residual0.00.00.30.0-0.10.00.2Source: Commission services, Italy's 2019 SP and Commission 2019 spring forecastwhere t is a time subscript; D, PD, Y and SF are the stock of government debt, the primary deficit, nominal GDP and the stock-flow adjustment respectively, and i and y represent the average cost of debt and nominal GDP growth. The term in parentheses represents the “snow-ball” effect, measuring the combined effect of interest expenditure and economic growth on the debt ratio.20192020Notes:a In percent of GDP unless otherwise specifiedb The change in the gross debt ratio can be decomposed as follows:tttttttttttttYSFyyiYDYPDYDYD1*1111 
 
 
 
 
 
4. 

RELEVANT FACTORS 

Article  126(3)  TFEU  provides  that  the  Commission  report  “shall  also  take  into  account 
whether  the  government  deficit  exceeds  government  investment  expenditure  and  take  into 
account  all  other  relevant  factors,  including  the  medium-term  economic  and  budgetary 
position of the Member  State”. Those factors are further clarified in Article 2(3) of Council 
Regulation  (EC)  No  1467/97,  which  also  provides  that  “any  other  factors  which,  in  the 
opinion  of  the  Member  State  concerned,  are  relevant  in  order  to  comprehensively  assess 
compliance with deficit and debt criteria and which the Member State has put forward to the 
Council and to the Commission” need to be given due consideration. 

In  case  of  an  apparent  breach  of  the  debt  criterion,  the  analysis  of  the  relevant  factors  is 
particularly warranted, given that debt dynamics are influenced to a larger extent by factors 
outside  the  control  of  the  government  than  is  the  case  for  the  deficit.  This  is  recognised  in 
Article 2(4) of Regulation (EC) No 1467/97, which provides that the relevant factors shall be 
taken into account when assessing compliance based on the debt criterion irrespective of the 
size  of  the  breach.  In  that  respect,  at  least  the  following  three  main  aspects  need  to  be 
considered  (and  have  been  considered  in  past  reports)  when  assessing  compliance  with  the 
debt criterion given their impact on the debt dynamics and sustainability: 

1.  adherence  to  the  Medium  Term  budgetary  Objective  (MTO)  or  the  adjustment  path 
towards  it,  which  is  supposed  to  ensure  sustainability  or  rapid  progress  towards 
sustainability  under  normal  macroeconomic  circumstances.  As  by  construction  the 
country-specific  MTO  takes  into  account  the  debt  level  and  implicit  liabilities, 
compliance  with  the  MTO  or  the  adjustment  path  towards  it  should  ensure 
convergence of the debt ratios towards prudent levels at least in the medium term; 

2.  structural reforms, already implemented or detailed in a structural reform plan, which 
are  expected  to  enhance  sustainability  in  the  medium  term  through  their  impact  on 
growth,  thereby  contributing  to  bring  the  debt-to-GDP  ratio  on  a  satisfactory 
downward path. Overall, adherence to the MTO (or the adjustment path towards it), 
alongside  with  the  implementation  of  structural  reforms  (in  the  context  of  the 
European  Semester),  is  expected  under  normal  economic  conditions  to  bring  debt 
dynamics on a sustainable path through the combined impact on the debt level itself 
(through  the  achievement  of  a  sound  budgetary  position  at  the  MTO)  and  on 
economic growth (through the reforms); 

3.  unfavourable  macroeconomic  conditions  and,  in  particular,  low  inflation,  which  can 
hamper  the  reduction  of  the  debt-to-GDP  ratio  and  make  compliance  with  the 
Stability and Growth Pact (SGP) provisions particularly demanding. A low-inflation 
environment makes it more demanding for a Member State to comply with the debt 
reduction benchmark. Under such conditions, adherence to the MTO or the adjustment 
path towards it is a key relevant factor in assessing compliance with the debt criterion. 

In  view  of  those  provisions,  the  following  subsections  consider:  (1) the  medium-term 
budgetary  position,  including  an  assessment  of  compliance  with  the  required  adjustment 
towards  the  MTO  and  of  public  investment;  (2) the  developments  in  the  medium-term 
government  debt  position,  including  its  sustainability  prospects;  (3) the  medium-term 
economic  position,  including  the  state  of  play  in  terms  of  implementation  of  structural 
reforms;  (4) other  factors  deemed  relevant  by  the  Commission;  and  (5) other  factors  put 
forward by the Member State. 

8 

 
 
4.1. 

Medium-term budgetary position 

An  ex  post  assessment  points  to  Italy’s  non-compliance  with  the  recommended  adjustment 
path  towards  the  MTO  in  2018,  even  after  taking  into  account  the  so-called  “margin  of 
discretion”. Moreover, as regards 2019, Italy is at risk of non-compliance with the preventive 
arm  of  the  Stability  and  Growth  Pact,  even  after  taking  into  account  the  preliminary 
allowance  for  unusual  events.  The  size  of  the  deviation  from  the  recommended  adjustment 
path towards the MTO is expected to further widen in 2020 based on the Commission 2019 
spring forecast, under a no-policy-change assumption. This represents an aggravating factor.  

Structural balance and adjustment towards the MTO  

As  regards  2018,  on  11  July  2017  the  Council  recommended  that  Italy  should  pursue  a 
substantial fiscal effort in line with the requirements of the preventive arm of the SGP, taking 
into account the need to strengthen the ongoing recovery and to ensure the sustainability of 
public finances. Based on the commonly agreed adjustment matrix under the preventive arm 
of the SGP that adjustment translated into the requirement of a nominal rate of reduction of 
net primary government  expenditure of at least 0.2%, corresponding to  an annual structural 
effort of at least 0.6% of GDP. At the same time, the Council stated that the assessment of the 
2018 Draft Budgetary Plan and subsequent assessment of 2018 budget outcomes would need 
to take due account of the goal of achieving a fiscal stance that contributed to strengthening 
the  ongoing  recovery  and  ensuring  the  sustainability  of  public  finances.  Following  the 
Commission’s assessment of the strength of Italy’s recovery while giving due consideration 
to  its sustainability  challenges, which the Commission  carried out  in  November 2017 in its 
opinion  on  Italy's  2018  Draft  Budgetary  Plan,  on  13  July  2018  the  Council  set  for  Italy  a 
required  fiscal  structural  effort  of  at  least  0.3%  of  GDP  for  2018  without  any  additional 
margin of deviation over one year, corresponding to a nominal rate of growth of net primary 
government expenditure not exceeding 0.5%. 

Based on notified data, the expenditure benchmark points to an inadequate fiscal adjustment 
in  2018,  as  the  growth  rate  of  Italy's  government  expenditure,  net  of  discretionary  revenue 
measures and one-offs, at 2%, is expected to have exceeded the 0.5% increase recommended 
by the Council. Moreover, based on notified data and the Commission 2019 spring forecast, 
Italy’s structural balance is estimated to have deteriorated by 0.1% of GDP in 2018, falling 
short of the adequate structural effort of 0.3% of GDP. More in detail, the increase in Italy’s 
structural  primary  expenditure  by  some  0.45%  of  potential  GDP  compared  to  2017  was 
largely driven by compensation of employees and social transfers in cash. That increase was 
only partly offset by a lower interest bill in the order of 0.1% of GDP13, resulting in an overall 
increase in structural expenditure by some 0.35% of potential GDP. On the other hand, Italy’s 
structural  revenues  improved  only  by  around  0.25%  of  potential  GDP,  largely  driven  by 
revenues  from  indirect  taxes  and  social  security  contributions.  An  overall  assessment  thus 
points  to  Italy’s  non-compliance  with  the  adjustment  path  towards  the  medium-term 
budgetary objective recommended by the Council for 2018. 

For  2019,  the  Council  recommended  to  Italy  to  ensure  that  the  nominal  growth  rate  of  net 
primary government expenditure does not exceed 0.1%, corresponding to an annual structural 
adjustment of 0.6% of GDP. 

13 However, as mentioned above, interest expenditure in 2018 turned out higher than expected by the Commission 
2018 spring forecast based on the 2018 Stability Programme due to a rise in sovereign yields since May 2018. 

9 

 
 
                                                 
Based on the Stability Programme, the expenditure benchmark points to a risk of significant 
deviation both in 2019 (gap of 0.7% of GDP) and over 2018 and 2019 taken together (gap of 
0.7%  of  GDP  per  year,  on  average  after  taking  into  account  the  margin  of  discretion  in 
201814), as the growth rate of government expenditure net of discretionary revenue measures 
and one-offs, at 1.8%, will exceed that recommended by the Council. The same indication is 
provided  by  the  structural  balance  pillar,  as  the  Stability  Programme  projects  the 
(recalculated) structural balance to deteriorate by 0.2% of GDP in 2019. This points to a risk 
of significant deviation both over one year (gap of 0.8% of GDP in 2019) and over 2018 and 
2019 taken together (gap of 0.6% per year, on average after taking into account the margin of 
discretion in 2018). An overall assessment based on the government plans points to a risk of 
significant deviation from the adjustment path towards the medium-term budgetary objective 
recommended by the Council for 2019. That  conclusion would not  change if the budgetary 
impact  (around  0.18%  of  GDP)  of  the  extraordinary  maintenance  programme  for  the  road 
network  and  connections  following  the  collapse  of  the  Morandi  bridge  in  Genoa  and  of  a 
preventive  plan  to  limit  hydrogeological  risks  following  adverse  weather  conditions  were 
considered  as  “unusual  events”  outside  the  control  of  the  Member  State  concerned  for  the 
purposes  of Articles 5(1) and 6(3) of Regulation  (EC) No 1466/97  and subtracted from the 
requirement of the preventive arm of the Stability and Growth Pact. 

Based  on  the  Commission  2019  spring  forecast,  the  overall  assessment  based  on  the 
recalculated  government plans is  confirmed. The expenditure benchmark points to a risk of 
significant  deviation  both  in  2019  (gap  of  0.9%  of  GDP)  and  over  2018  and  2019  taken 
together (gap of 0.8% of GDP per year, on average after taking into account the “margin of 
discretion”  in  2018),  as  the  growth  rate  of  government  expenditure  net  of  discretionary 
revenue measures and one-offs, at 2.0%, will exceed that recommended by the Council. The 
same indication is provided by the structural balance pillar, as the Commission expects Italy’s 
structural  balance  to  deteriorate  by  0.2%  of  GDP  in  2019,  reaching  -2.4%  of  GDP.  The 
structural balance pillar thus points to a risk of significant deviation both over one year (gap 
of 0.8% of GDP in 2019) and over 2018 and 2019 taken together (gap of 0.6% per year, on 
average after taking into account the “margin of discretion” in 2018). That conclusion would 
not change after considering the preliminarily granted allowance for unusual events in 2019. 
However,  the  Italian  authorities  indicate  the  existence  of  upside  risks  to  the  2019  budget 
balance thanks to higher-than-expected revenues and lower-than-projected public expenditure 
on measures in the 2019 budget (section 4.5). 

For 2020, Italy is recommended to ensure that net primary government expenditure declines 
by 0.1%, corresponding to an annual structural adjustment of 0.6% of GDP.  

Based  on  the  Stability  Programme,  the  expenditure  benchmark  points  to  a  risk  of  some 
deviation in 2020 (gap of 0.3% of GDP) and to a risk of significant deviation over 2019 and 
2020  taken  together  (gap  of  0.5%  of  GDP  per  year,  on  average),  as  the  growth  rate  of 
government  expenditure  net  of  discretionary  revenue  measures  and  one-offs,  at  0.6%,  will 
exceed that recommended by the Council. The same indication is provided by the structural 
balance  pillar,  as  the  Stability  Programme  projects  the  (recalculated)  structural  balance  to 
improve by 0.2% of GDP in 2020. That points to a risk of some deviation over one year (gap 
of  0.4%  of  GDP  in  2020)  and  to  a  risk  of  significant  deviation  over  2019  and  2020  taken 

14 The gap over one year is thus computed with respect to the requirement of 0.6% of GDP in 2019, while the gap 
over two years (i.e. over 2018 and 2019 taken together) is computed on the basis of the “adjusted” requirement 
of 0.3% of GDP in 2018, after taking into account the margin of discretion, and of 0.6% of GDP in 2019.  

10 

 
 
                                                 
together (gap of 0.6% per year, on average). The indications provided by both pillars suggest 
that  the  more  positive  fiscal  developments  projected  in  the  Stability  Programme  for  2020, 
largely  due  to  the  assumed  full  implementation  of  a  large  VAT  hike,  are  not  sufficient  to 
compensate for the large planned deviation from the preventive arm’s requirement in 2019. 
An overall assessment based on the government plans points to a risk of significant deviation 
from the adjustment path towards the medium-term budgetary objective recommended by the 
Council  for  2020.  That  conclusion  would  not  change  after  considering  the  preliminarily 
granted allowance for “unusual events” in 2019. 

Based  on  the  Commission  2019  spring  forecast,  the  overall  assessment  based  on  the 
recalculated  government plans is  confirmed. The expenditure benchmark points to a risk of 
significant  deviation  both  in  2020  (gap  of  1.5%  of  GDP)  and  over  2019  and  2020  taken 
together  (gap  of  1.2%  of  GDP  per  year,  on  average),  as  the  growth  rate  of  government 
expenditure  net  of  discretionary  revenue  measures  and  one-offs,  at  3.3%,  will  exceed  that 
recommended  by  the  Council.  The  same  indication  is  provided  by  the  structural  balance 
pillar, as the Commission expects Italy’s structural balance to deteriorate by 1.2% of GDP in 
2020. That points to a risk of significant deviation both over one year (gap of 1.8% of GDP in 
2019)  and  over  2019  and  2020  taken  together  (gap  of  1.3%  per  year,  on  average).  That 
conclusion  would  not  change  after  considering  the  preliminarily  granted  allowance  for 
unusual  events  in  2019.  For  both  pillars,  the  gaps  to  compliance  in  2020  are  significantly 
larger  based  on  the  Commission  forecast  than  based  on  the  Stability  Programme,  as  the 
former does not include the safeguard clauses and projects a worse fiscal outlook in 2020. 

The MTO set by the 2019 Stability Programme, i.e. a budgetary surplus of 0.5% of GDP in 
structural terms, reflects the objectives of the SGP but is not planned to be reached within the 
programme period. Namely, after remaining stable in 2018, the structural balance is expected 
to deteriorate by 0.1% of GDP in 2019 and to improve by 0.2% of GDP in 2020 and 0.3% of 
GDP in both 2021 and 2022, reaching -0.8% of GDP in 2022. 

Box 1: flexibility under the preventive arm 

In  the  context  of  the  fiscal  surveillance  carried  out  by  the  Commission  over  recent  years, 
Italy has benefitted from different kinds of flexibility clauses and allowances foreseen under 
the  SGP.  Specifically,  over  2015-2018  Italy  benefitted  from  a  cumulated  allowance  of 
around  EUR  30  billion,  or  1.8%  of  GDP,  in  addition  to  an  allowance  of  around  EUR  3 
billion,  or  0.18%  of  GDP,  provisionally  granted  for  2019.  The  flexibility  granted  to  Italy 
was crucial to ensure its (broad) compliance with the preventive arm of the SGP based on 
outturn  data,  in  particular  for  2015,  2016  and  2017.  Compliance  with  the  preventive  arm 
was also regarded by the Commission as a key mitigating factor not to trigger an excessive 
deficit procedure despite prima facie non-compliance with the debt reduction benchmark.  

Following the “Flexibility Communication” of January 2015, the Council recommended to 
Italy  a  fiscal  effort  of  0.25%  of  GDP  in  2015,  instead  of  0.5%,  due  to  the  greater  weight 
given  to  cyclical  conditions  (“very  bad  economic  times”)  it  introduced.  Moreover,  Italy 
benefitted from an allowance of 0.03% of GDP for additional refugee-related expenditure. 

As  regards  2016,  the  flexibility  granted  to  Italy  amounted  to  0.5%  of  GDP  under  the 
structural reform clause; 0.21% under the investment clause; 0.06% for additional refugee-
related  expenditure;  and  0.06%  for  exceptional  security  measures  related  to  the  terrorism 

11 

 
 
 
threat.  

As regards 2017, the flexibility granted to Italy amounted to 0.35% of GDP, of which 0.18% 
for a preventive investment plan for the protection of the national territory against seismic 
risk and 0.17% for the refugee crisis. 

As  regards  2018,  in  its  Opinion  on  Italy’s  2018  DBP  the  Commission  made  use  of  its 
“margin of discretion”, by considering a structural effort of 0.3% of GDP (instead of 0.6%) 
as appropriate for  Italy,  without any  further margin  of deviation  over one  year, due to  the 
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”. 

As  regards  2019,  in  the  context  of  the  dialogue  between  the  Italian  authorities  and  the 
Commission  over  the  2019  DBP,  the  Commission  assessed  that  Italy  was  provisionally 
eligible  for  an  allowance  of  around  0.18%  of  GDP  for  “unusual  events”  for  extraordinary 
maintenance  programme  for  the  road  network  and  for  a  preventive  plan  to  limit 
hydrogeological risks. Those amounts will have to be confirmed based on outturn data. 

Public investment 

As  regards  public  investment,  Italy’s  government  gross  fixed  capital  formation  averaged 
around  3%  of  GDP  over  1999-2010,  but  the  need  to  adjust  quickly  to  respond  to  the 
sovereign  debt  crisis  led  to  a  substantial  reduction  in  public  investment  to  around  2.4%  of 
GDP on average over 2011-2016. In 2018, the public investment-to-GDP ratio reached a new 
low,  at  2.1%  of  GDP  (growth  rate  of  -4.3%  year-on-year  in  nominal  terms).  The  ratio  is 
projected by the Stability Programme to increase to 2.2% of GDP in 2019 (+5.2% year-on-
year  in  nominal  terms)  and  2.4%  in  2020,  supported  by  the  additional  funds  allocated  and 
measures  taken  to  accelerate  administrative  procedures.  Instead,  the  Commission  expects 
investment to remain broadly stable at 2.1% of GDP in 2019 (growth rate of 1.9% year-on-
year in nominal terms), before more mildly recovering to 2.3% in 2020.  

Overall, given its broad decline over time, public investment does not appear to represent a 
mitigating factor justifying Italy’s lack of compliance with the debt reduction benchmark. 

4.2. 

Medium-term government debt position 

Italy's public debt remains a major source of vulnerability for the economy. Newly adopted 
measures and adverse demographic trends partly reverse the positive effects of past pensions 
reforms  and  weaken  Italy’s  long-term  fiscal  sustainability.  Fiscal  sustainability  was  also 
hampered  by  the  level  shift  in  interest  rates  on  government  bonds  observed  in  2018  and 
through early 2019. 

After  reaching  132.2%  in  2018,  Italy’s  debt-to-GDP  ratio  is  set  to  further  increase  up  to 
around  135%  in  2020  based  on  the  Commission  2019  spring  forecast.  In  2019-2020,  a 
marked worsening of the primary surplus, broadly stable interest spending and close to zero 
privatisation proceeds in a context of weak nominal GDP growth are expected to be the main 
drivers behind the expected increase in the public debt ratio. 

According to the European Commission's short-term fiscal sustainability risk indicator "S0", 
Italy  does  not  appear  to  face  short-term  sustainability  challenges,  although  vulnerabilities 

12 

 
 
 
appear  on  the  fiscal  side.15  In  fact,  risks  from  the  macro-financial  context  remain  overall 
limited,  also  thanks  to  the  ECB's  still  accommodative  monetary  policy.  However,  Italy  is 
exposed to sudden increases in financial market risk aversion due to still large rollover needs 
(around 17% of GDP in 2019) related to its large public debt. As observed since May 2018, 
such increases can lead to high volatility in sovereign bond markets and substantially higher 
debt servicing costs, with the subsequent risk of negative spillovers to the banking sector and 
to financing conditions for firms and households.  

In  the  medium  term,  Italy  faces  marked  sustainability  challenges.  Its  structural  primary 
surplus is forecast to further deteriorate to 1.2% of GDP in 2019 and 0.2% of GDP in 2020, 
down from 3.5% in 2015. This could heighten sustainability risks in the medium term, as a 
weak  fiscal  position  might  further  raise  risk  premia.  This  is  captured  by  the  Commission's 
medium-term debt sustainability analysis (DSA) and fiscal sustainability risk indicator S116, 
which both point to “high risk”17. The high and increasing projected stock of debt in 2029 in 
the  baseline  scenario  and  its  sensitivity  to  macroeconomic-fiscal  shocks  contribute  to  that 
assessment. Achieving a debt ratio of 60% of GDP by 2033 would thus require Italy to make 
a large cumulative fiscal effort, amounting to 10.2 percentage points of GDP over 2021-2025. 

In  the  long-term,  Italy  is  also  expected  to  face  marked  sustainability  challenges,  driven  by 
both  the sizeable fiscal  adjustment required to  stabilise the debt-to-GDP ratio, especially in 
light  of  the  future  ageing  costs,  and  the  vulnerabilities  linked  to  the  high  debt  burden.  The 
long-term  fiscal  sustainability  risk  indicator  S218  points  to  medium  risks,  as  a  permanent 
increase in Italy’s structural primary surplus of around 3.2 percentage points of GDP would 
be  needed  to  keep  its  debt-to-GDP  ratio  stable  over  the  long  term,  also  due  to  the  costs  of 
ageing.  Given  the  vulnerabilities  linked  to  the  high  debt  burden  captured  by  the  DSA  risk 
assessment,  the  latter  points  to  high  risks  in  the  long-term.  In  fact,  the  long-term 
sustainability  ensured  by  past  pensions  reforms,  by  curbing  implicit  liabilities  arising  from 
population  ageing,  is  deteriorating  due  both  to  worsening  demographic  trends  projected  by 
Eurostat and to recently adopted reforms. In particular, with the 2019 budget, the government 
extended the possibility for early retirement, substantially increasing public spending for old-
age pensions. The additional cost, at around 0.3% of GDP in 2019, would further raise Italy's 
old age pension expenditure, which, at around 15% of potential GDP in 2017, is already one 
of the highest in the Union and the OECD. Furthermore, the enhanced flexibility for retiring 
early 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 

15 The short-term fiscal sustainability indicator S0 (an 'early-detection' indicator of fiscal risks in the short term, 
stemming  from  fiscal,  macro-financial  and  competitiveness  characteristics  of  the  economy  over  a  one-year 
horizon, based on a range of twenty-five fiscal and macro-financial variables) is set to be below the 'high-risk' 
threshold in 2018 but, at 0.36, remains among the highest in the EU, mainly due to Italy's very high public debt. 
Furthermore, the fiscal sub-index, which allows capturing vulnerabilities stemming solely from the fiscal side, is 
above its critical threshold, thus suggesting that those vulnerabilities are present in Italy, notably in light of its 
sizeable government financing needs. 

16 The medium-term fiscal sustainability indicator S1 shows the additional adjustment effort required, in terms of 
a  cumulated  gradual  improvement  in  the  structural  primary  balance  over  five  years  (starting  from  2021),  to 
reach a 60% debt-to-GDP ratio by 2033, including paying for any future additional expenditure arising from an 
ageing population. 

17  See  forthcoming  European  Commission  Fiscal  Sustainability  Report  2019.  More  explanations  on  the 

methodology can be found in the European Commission Debt Sustainability Monitor 2018.  

18 The long-term fiscal sustainability indicator S2 shows the upfront adjustment to the current structural primary 
balance (subsequently kept constant at the adjusted value forever) needed to stabilise the debt-to-GDP ratio over 
the infinite horizon, including paying for any additional expenditure arising from an ageing population. 

13 

 
 
                                                 
hampering  potential  growth.  Overall,  further  backtracking  on  the  implementation  of  past 
pension reforms could significantly worsen Italy's long-term sustainability risks, endangering 
an appropriate reduction path of its very large public debt-to-GDP ratio.  

Moreover,  privatisation  proceeds  amounted  to  around  zero  in  2018,  largely  underachieving 
the 0.3% of GDP target planned by the government for that year. For the future, the Stability 
Programme  projects  an  ambitious  1%  of  GDP  of  privatisation  proceeds  for  2019  and  0.3% 
for 2020. Given the weak track record of privatisations until now, the Commission forecast 
incorporates  only  around  0.1%  of  GDP  of  privatisation  proceeds  for  2019,  in  light  of  the 
credible and specified proposals currently under discussion, and no privatisation proceeds for 
2020 for prudential reasons.  

4.3. 

Medium-term economic position 

The  macroeconomic  slowdown  recorded  from  the  second  half  of  2018,  with  nominal  GDP 
growth falling below 2% in 2018 and over 2019-2020 based on the Commission forecast, can 
be  argued  to  partly  explain  Italy’s  large  gaps  to  compliance  with  the  forward-looking 
configuration  of  the  debt  reduction  benchmark.  However,  policy  choices  may  have 
contributed  to  the  macroeconomic  slowdown  through  a  negative  confidence  effect  and  a 
tighter  credit  channel.  Moreover,  Italy  made  limited  progress  in  addressing  the  2018 
Country-Specific  Recommendations  and  its  National  Reform  Programme  only  provides 
limited  details  on  the  few  new  commitments  it  contains.  Overall,  low  productivity  growth 
keeps  constraining  Italy's  growth  potential  and  hampering  a  faster  reduction  of  the  public 
debt-to-GDP ratio. 

Cyclical conditions, potential growth and inflation 

Italy’s economy slipped into a mild contraction in the second half of 2018, as the impact of 
the slowdown of  global  trade spread to  the  Italian economy  and was amplified by  subdued 
domestic  demand.  Namely,  higher  sovereign  yields  compared  to  early  2018  have  been 
translating, although with a lag, into tighter credit conditions,  while uncertainty  on policies 
and  reform  direction  has  been  weighing  on  investment.  Overall,  real  GDP  growth  reached 
0.9%  in  2018.  For  2019,  ISTAT  flash  estimates  for  Q1  support  a  pick-up  of  economic 
activity,  although  weak  domestic  demand  and  subdued  business  and  consumer  sentiment 
suggest  that  output  growth  will  gain  more  traction  only  in  the  second  part  of  the  year 
(compared to the last two quarters of 2018). As a result, real GDP growth in 2019 is set to 
remain  sluggish  at  0.1%  based  on  the  Commission  forecast,  before  reaching  0.7%  in  2020. 
The growth projections of the Stability Programme are only slightly more optimistic than the 
Commission forecast, with real output expanding by 0.2% in 2019 and 0.8% in 2020, where 
however the government incorporates the VAT hike legislated for 2020 as a safeguard clause.  

As  regards  the  GDP  deflator  growth,  the  government  projections  are  also  more  optimistic 
than the Commission’s, with nominal GDP growth at 1.2% in lieu of 0.8% in 2019 (and 2.8% 
in  lieu  of  1.8%  for  2020  but  largely  due  to  the  assumed  activation  of  the  VAT  hike  in  the 
Stability  Programme).  After  having  risen  by  1.2%  in  2017,  headline  Harmonised  Index  of 
Consumer  Price  (HICP)  inflation  remained  broadly  stable  in  2018  and  is  expected  by  the 
Commission  to  moderate  to  only  0.9%  in  2019,  partly  due  to  lower  energy  prices,  before 
picking up slightly to 1.1% in 2020. Core inflation, at 0.6% in April 2019, is set to rise above 
1% by the end of 2020, in line with moderate wage growth.  

14 

 
 
Italy’s  potential  growth  is  estimated  to  have  increased  in  2018,  to  0.5%  (up  from  0.2%  in 
2017), but to slow down again to 0.3% in 2019 before picking up to 0.5% in 2020. Overall, it 
remains very low. As a result, Italy’s negative output gap is estimated by the Commission to 
have  closed  in  2018,  to  -0.1%  of  potential  GDP,  from  -0.5%  in  2017,  but  to  widen  again 
to -0.3% in 2019 due to the starker deceleration in actual GDP growth, before closing again 
in  2020.  Despite  progress  achieved  in  some  reform  areas  (e.g.  labour  market  and  public 
administration, fight against tax evasion, banks' balance sheet repair), the legacy of the crisis 
and persistent structural weaknesses keep weighing on Italy's growth potential.19 Italy’s real 
GDP has hardly recovered to the pre-crisis level, while real GDP in the rest of the euro area is 
now 21% higher than in 2004. More in detail, Italy’s average annual  growth rate was 0.1% 
over 2004-2018, compared with 1.5% in the euro area excluding Italy. 

This is largely explained by structural factors that hamper the efficient allocation of resources 
and  constitute  a  drag  on  productivity.  A  still  large  share  of  old-age  pensions  and  debt-
servicing  costs  in  Italy's  public  spending  limits  growth-enhancing  spending  items  like 
education  and  infrastructure.  A  high  tax  burden  on  production  factors  and  still  low  tax 
compliance continue to hold back economic growth. Employment growth was supported by 
labour market reforms and hiring incentives, but was largely driven by temporary contracts, 
while  still  high  levels  of  long-term  and  youth  unemployment  weigh  on  future  economic 
growth prospects. The business environment continues to hinder entrepreneurship, including 
due  to  weak  spots  in  the  public  administration  and  very  lengthy  civil  and  criminal  justice 
proceedings. Finally, investment, in particular in intangible assets, is still low. In that context, 
it  would  have  been  important  for  Italy  to  restart  the  reform  effort  in  order  to  improve 
medium-term  growth  prospects  and  enhance  the  sustainability  of  the  country’s  public 
finances. 

Overall,  it  can  be  argued  that  Italy’s  ongoing  economic  slowdown  is  once  again,  after  the 
crisis period, calling for a careful modulation of the fiscal adjustment to avoid that large fiscal 
efforts could turn self-defeating in a context of subdued nominal GDP growth. Low inflation 
makes it harder for Italy to cut its public spending as a share of GDP by freezing wages and 
pension  entitlements  in  nominal  terms,  while  implying  lower-than-normal  tax  revenues.  At 
the same time, unfavourable macroeconomic conditions generally imply higher-than-average 
fiscal  multipliers,  amplified  by  the  constrained  monetary  policy  due  to  the  zero  lower 
bound.20 On the other hand, the composition of the fiscal effort  also has a major impact on 
the  multipliers,  especially  in  high-debt  countries.21  As  such,  the  macroeconomic  slowdown 
recorded in Italy from the second half of 2018, with nominal GDP growth falling below 2% 
in 2018 and expected to remain below 2% in 2019-2020 based on the Commission forecast, 
can  be  argued  to  be  a  mild  mitigating  factor,  only  partly  explaining  Italy’s  large  gaps  to 
compliance with the forward-looking configuration of the debt reduction benchmark.  Going 
forward, risks to the growth outlook remain predominantly negative: trade tensions continue 
to  cloud  the  global  outlook,  higher-than-expected  oil  prices  could  curb  consumers’ 
purchasing power, and any possible increases in sovereign yields could affect sentiment and 
private-sector funding conditions and amplify Italy’s sustainability risks. 

19  See  Commission  Staff  Working  Document  SWD(2019) 1011  final,  27.2.2019,  "Country  Report  Italy  2019. 

Including an In-Depth Review on the prevention and correction of macroeconomic imbalances". 

20 See, for instance, Blanchard O. and D. Leigh (2013), at www.imf.org/external/pubs/ft/wp/2013/wp1301.pdf  
21 See, for instance, Blanchard O. and J. Zettlemeyer (2018): “The Italian Budget: A Case of Contractionary Fiscal 

Expansion?” 

15 

 
 
                                                 
Table 3: Macroeconomic and budgetary developments a 

Structural reforms 
In its 2019 Country Report22, the Commission assessed that Italy had made limited progress 
in  addressing  the  2018  Country-Specific  Recommendations.  Namely,  there  has  been  some 
progress in fighting corruption, in reducing the stock of non-performing loans in the banking 
sector,  and  in  implementing  the  reform  of  active  labour  market  policies.  There  has  been 
limited  progress  in  tackling  tax  evasion,  in  improving  market-based  access  to  finance,  in 
enforcing the framework for publicly owned enterprises, in encouraging women to work, as 
well  as  in  fostering  research,  innovation,  digital  skills  and  infrastructure  and  vocational-
oriented  tertiary  education.  There  has  been  no  progress  in  shifting  taxation  away  from 
productive factors, in reducing the share of old-age pensions in public spending (and indeed  
there has even been some backtracking in that field), in reducing trial length in civil justice, 
and in addressing restrictions on competition. 

The  in  depth-review  published  as  part  of  the  2019  Country  Report  also  kept  Italy  in  the 
“excessive macroeconomic imbalances" category, together with Greece and Cyprus,23 for the 
sixth  year in  a row.  Italy’s macroeconomic imbalances relate mainly to  its high public debt 
and low productivity growth, while unemployment remains high and the overall stock of non-
performing loans in Italian banks’ balance sheet remains elevated.  

In the first months of 2019, the government approved two law decrees to support investment 
(so-called  “Crescita”  and  “Sblocca  Cantieri”).  The  “Crescita”  decree  envisages  the 
strengthening  of  the  regional  bodies  in  charge  of  public  works  through  the  endowment  of 
specialised employees in order to support investment in infrastructure. The decree reinforces 
State  support  for  firms’  financing  (e.g.  “Fondo  di  Garanzia”,  “Nuova  Sabatini”),  in 
particular  for  bank  credit,  and  introduces  a  new  vehicle  to  support  venture  capital.  The 

22 See “Country Report Italy 2019”. Ibidem. 
23 See Commission Communication COM(2019) 150 final, "2019 European Semester: Assessment of progress on 
structural  reforms,  prevention  and  correction  of  macroeconomic  imbalances,  and  results  of  in-depth  reviews 
under Regulation (EU) No 1176/2011". 
https://ec.europa.eu/info/sites/info/files/file_import/2019-european-semester-communication-country-

reports_en_0.pdf  

16 

201620172018COMSPCOMSPReal GDP (% change)1.11.70.90.10.20.70.8GDP deflator (% change)1.20.50.80.71.01.02.0Potential GDP (% change) -0.30.20.50.30.40.50.7Output gap (% of potential GDP)-2.0-0.5-0.1-0.3-0.3-0.1-0.2General government balance-2.5-2.4-2.1-2.5-2.4-3.5-2.1Primary balance1.41.41.61.21.20.21.5One-off and other temporary measures0.20.00.10.10.10.10.1Government gross fixed capital formation2.12.22.12.12.22.32.4Cyclically-adjusted balance-1.5-2.1-2.1-2.3-2.2-3.4-2.0Cyclically-adjusted primary balance2.51.71.61.31.40.31.6Structural balance b-1.7-2.1-2.2-2.4-2.3-3.6-2.1Structural primary balance2.31.71.51.21.30.21.5a In percent of GDP unless otherwise specifiedSource: Commission services, Italy's 2019 SP and Commission 2019 spring forecast20192020Notes:b Cyclically adjusted balance excluding one-offs and other temporary measures 
 
 
                                                 
“Sblocca Cantieri” decree aims to counter the difficulties faced by firms, especially smaller 
ones,  in  participating  in  public  procurement  through  the  implementation  of  simplified 
procedures, in order to unlock public investment. The 2019 National Reform Programme also 
mentions a reform of the public procurement code to be passed within two years. 

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.  Those  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  that  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. 
Italy’s 2019 National Reform Programme24 builds on the “contract of government” agreed by 
the government coalition parties in 2018 and its strategy to enhance growth continues to rely 
essentially on social transfers (e.g. the citizenship income) and to a lesser extent on lowering 
the  tax  burden  and  relaunching  public  investment.  More  in  detail,  Italy’s  National  Reform 
the  2018  Country-Specific 
Programme  addresses 
Recommendations  only  partially.  In  particular:  (i)  there  are  no  new  relevant  measures  that 
would  foster  a  "tax  shift"  away  from  production  factors;  instead  the  National  Reform 
Programme introduces a new possibility to  settle  past  tax liabilities  without  fines for firms, 
which may negatively affect tax compliance; (ii) it does not contain major new commitments 
on  justice  but  essentially  confirms  past  ones  such  as  the  pending  reform  of  the  civil  and 
criminal trials; (iii) it does not envisage further actions in the area of competition and of the 
banking sector other than maintaining the effort to support the reduction of non-performing 
loans  and  completing  ongoing  reforms  (e.g.  of  small  mutual  banks);  (iv)  it  focuses  on 
completing the implementation of the citizenship income and the introduction of a minimum 
wage, while references to measures favouring female labour market participation are limited, 
and details on how to boost vocational education are missing. 

issues  raised  by 

the  structural 

Overall, 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  adoption  and  implementation, 
are  often  missing.  However,  its  overall  reform  strategy  largely  builds  on  major  reforms 
already in the pipeline in different areas, showing broad continuity compared to past National 
Reform Programmes. 

24 www.dt.tesoro.it/modules/documenti_it/analisi_progammazione/documenti_programmatici/def_2019/03a_-

_PNR_2019.pdf  

17 

 
 
                                                 
4.4. 

Other factors considered relevant by the Commission 

Among the other factors considered relevant by the Commission, particular consideration is 
given to financial contributions to fostering international solidarity and achieving the policy 
goals of the Union, the debt incurred in the form of bilateral and multilateral support between 
Member  States  in  the  context  of  safeguarding  financial  stability,  and  the  debt  related  to 
financial  stabilisation  operations  during  major  financial  disturbances  (Article  2(3)  of 
Regulation  (EC)  No  1467/97).  Regarding  government  support  to  the  financial  sector  in  the 
course of the financial crisis, contingent liabilities to support liquidity provisions of financial 
institutions  amounted  to  around  0.9%  of  GDP  at  end-2018  (out  of  a  total  amount  of 
contingent liabilities of 4.2% of GDP), down from 1.3% of GDP at end-2017.  

Support to financial institutions with an impact on the government debt amounted to zero in 
2018 (down from around 1% at end-201725). An additional risk for public finances is related 
to the possible (one-off) impact from the support to financial institutions also on the deficit 
for 2019 and 2020, as well as from the considerable stock of trade debt arrears of the public 
administration. 

Article  12(1)  of  Regulation  (EU)  No  473/2013  requires  that  this  report  consider  also  "the 
extent to which the Member State concerned has taken into account the Commission opinion" 
on  the  Member  State's  draft  budgetary  plan,  as  referred  in  Article  7(1)  of  the  same 
Regulation. In 2018, the Commission Opinion on Italy's 2019 draft budgetary plan identified 
a case of “particularly serious non-compliance” with the recommendation addressed to Italy 
by the Council on 13 July 2018 and invited the authorities to submit a revised draft budgetary 
plan. On 13 November  2018,  Italy submitted a revised draft budgetary plan confirming the 
fiscal targets planned for 2019. The authorities amended the 2019 budget in December 2018, 
which  put  an  end  to  the  situation  of  “particularly  serious  non-compliance”  with  the  SGP. 
Despite those changes, Italy’s fiscal targets still point to a risk of significant deviation from 
the preventive arm in 2019 based on both the government plans and the Commission forecast. 

4.5. 

Other factors put forward by the Member State 

On 31 May 2019, the Italian authorities transmitted documents concerning relevant factors in 
accordance with Article 2(3) of Regulation (EC) No 1467/97 (‘the Italian observations’). The 
analysis presented in the other sections of this report already covers most of the factors put 
forward by the authorities.  

As  regards  Italy’s  compliance  status  with  the  preventive  arm  of  the  SGP,  the  Italian 
observations stress the following relevant factors: 

(i) as  regards  2018,  the  authorities  argue  that  the  non-delivery  of  the  required  fiscal  effort 
should  not  be  attributed  to  the  government  in  office,  which  they  argue  just  fulfilled  the 
budgetary  commitments  of  the  previous  government  and  refrained  from  any  further  fiscal 
expansion. However, the Commission had already assessed Italy’s 2018 Stability Programme 
as being at risk of non-compliance with the SGP in 2018 based on its 2018 spring forecast, 
calling  on  the  government  to  restore  compliance.  Moreover,  the  worsening  of  Italy’s 
structural effort based on the Commission 2019 spring forecast compared to the 2018 spring 
forecast was largely due to higher-than-expected interest spending, which was a consequence 
of the rise in sovereign spreads recorded since the new government took office in May 2018; 

25 That support (EUR 16.6 billion, overall) was mainly related to the liquidation of the two Italian regional lenders 
“Banca Popolare di Vicenza” and “Veneto Banca” and to the precautionary recapitalisation of “Banca Monte dei 
Paschi di Siena”. The related impact on deficit was around 0.33% of GDP in 2017. 

18 

 
 
                                                 
(ii) as  regards  2019,  the  Italian  observations  provide  indications  of  upside  risks  for  the 
budgetary  execution  which  could  result  in  a  lower-than-expected  headline  deficit,  around 
2.3% of GDP (as compared to 2.4% in Italy’s 2019 Stability Programme and 2.5% based on 
the Commission 2019 spring forecast). That would mainly derive from higher-than-expected 
revenues and lower-than-projected public expenditure on the citizenship income and the new 
early  retirement  scheme,  considering  the  low  take  up  so  far.  While  those  upside  risks  for 
Italy’s 2019 budget balance appear plausible overall, they can only be confirmed later in the 
year, when more data will be available; 

(iii) as regards 2020, the Italian observations contain no new commitments for 2020 and only 
confirm  the  2.1%  of  GDP  deficit  target  set  in  Italy’s  2019  Stability  Programme,  while 
recalling the commitment to find alternative financing measures to reach it without activating 
the  VAT  hike  legislated  as  a  safeguard  clause.  However,  no  details  are  provided  on  those 
alternative measures other than a generic reference to a spending review.  

Other relevant factors put forward by the authorities, beyond mere compliance with the SGP, 
are the following:  

(i) Italy’s  track  record  of  sizable  primary  surpluses  coupled  with  solid  fundamentals  and  a 
strong financial position. This is illustrated in particular by a high current account surplus, a 
positive  net  international  investment  position,  a  long-dated  and  fixed-rate  composition  of 
public  debt,  low  private  sector  debt,  as  well  as  the  restored  strength  of  the  Italian  banking 
sector,  with  an  overall  strong  liquidity  position,  recovered  profitability,  and  the  continued 
reduction  of  their  non-performing  loans.  In  that  context,  the  authorities  identify  adverse 
macroeconomic  conditions,  and  in  particular  the  still-high  differential  between  average 
borrowing  costs  and  nominal  GDP  growth  as  the  main  reason  behind  Italy’s  lack  of 
compliance  with  the  debt  reduction  benchmark  in  2018.  The  consideration  of  the 
macroeconomic slowdown as a mitigating factor is reinforced by the fact that, reportedly, the 
deflationary pressures and downturn in manufacturing experienced by Italy were largely due 
to  external  factors. However, the Commission  recalls in  this report that policy choices may 
have contributed to the macroeconomic slowdown through a negative confidence effect and a 
tighter credit channel, not least via higher sovereign spreads recorded since May 2018. 

(ii) Italy’s commitment to fiscal consolidation and to reducing the debt-to-GDP ratio over the 
coming  years,  whereby  the  headline  deficit  is  projected  to  decline  to  1.5%  in  2022  and, 
correspondingly Italy’s structural balance to improve to -0.8% of GDP in 2022, “on the way 
to  a  zero  balance  over  the  following  two  to  three  years”.  At  the  same  time,  however,  that 
argument also reveals Italy’s decision to postpone the achievement of its MTO of a structural 
surplus of 0.5% of GDP; 

(iii) the  underestimation  of  the  slack  in  Italy’s  economy  based  on  the  commonly  agreed 
methodology.  The  narrow  estimates  of  Italy’s  output  gap  based  on  the  Commission  2019 
spring  forecast,  at  -0.1%  of  potential  GDP  in  2018,  -0.3%  in  2019  and  -0.1%  in  2020,  are 
argued  to  be  at  odds  with  macroeconomic  evidence  of  relatively  high  unemployment  and 
very low inflation, as well as debatable on a comparative basis. On that basis, the authorities 
present  alternative  estimations  of  Italy’s  output  gap,  at  -1.5%  of  potential  GDP  in 
2018, -1.7% in 2019 and -1.6% in 2020. On that basis, they also argue that Italy is set to be 
broadly compliant with the preventive arm requirement in 2019, given the reduced effort of 
0.25% of GDP that the preventive arm matrix would prescribe based on this larger estimate 
of  Italy’s  negative  output  gap,  as  Italy  would  be  classified  in  “bad  economic  times”,  and 
growth  potential,  whereby  Italy  would  grow  below  potential  in  2019.  Moreover,  the 

19 

 
 
authorities  argue  that  with  wider  output  gap  estimates  Italy  would  have  also  been  closer  to 
satisfying the debt rule in its cyclically adjusted configuration; 

(iv) Italy’s  track  record  of  growth-enhancing  structural  reforms  in  line  with  the  2018 
Country-Specific  Recommendations,  starting  from  the  significant  resources  devoted  to 
improving  social  inclusion  and  revitalising  public  investment.  The  new  citizenship  income 
scheme  is  argued  to  respond  to  the  Country-Specific  Recommendations  by  raising  income 
support  for  individuals  and  households  below  the  poverty  threshold  and  earmarking 
additional  human,  financial  and  technological  resources  for  active  labour  market  policies. 
Moreover, the government plans to raise public investment by 0.6 percentage points of GDP 
by 2021 compared to 2018, and the 2019 National Reform Programme envisages reforms of 
the  judicial  system,  the  corruption  prevention  system,  the  public  sector,  and  of  tax 
enforcement.  The  Italian  observations  also  stress  the  positive  impact  on  public  debt 
sustainability  ensured  by  the  planned  policy  measures  supporting  aggregate  demand  and 
thereby GDP growth; 

(v) Italy’s  still  low  fiscal  sustainability  risks  in  the  long-term,  when  taking  into  account 
national estimates for old-age expenditure, coupled with a low level of contingent liabilities 
on a comparative basis within the Union. 

20 

 
 
 
 
 
5. 

CONCLUSIONS 

Italy's  public  debt-to-GDP  ratio,  at  132.2%  in  2018,  is  the  second  largest  in  the  Union  and 
one of the largest in the world. In 2018, it represented an average burden of EUR 38 400 per 
inhabitant,  in  addition  to  an  average  yearly  cost  of  servicing  it  of  around  EUR  1 000  per 
inhabitant. The large stock of public debt deprives Italy of the fiscal space it needs to stabilise 
its economy in case of macroeconomic shocks. It also represents an inter-generational burden 
weighing on the standard of living of future Italian generations. The fact that debt-servicing 
costs absorb a considerably larger amount of public resources in Italy than in the rest of the 
euro  area  also  takes  a  toll  on  the  country’s  productive  spending:  Italy's  interest  spending 
stood  in  2018  at  around  EUR  65  billion  or  3.7%  of  GDP,  i.e.  broadly  the  same  amount  of 
public resources that are devoted to education. Moreover, a large public debt, in the absence 
of  prudent  fiscal  policies,  exposes  the  country  to  market  confidence  shocks  on  sovereign 
yields,  with  a  negative  impact  on  both  the  interest  bill  paid  by  the  country  as  well  as  the 
overall financing cost for the real economy, which would, in turn, negatively impact growth. 
Italy's  large  public  debt  is  a  major  vulnerability  for  the  Italian  economy  and  decisively 
reducing it should remain a priority in the best interest of Italy.  

Italy's general government gross debt reached 132.2% of GDP in 2018, well above the 60% 
of  GDP  reference  value  of  the  Treaty,  and  Italy  did  not  comply  with  the  debt  reduction 
benchmark in 2018 based on outturn data. Moreover, Italy is not projected to comply with the 
debt reduction benchmark in either 2019 or 2020 based on both the government plans and the 
Commission 2019 spring forecast.  In particular, the Commission expects Italy’s public debt 
ratio  to  markedly  increase  over  the  forecast  horizon  on  the  back  of  weak  nominal  GDP 
growth,  a  deterioration  of  the  primary  surplus  and  underachieved  privatisation  proceeds, 
reaching  133.7%  in  2019  and  135.2%  in  2020.  Those  findings  clearly  suggest  that,  before 
consideration is given to all relevant factors, the debt criterion as defined in the Treaty does 
not appear to be fulfilled by Italy prima facie. In line with the Treaty, this report examines the 
relevant factors in turn.  

In particular, the macroeconomic slowdown recorded in Italy from the second half of 2018, 
with nominal GDP growth falling below 2% in 2018 as well as over 2019-2020 based on the 
Commission 2019 spring forecast, can be argued to be to some extent a mitigating factor in 
explaining  Italy’s  large  gaps  to  compliance  with  the  forward-looking  debt  reduction 
benchmark.  Moreover,  low  productivity  growth  keeps  constraining  Italy's  growth  potential 
and hampering a faster reduction of its public debt ratio.  

However,  Italy  has  made  limited  progress  in  addressing  the  2018  Country-Specific 
Recommendations,  and  the  structural  reform  agenda  outlined  by  the  2019  National  Reform 
Programme contains only piecemeal measures building upon past reforms in different areas 
and backtracks  on elements  of major reforms adopted in  the past.  Among others,  while the 
Council  recommended  that  Italy  should  reduce  the  share  of  old-age  pensions  in  its  public 
spending to create space for other social spending, the newly introduced possibility for early 
retirement backtracks on earlier pension reforms that underpin the long-term sustainability of 
Italy's sizeable public debt and may negatively affect Italy’s growth potential. 

Moreover,  an  ex  post  assessment  points  to  Italy’s  non-compliance  with  the  recommended 
adjustment path towards the Medium Term budgetary Objective (MTO) in 2018, even after 
taking into account the so-called “margin of discretion”. As regards 2019, Italy is assessed to 
be at risk of non-compliance with the preventive arm of the Stability and Growth Pact even 

21 

 
 
 
after  taking  into  account  the  preliminary  allowance  granted  to  it  for  “unusual  events”, 
although  the  Italian  authorities  indicate  the  existence  of  possible  upside  risks  to  the  2019 
budget  balance  thanks  to  higher-than-expected  revenues  and  lower-than-projected  public 
expenditure  on  measures  in  the  2019  budget.  The  size  of  the  deviation  from  the 
recommended adjustment path towards the MTO is set, based on the Commission forecast, to 
further widen in 2020, when Italy’s headline deficit is expected to be above the 3% of GDP 
deficit threshold under a no-policy-change assumption. This represents an aggravating factor. 

The  analysis  presented  in  this  report  includes  the  assessment  of  all  relevant  factors  and 
notably: (i) the non-compliance with the recommended adjustment path towards the medium-
term  budgetary  objective  in  2018  based  on  ex  post  data,  together  with  a risk  of  significant 
deviation  from  the preventive arm requirement  in 2019 and a headline deficit above 3% of 
GDP in 2020 based on the Commission forecast; (ii) the macroeconomic slowdown recorded 
in Italy from the second half of 2018, which can be argued to only partly explain Italy’s large 
gaps to compliance with the debt reduction benchmark; and (iii) the limited progress made 
by  Italy  in  addressing  the  2018  Country-Specific  Recommendations,  including  the 
backtracking  on  past  growth-enhancing  reforms,  as  well  as  the  lack  of  details  on  the 
commitments  included  in  Italy’s  2019  National  Reform  Programme.  Overall,  the  analysis 
suggests  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. 

22