COMMISSION STAFF WORKING DOCUMENT Country Report Italy 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 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
Date: 2020-02-26
Institutions: European Commission, Secretariat-General
Subjects: Italy, economic situation, green economy, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 26.2.2020  SWD(2020) 511 final  COMMISSION STAFF WORKING DOCUMENT Country Report Italy 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 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 {COM(2020) 150 final}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Overall findings regarding imbalances, risks and adjustment issues 

4.  Reform priorities 

4.1.  Public finances and taxation 

4.2.  Financial sector 

4.3.  Labour market, education and social policies 

4.4. Competitiveness, reforms and investment 

4.5.  Environmental sustainability 

Annex A: Overview Table 

Annex B: Commission debt sustainability analysis and fiscal risks 

Annex C: Standard Tables 

Annex D: Investment Guidance on Just Transition Fund 2021-2027 for Italy 

Annex E: Progress towards the Sustainable Development Goals (SDGs) 

References 

LIST OF TABLES 

Table 1.1: 
Table 2.1: 
Table 3.1a: 

Key economic and financial indicators - Italy 

Assessment of 2019 CSR implementation (*) 

Spillover effects of Italy implementing an investment programme over 10 years - 

Central scenario 

MIP Assessment Matrix 

Labour market slack LS4 (Nuts2) composition, 2018 

Table 3.1: 
Table 4.3.1: 
Table 4.3.1a:  Assessment of barriers to investment and ongoing reforms 
Table C.1: 
Table C.2: 
Table C.3: 

Labour market and education indicators 

Headline social scoreboard indicators 

Financial Market Indicators 

1 

3 

8 

16 

21 

26 

26 

32 

36 

47 

60 

66 

73 

74 

80 

82 

87 

15 
19 

23 
24 
37 
50 
74 
75 
76 

 
 
 
Table C.4: 
Table C.5: 
Table C.6: 
Table E.1: 

Social inclusion and health indicators 

Product market performance and policy indicators 

Green growth 

Indicators measuring Italy’s progress towards the SDGs 

LIST OF GRAPHS 

Graph 1.1: 

Real GDP growth and components 

Graph 1.2: 

Potential growth and components 

Graph 1.3: 

Labour market developments 

Graph 1.4:  Wages, labour costs and productivity 

Graph 1.5: 

Lending volumes and interest rates, private sector 

Graph 1.6: 

Current account balance 

Graph 1.7: 

Public finances indicators 

Graph 2.1:  Overall multiannual implementation of 2011-2019 CSRs to date 

Graph 4.1.1:  Drivers of the "snowball” effect on public debt 

Graph 4.1.2: 

Italy's sovereign yields 

Graph 4.1.3: 

Tax wedge across income levels 

Graph 4.3.1: 

Transition rates and share of temporary employment 

Graph 4.3.2:  Early school leavers by NUTs 2 region (%) 

Graph 4.3.3:  Public spending on anti-poverty schemes 

Graph 4.4.1:  Productivity growth per hour worked, 2008-2018 

Graph 4.4.2:  Evolution of the "ease of doing business indicator" (100=top performer) 

Graph 4.4.3:  OECD Product Market regulation indicator evolution 

Graph 4.4.4:  Regional Competitiveness Index in Italy, 2019 

Graph 4.5.1:  Green-house gas emissions by sector, 2017 

LIST OF BOXES 

Box 2.1: EU funds and programmes to address structural challenges and to foster growsth and 

competitiveness in Italy 

Box 3.1: Public investment and potential spillovers – The case of Italy 

Box 4.1.1: EUROMOD-QUEST simulation - Shifting taxes from labour to property in Italy 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

Box 4.4.1: Investment Challenges 

Box 4.5.1: Policies related to water and waste management in Calabria, Campania and Sicily 

77 
78 
79 
82 

8 

9 

9 

10 

12 

13 

13 

16 

26 

26 

29 

36 

40 

43 

47 

52 

56 

58 

61 

20 

23 

31 

43 

50 

64 

2 

 
 
 
 
 
 
EXECUTIVE SUMMARY 

fiscal  policies, 

Facing a weak  macroeconomic outlook and the 
challenge  of  ensuring  sustainability, 
lifting 
productivity  and  potential  growth  is  key  to 
Italy's  public  debt 
ratio  and 
reducing 
unwinding 
imbalances. 
its  macroeconomic 
Implementing  ambitious  structural  reforms  and 
prudent 
and  well-targeting 
investments  would  support  Italy’s  digital  and 
environmental transformation, ensuring sustainable 
growth.  As  a  matter  of  priority,  a  revived  reform 
momentum  should  ensure  sound  public  finances, 
more effective public administration and justice, a 
labour 
more  efficient  education  system  and 
market,  a  friendlier  business  environment  and  a 
more resilient banking sector (1). 

in  Italy  remains  weak, 
Economic  activity 
despite  a  gradually  improving  labour  market. 
After  real  GDP  growth  of  0.8%  in  2018,  GDP 
expanded by 0.2% in 2019 and is expected to grow 
by  0.3%  and  0.6%  in  2020  and  2021.  Domestic 
demand  remains  subdued,  as  real  disposable 
income remains below pre-crisis levels and savings 
have  risen.  However,  the  new  minimum  income 
scheme introduced in 2019 and the sizeable drop in 
interest  rates  are  expected  to  support  household 
spending.  Despite  showing  signs  of  recovery  in 
2019,  public  investment  remains  below  pre-crisis 
is  still 
levels.  Sluggish  productivity  growth 
hindering Italy’s economic recovery. A number of 
downside  risks  persist,  especially  concerning  the 
international 
and  domestic 
stability. While the employment rate remains well 
below the EU average, particularly for women and 
young  people,  it  continued  to  increase  in  2019, 
driven  by  permanent  contracts  especially  in  the 
North. The unemployment rate declined to 9.8% in 
Q3-2019  from  10.3%  a  year  earlier.  However, 
wide gaps in employment rates remain between the 
country’s regions.  

context 

trading 

(1)  This  report  assesses  Italy’s  economy  in  light  of  the 
European  Commission’s  Annual  Sustainable  Growth 
Strategy,  published  on  17  December  2019.  In 
this 
document, the Commission sets out a new strategy on how 
to address not only the short-term economic challenges but 
also  the  economy's  longer-term  challenges.  This  new 
economic agenda of competitive sustainability rests on four 
dimensions:  environmental  sustainability,  productivity 
gains, fairness, and macroeconomic stability. 

3 

Italy has made some progress in addressing the 
recommendations(2). 
2019 
There has been substantial progress in: 

country-specific 

fighting  tax  evasion,  including  by  strengthening 
the compulsory use of electronic payments.  

There has been some progress in:  

i)  ensuring  that  active  labour  market  and  social 
policies are effectively integrated and reach out to 
vulnerable  groups;  ii)  focusing  investment-related 
economic  policy  on  research  and  innovation  and 
the quality of infrastructure; iii) making the public 
administration  more  effective;  iv)  fostering  bank 
balance sheet restructuring; v) improving non-bank 
financing for smaller and innovative firms. 

There has been limited progress in:  

i) shifting taxation away from labour, reducing tax 
expenditure and reforming the cadastral system; ii) 
tackling undeclared work; iii) supporting women’s 
participation  in  the  labour  market,  through  a 
comprehensive strategy; iv) improving educational 
outcomes,  also  through  adequate  and  targeted 
investment,  and  fostering  upskilling;  v)  reducing 
the 
trials,  by  enforcing  and 
streamlining  procedural  rules;  and  vi)  improving 
the effectiveness of the fight against corruption, by 
reforming procedural rules to reduce the length of 
criminal trials. 

length  of  civil 

There has been no progress in:  

i) reducing the share of old-age pensions in public 
spending  and  creating  space  for  other  social  and 
growth-enhancing  spending;  and  ii)  addressing 
restrictions  to  competition,  including  through  a 
new annual competition law. 

supporting 

the 
The  Social  Scoreboard 
European  Pillar  of  Social  Rights  points  to 
employment  and  social  challenges.  Labour 
market 
difficult.  The 
unemployment  rate  is  still  high  and  employment 
and  activity  rates  remain  low,  especially  for 
long-term 
women.  Young  people  and 

conditions 

remain 

the 

(2)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
country-specific  recommendation 
the 
overview table in annex. 

is  presented 

in 

 
 
                                                           
 
                                                           
Executive summary 

erode  potential  growth 

further 
and  debt 
sustainability. In the short term, sustainability risks 
appear  limited,  also  thanks  to  historically  low 
sovereign  yields  since  September  2019,  but  the 
need  to  rollover  sizeable  amounts  of  debt,  at 
around 20% of GDP per year, still exposes Italy’s 
public  finances 
in  financial 
markets’  risk  aversion.  High  debt-servicing  costs 
also reduce the fiscal  space to implement  growth-
enhancing and countercyclical policies.  

to  sudden  rises 

Productivity  growth  has  been  sluggish  despite 
measures  to  support  it.  The  productivity  gap 
between  Italy  and  the  EU  continues  to  widen.  In 
2018, labour productivity declined by 0.3%, while 
in the euro area it grew by 0.5%. This is the result 
in  southern 
labour  productivity 
of  declining 
regions  and 
in  services,  as  well  as  slower 
productivity growth in manufacturing compared to 
the  euro  area  average.  The  effectiveness  of  recent 
measures  to  raise  productivity  growth,  including 
incentives to invest and innovate, has been limited 
by  delays  in  implementation,  policy  uncertainty 
and  lack  of  a  comprehensive  strategy.  More 
to 
broadly,  barriers 
constrain  productivity  dynamics  and  thus  growth 
prospects,  in  turn  hampering  the  reduction  of  the 
public debt-to-GDP ratio. Moreover, the weight of 
the informal economy in key economic sectors has 
a negative impact on their productivity. 

investment  continue 

to 

The unemployment rate remains high, although 
declining,  and  policies  to  raise  labour  market 
participation  are  yet  to  be  fully  implemented. 
Slow  economic  growth,  low  average  educational 
attainment,  skill  mismatches,  and  low  activity 
rates, especially among women, limit employment 
growth.  Youth  unemployment  remains  extremely 
high. Moreover, the high share of involuntary part-
time  workers  and  discouraged  workers  suggests 
that 
labour  market  conditions  remain  weak. 
Strengthening active labour market policies  is key 
for  labour  market  reforms  and  the  minimum 
income  scheme  to  succeed.  However,  policies  to 
increase  people’s  skills  and  actively  integrate 
jobless  people  in  the  labour  market  should  be 
further developed 

The  banking  sector  became  more  resilient,  but 
pockets  of  vulnerability  remain.  Italian  banks 
continued  to  make  progress  in  reducing  non-
performing  loans,  but  the  total  stock  is  still  high 
compared  to  euro  area  peers,  especially  for  less 

contracts.  Weak 

unemployed  also  face  particular  difficulties.  The 
share of temporary contracts rose in past years, but 
job  creation  in  2019  was  mainly  driven  by 
labour  market 
permanent 
conditions also impact social outcomes. While the 
risk  of  poverty  and  social  exclusion  is  declining, 
income  inequality  increased  in  2018.  In-work 
poverty  has  been  steadily  rising  and  stabilised  at 
high  levels  in  2018.  Access  to  services  such  as 
childcare  and  healthcare  is  close  to  the  EU 
average. However, it varies widely across regions. 

Regarding  the  Europe  2020  strategy,  Italy  has 
already  reached  its  targets  on  greenhouse  gas 
emissions  reduction,  renewable  energy,  energy 
efficiency,  early  school 
tertiary 
education.  Limited  progress  has  been  made  in 
meeting the targets on the employment rate, R&D 
investment and poverty and social exclusion.  

leaving  and 

Italy is making progress in achieving the United 
Nations’  Sustainable  Development  Goals 
(SDG).  As  confirmed  by  the  progress  in  reaching 
its  Europe  2020  targets  (annex  A),  Italy  achieved 
significant results in climate mitigation (SDG 13). 
By  contrast,  achieving  SDG  4 
(quality  of 
education)  will  need  further  efforts  in  all  related 
areas: basic education, tertiary education and adult 
learning (3). 

The  main  findings  of  the  in-depth  review  and  the 
related policy challenges are as follows: 

Italy’s public debt remains an important source 
of vulnerability for the economy. Italy’s debt-to-
GDP  ratio  reached  134.8%  in  2018  and  the 
Commission  forecasts  that  it  will  further  rise  to 
136.2%  in  2019,  136.8%  in  2020  and  137.4%  in 
2021, amid persistently weak nominal growth and 
a 
The 
primary 
Commission’s debt sustainability analysis points to 
high risks in the medium and long term, due to the 
high  level  of  debt  and  ageing  costs.  The  recent 
pension  reform  will  generate  further  costs  up  to 
2028 and, if extended beyond its trial period, could 

deteriorating 

balance. 

(3)  Within the scope of its legal basis, the European Semester 
can help drive national economic and employment policies 
towards the achievement of the United Nations Sustainable 
Development  Goals  (SDGs)  by  monitoring  progress  and 
ensuring  closer  coordination  of  national  efforts.  The 
present report contains reinforced analysis and monitoring 
of the SDGs. A new annex (Annex E) presents a statistical 
assessment of trends in relation to SDGs in Italy during the 
past 5 years, based on Eurostat’s EU SDG indicator set. 

4 

 
 
                                                           
Executive summary 

remains close to zero. Collective bargaining at firm 
or local level continues to play only a limited role, 
while  legislative  initiatives  on  statutory  minimum 
wages  are  under  discussion.  Active  labour  market 
policies continue to be implemented in the context 
of the new minimum income scheme, although at a 
relatively slow pace. Participation in adult learning 
is  very  limited,  especially  for  low-skilled  and 
underemployed  workers,  holding  back  firms’ 
competitiveness and productivity growth. 

selecting 

and  motivating 

Education  is  a  key  challenge,  especially  in 
southern  Italy,  hindering  the  quality  of  skills. 
Italy has a much higher rate of early-school leavers 
and  low  achievers  compared  to  the  EU  average, 
especially  in  the  South.  Shortages  of  secondary 
education  teachers  remain  a  challenge,  as  does 
attracting, 
them. 
Compared  to  the  EU  average,  the  percentage  of 
people having completed higher education remains 
the  number  of  scientific/technical 
low  and 
graduates  is  still  insufficient.  Higher  education  is 
underfinanced  and  understaffed.  Despite  better 
employability  rates,  vocational-oriented  higher 
education  is  limited  in  scope.  Shortages  in  basic 
and  advanced  digital  skills  are  a  serious  concern. 
Measures to enhance vocational training are slowly 
being implemented. A comprehensive approach to 
upskilling, reskilling and adult learning is lacking. 

Social  policies  remain  poorly  integrated  with 
other  policies,  including  active  labour  market 
policies.  While  declining,  the  risk  of  poverty 
remains  above  the  EU  average,  including  for 
children  and  people  with  a  migrant  background. 
In-work poverty is also a challenge, especially for 
temporary  workers.  The  southern  regions  and 
urban  areas  are  the  most  affected.  Limited  access 
to  quality  social  services  increases  the  risk  of 
poverty.  Access 
to  affordable  and  adequate 
housing  remains  a  challenge,  while  the  quality  of 
the health services varies greatly across regions. In 
2019, the citizenship income replaced the previous 
income support scheme to fight poverty, but more 
needs  to  be  done  to  bring  people  to  work.  More 
efforts  are  needed  to  provide  childcare  and  long-
term  care  and  promote  equal  opportunities  and 
work-life  balance.  The  lack  of  these  affects 
women’s participation in the labour market and the 
broad  demographic  trends,  in  a  context  of  low 
birth rates and a reduced net migration rate. 

significant institutions. Following the recent fall in 
sovereign bonds yields, pressure on the capital and 
funding  of  Italian  banks  has  subsided.  However, 
to  domestic  sovereign  bonds 
bank  exposure 
remains  high,  therefore  increasing  the  risk  of  it 
feeding back and spilling over to the real economy. 
The reform of the large cooperative banks has not 
yet been fully implemented, whereas the reform of 
small  mutual  banks  has  broadly  been  completed. 
The  reform  of  the  insolvency  framework  was 
adopted  and  is  expected  to  be  implemented  by 
August  2020.  Access  to  bank  financing  can  be 
challenging,  especially  for  smaller  firms.  Non-
bank finance remains underdeveloped, in particular 
for small and innovative firms.    

sustained 

budgetary-neutral 

public 
A 
investment 
substantially 
stimulus  would 
improve output and result in small but positive 
cross-border  spillovers.  A  simulation  with  the 
Commission’s  QUEST  model  suggests  that  an 
investment  programme  would  have  a  sizeable 
effect  on  real  GDP,  improve  its  external  position 
and  lower  its  public  debt  ratio.  However,  the 
potential  output  effects  are  greatly  dependent  on 
the extent to which public investment is efficient. 

Other key structural issues analysed in this report, 
which point to particular challenges for Italy are: 

The  taxation  of  labour  remains  high  and  tax 
compliance  low.  Italy’s  tax  burden  on  labour  is 
still  among  the  highest  in  the  EU,  while  value-
added  taxes  are  under-exploited,  because  of  the 
large  use  of  reduced  rates.  The  2020  budget 
reduced  tax  expenditures  and  the  tax  wedge  on 
labour. A shift of the tax burden onto property and 
a  revision  of  outdated  cadastral  values  to  bring 
them closer to market values have not taken place. 
Several  measures  have  been  enacted  in  recent 
years to encourage tax compliance, but tax evasion 
remains very high, especially in specific sectors.  

in  the 

Challenges  remain 
labour  market. 
Employment growth continues, though at a slower 
pace.  The  increase  in  the  number  of  employees 
more  than  compensated  for  the  decrease  in  the 
number  of  self-employed,  while  the  shift  from 
fixed-term to permanent contracts accelerated. The 
gender  employment  gap  is  among  the  highest  in 
the  EU  and  shows  no  sign  of  improving.  Labour 
market  slack  and  undeclared  work  remain  serious 
concerns.  In  this  context,  real  wages  growth 

5 

 
 
Executive summary 

Services are  most affected by low enforcement of 
single  market  rules,  with  negative  consequences 
for  individuals  and  firms.  They  are  also  over-
regulated,  especially  the  retail  sector,  regulated 
professions  and  the  collaborative  economy.  The 
lack  of  competitive  processes  to  manage  public 
services and limited authorisations for using public 
goods  affects  the  quality  and  cost  of  services 
provided.  The 
the  2015 
Competition  Law 
is  delayed,  and  no  new 
initiatives  to  address  barriers  to  competition  or 
improve sectoral regulation have been announced. 

implementation  of 

large  and 

The  regional  divide  remains 
is 
widening.  In  the  last  decade,  public  spending 
decreased  in  the  southern  regions.  The  recent 
possibility  for  local  governments  to  spend  their 
surpluses  without  prior  authorisation  is  having 
positive  effects  in  municipalities  with  budgetary 
surpluses.  Efforts  to  reduce  the  gap  in  private 
investment  have  been  modest,  especially  for 
research  and  innovation  where  national  policies 
actually  widened  the  gap.  Large  disparities  also 
remain  in  the  quality  of  governance,  the  level  of 
labour  productivity  and  competitiveness.  In  this 
context, the high unemployment in the South leads 
to  low  and  high  skilled  individuals  migrating, 
worsening the local brain drain. 

in 

for 

for  Italy. 

Sustainability-related  reforms  and  investment 
represent  an  opportunity 
Italy 
performs  above  the  EU  average  for  resource 
the  circular 
investment 
productivity  and 
economy.  It  is  on  track  to  reach  its  2020  climate 
and  energy  targets,  although  more  efforts  are 
needed 
Implementing 
longer-term  goals. 
planned policies as laid out in the national energy 
and climate plan will be needed to reach the 2030 
target for greenhouse gas emissions not covered by 
the  EU  emissions 
trading  system.  Transport 
emissions  have  increased  strongly  over  the  last 
five  years  and  constitutes  a  key  challenge  for 
reaching  the  2030  target.  On  the  other  hand,  air 
quality,  sustainable  mobility,  climate  adaptation, 
prevention  of  hydrogeological  and  seismic  risks, 
remain 
and  water  and  waste  management 
challenges.. 
environmental 
Investing 
sustainability  could  be  an  opportunity  for  growth 
and high-skilled employment in the South. 

in 

to 

Productivity  growth  does  not  show  signs  of 
improving,  despite  positive  investment  trends. 
In the last two decades, Italy’s labour productivity 
the  poor 
has  stagnated,  especially  due 
performance of the services sector. Trends greatly 
differ  depending  on  geographical  area  and  firm 
size,  particularly  in  manufacturing.  A  recovery  of 
fixed investment could support productivity in the 
future.  In  this  regard,  higher  levels  of  firms’ 
digitisation, 
and 
innovation,  a  more  efficient  public  sector  and 
adequate skills are key. A comprehensive strategy 
to support productivity and investment is missing. 
Measures  remain  fragmented  and  temporary,  not 
taking 
and 
geographical aspects.  

account  of 

investments 

sufficient 

research 

sectoral 

in 

The  business  environment  is  improving,  but 
strengthening  Italy’s  public  administration, 
justice  system  and  anti-corruption  framework 
remains  a  challenge.  The  digitisation  of  public 
services  is  progressing.  Further  efforts  are  needed 
to  improve  public  employment,  especially  at 
management  level.  Weak  administrative  capacity 
is  diminishing    the  public  administration’s  ability 
to invest and carry out policy or enforcement tasks 
that affect businesses such as market surveillance. 
In 
to 
this  regard,  a  comprehensive  strategy 
strengthen  it  is  missing.  Inefficiencies  in  public 
procurement  also 
remain  often  unaddressed. 
Despite  recent  improvements,  the  length  of  civil 
trials remains among the highest in the EU. Recent 
reforms  are  starting  to  bear  fruit  and  an  enabling 
law  to  streamline  the  civil  procedure  is  under 
discussion. However, to reduce trial length, there is 
still  ample 
to  ensure  more  efficient 
management of cases and limit unfounded appeals. 
The  anti-corruption  framework  was  strengthened 
recently,  also  through  the  anti-corruption  law  of 
January 2019. However, it needs to be completed. 
Indeed, no regulation sanctions conflict of interest 
for  elected  public  officials,  embezzlement  in  the 
private  sector  remains  only  partly  criminalised, 
and  provisions  against  lobbying  do  not  apply  to 
members 
parliament. 
Moreover, the low efficiency of criminal justice in 
appeals 
prosecuting 
corruption  effectively.  A  reform  of  the  criminal 
procedure and appeal system is still pending. 

government 

preventing 

continues 

room 

and 

of 

Compliance  with  single  market  rules  and  the 
removal  of  barriers  to  competition  would 
benefit  several  sectors,  particularly  services. 

6 

The Commission’s proposal for a Just Transition 
Mechanism  under  the  next  multi-annual  financial 
Just 
framework 

for  2021-2027 

includes  a 

 
 
Executive summary 

Transition  Fund,  a  dedicated  scheme  under 
InvestEU, and a new government loan facility with 
the EIB. It is designed to ensure that the transition 
towards  EU  climate  neutrality  is  fair  and  could 
help  the  most  affected  regions  in  Italy  to  address 
the  social  and  economic  consequences.  Key 
priorities  for  support  by  the  Just  Transition  Fund, 
set  up  as  part  of  the  Just  Transition  Mechanism, 
are identified in Annex D, building on the analysis 
of the transition challenges outlined in this report. 

7 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

Real GDP growth, prospects and risks 

Output growth has been feeble, as the economy 
remains  stuck  in  low  gear.  The  Italian  economy 
has been showing few signs of rebounding from its 
slowdown  in  2018,  when  positive  annual  average 
GDP  growth  was  exclusively  due  to  a  relatively 
strong carryover from the previous year. Economic 
activity  slowed  further  in  2019,  especially  in  the 
manufacturing 
trimmed 
sector,  where 
inventories  on  a  massive  scale  (Graph 1.1).  This 
allowed  firms  to  maintain  their  export  activity, 
while  reducing 
in  view  of 
lingering  trade  conflicts  and  related  uncertainties 
over  demand.  The  weakness  in  the  manufacturing 
sector  has  also  started  spreading  to  the  tertiary 
sector.  Based  on  quarterly  outturn  data,  real  GDP 
grew  by  0.2%  in  2019  and  is  expected  to  expand 
by  0.3%  and  0.6%  in  2020  and  2021  respectively 
(European Commission, 2020). 

industrial  output 

firms 

Graph 1.1: 

Real GDP growth and components 

Source: Eurostat 

A  modest pick-up in  domestic demand is  set to 
support  output  growth  in  the  near  term.  In 
2018,  household  consumption  slowed  down,  in 
view  of  an  economy  at  the  margin  of  stagnation. 
The  stagnating  real  disposable  income  weighs  on 
consumer  spending,  which  remained  subdued  in 
2019 (4).  In  addition,  households  increased  their 
precautionary  savings  amid  weakening  consumer 

(4)  Spending  on  some  consumer  items,  in  particular  food, 
clothing  and  transport,  declined  in  the  first  half  of  2019 
compared to the first half of 2018.  

8 

confidence. The impact of the slowing economy on 
the  labour  market  and  thus  aggregate  incomes  is 
likely to be felt only with a lag. However, the new 
social  benefits  introduced  in  2019  and  targeted  at 
low-income  groups (5),  who 
tend 
to  have  a 
relatively 
to  consume,  are 
large  propensity 
expected  to  lend  some  support  to  household 
spending. In addition, the sizeable drop in interest 
rates  since  September  2019  is  likely  to  free  up 
household  resources,  by  reducing  the  servicing 
costs of mortgages and consumer loans, and hence 
to increase private consumption.  

shrinking 

sector  has  been 

investment.  Since 

Firms’  profit  margins  have  been  falling,  but 
favourable  financing  conditions  are  lending 
the 
support  to  business 
beginning  of  2018,  gross  value  added  in  the 
industrial 
and 
profitability  in  the  corporate  sector  declining, 
hence  affecting  firms’  self-financing  capacity. 
Gross fixed capital formation, at 18.1% of GDP in 
Q3-2019,  is  still  markedly  below  both  the  latest 
peak of 2007 (22%) and  the EU average (20.6%). 
While  spending  on  equipment  is  almost  back  to 
2007  levels,  investment  in  construction  has  only 
recently  bottomed  out.  The  share  of  intangible 
assets,  albeit  still  low  by  EU  standards,  had 
increased  to  2.9%  of  GDP  by  2015  but  has 
stagnated  since  then.  The  recovery  of  private 
investment  is  forecast  to  slow  down  sizeably,  on 
the  back  of  uncertain  demand  prospects.  By 
contrast,  public  investment  picked  up  in  2019, 
after 9 years of decline, and is expected to support 
aggregate capital spending.  

Weak productivity growth, albeit varied across 
sectors,  constrains  economic  expansion.  Labour 
productivity  (real  gross  value  added  per  hour 
worked) has been declining since Q2-2018, on the 
back  of  weak  growth  in  gross  value  added. 
labour  productivity  differs  across 
However, 
sectors, with manufacturing and some parts of the 
service  sector  registering  a  noticeable  rise  in  real 
output  per  hour  worked.  Overall,  the  productivity 
gap  between  Italy  and  the  rest  of  the  EU  remains 
pronounced  and  is  widening.  Labour  productivity 
in Italy rose on average by 0.5% per year between 
2010  and  2018,  compared  with  an  EU  average  of 
1.3%.   

(5)  The  new  minimum 

(Reddito  di 
income 
cittadinanza)  was  introduced  in  April  2019  (see  also 
Section 4.3). 

scheme 

-11.0-9.0-7.0-5.0-3.0-1.01.03.05.0080910111213141516171819Percentage pointsPublic consumptionPr. ConsumptionInvestmentChanges in inventoriesExports (G+S)Imports (G+S)Real GDP (% chg) 
 
   
                                                           
                                                           
from 

labour  and 

Potential growth is estimated to have picked up 
moderately  in  2019.  Potential  output  declined 
between  2009  and  2016  due  to  the  negative 
factor 
contributions 
productivity  (TFP).  Supported  by  rising  labour 
input,  growth  in  potential  output  is  estimated  to 
have  turned  slightly  positive  in  2017  and  is 
projected  at  0.5%  in  2019-2021  (Graph 1.2), 
sizeably below the EU average (1.6%). Trend TFP 
growth  is  estimated  to  have  resumed  in  2018  and 
begun making a positive contribution (Graph 1.2). 

total 

Graph 1.2: 

Potential growth and components 

1. Economic situation and outlook 

employees (Graph 1.3). (6) By contrast, the level of 
self-employed  declined  in  the  same  period,  while 
temporary employment remained broadly constant. 
Employment  has  been  increasing  since  end-2013, 
and  the  employment  rate  rose  to  63.6%  in  Q3-
2019,  while  the  unemployment  rate  fell  to  9.8%, 
despite  a  slight  drop  in  the  labour  force.  The 
average duration of unemployment increased to 27 
months, and the share of long-term unemployment 
over total unemployment rose to 59%, well above 
the  EU  average  (43.5%).  Youth  unemployment  is 
slowly falling (28.3% in Q3-2019) but remains one 
of  the  highest  in  the  EU,  as  does  the  number  of 
young  people  not  in  employment,  education  or 
training (19.2% in 2018).  

Graph 1.3: 

Labour market developments 

Source: European Commission. 

The  balance  of  risks  to  the  growth  outlook 
remains  skewed  to  the  downside.  As  a  large 
exporter, Italy is particularly exposed to the global 
economy.  The  latter  remains  prone  to  further 
policy-related  shocks  caused  by,  among  other 
factors,  trade  conflicts,  as  well  as  structural  shifts 
in the global manufacturing sector. Also, concerns 
about  future  fiscal  policy  might  dent  confidence 
and  partly  reverse  the  recent  sovereign  yield 
compression.  On the  upside,  easing trade tensions 
and  stronger-than-expected  pick-up 
in  global 
growth would benefit investment and exports. 

Labour market 

In the first 9 months of 2019, employment grew 
despite an almost stagnating economy. Between 
Q3-2018  and  Q3-2019,  headcount  employment 
grew  by  0.6%,  driven  by  the  rise  of  permanent 

Source: Istat. 

Employment  growth  has  been  concentrated  in 
labour-intensive  sectors  with  low  value-added. 
Most  of 
the  151,200  additional  headcount 
employment registered between Q3-2018 and Q3-
2019  was  generated  in  the  service  sector,  mostly 
administrative  and  support  services,  household 
care and repair, and personal care, and in northern 
regions.  As  jobs  tend  to  be  created  mostly  in 
relatively  less  productive  sectors,  employment 
shifts tend to have a negative impact on aggregate 
productivity and average wages. 

(6)  The  growth  in  permanent  positions  is  also  driven  by  the 
fact  that  more  temporary  posts  are  being  turned  into 
permanent  posts  because  of  recent  legislative  changes 
(Dignity Decree), see also Section 4.3. 

9 

-1.5-1-0.500.511.52070809101112131415161718192021pps.Trend TFPCapital AccumulationChanges in Hours (per Empl)Labour (persons)Potential GDP (y-o-y %)Pre-crisis ('02-'07) (y-o-y %)Potential GDP, EA 2017forecast-400-20002004006008001000141516171819Cumulative change in thousandsPermanent contractsTemporary contractsSelf-employed 
    
   
                                                           
1. Economic situation and outlook 

Growth in unit labour costs slightly accelerated 
in  2018.  With  the  beginning  of  the  slowdown  in 
the  manufacturing  sector,  aggregate  unit  labour 
costs  started  to  rise.  This  is  because  labour 
productivity declined in 2018-2019 (-0.1%)(Graph 
1.4)  and  labour  costs  increased,  due  to  the 
moderately  increasing  nominal  wage  growth  and 
the end of the exemption from social contributions 
of  a  rising  share  of  labour  contracts (9).  Wage 
growth  is  broadly  in  line  with  what  could  be 
expected  based  on  productivity  developments, 
prices and the unemployment rate. 

Graph 1.4:  Wages, labour costs and productivity 

Stagnating  labour  productivity  bodes  ill  for 
future employment growth. Gross value added in 
the  manufacturing sector  has  been declining  since 
early  2018,  implying  a  contraction  of  labour 
productivity,  while the drop in productivity in the 
services  sector  was  less  pronounced.  In  addition, 
the  number  of  hours  authorised  under  the  Italian 
short  time  working  scheme  (Cassa  Integrazione 
Guadagni) (7) has increased since the end of 2018, 
potentially 
in 
to 
employment in the industrial sector.  

reductions 

leading 

future 

in 

the 

the  growth 

labour  market 

remains 
Slack 
considerable.  Hours  worked  and  employment 
(expressed in full-time equivalents) are still below 
the 2007 levels. The increase in total hours worked 
in  the  first  three  quarters  of  2019  (0.5%)  was 
largely  driven  by 
in  additional 
positions. Since 2010, part-time work has been an 
important  driver  of  job  creation.  In  the  first  three 
quarters  of  2019,  part-time  work  increased  on 
average  by  2.5%  compared  to  the  same  period  of 
2018,  while  the  number  of  full-time  positions 
remained 
unchanged.  Moreover, 
involuntary part-time remains widespread, and the 
pool  of  discouraged  workers  is  around  three 
million  people.  The  increase  in  involuntary  part-
time  and 
temporary  employment  has  been 
particularly marked in the South. 

broadly 

Wages, prices and costs 

Source: Istat. 

Wages continue to grow at a moderate pace. In 
2019,  hourly  negotiated  wages  grew  by  1.0%  on 
average,  driven  by  increases  in  the  public  sector 
(1.8%).  By  contrast  wages  in  the  private  sector 
grew  by  0.8%,  where  contract  renewals  are  still 
pending for around 29.4% of employees) (8). In the 
fourth quarter of 2019, nominal compensation per 
employee increased by 0.7% year-on-year, and real 
compensation by 0.5%. 

(7)  The  Cassa  Integrazione  Guadagni  (CIG)  supplements 
wages  for  employees  affected  by  temporary  layoffs  (who 
are  not  considered  unemployed),  or  under  a  forced 
reduction  of  working  hours.  The  recent  increase  is  driven 
by  the  extraordinary  CIG  component  (Cassa  Integrazione 
Guadagni  Straordinaria),  which  is  activated  in  case  of 
business crises and restructuring. 

(8)  In December 2019, along with a slowdown in the pace of 
growth  of  negotiated  wages,  the  share  of  employees  with 
negotiations  ongoing  on  the  renewal  of  national  sectoral 
collective contracts stood at 46%. It has been on average 16 
months  since  national  contracts,  for  which  renewal 
negotiations are still pending, expired. 

Moderate  domestic  demand  and  subdued  wage 
growth  suggest  only  a  gradual  rise  in  core 
inflation.  Consumer  price  inflation  (harmonised 
index of consumer prices - HICP) slowed down to 
0.6% in 2019, from 1.2% in 2018. HICP inflation 
is  expected  to  increase  to  1.0%  by  2021.  Annual 
HICP  core  inflation  (i.e.  excluding  unprocessed 
food and energy) stood at 0.6% in 2019 and is set 
to  gradually  pick  up,  in  line  with  moderate  wage 
growth  and  the  recovery  of  profit  margins.  The 
growth  rate  of  the  GDP  deflator,  on  a  downward 
trend since 2010 due to subdued demand and only 
moderate  growth in  unit labour costs, is  projected 
to  have  fallen  to  0.6%  in  2019  but  is  forecast  to 
rise to 1.1% by 2021.  

(9)  The  Jobs  Act  labour  market  reform  adopted  in  end-2014 
included  temporary  incentives  for  companies  that  hired 
permanent  workers  on  new,  less-protected  terms  in  the 
form of a three-year exemption from social contributions. 

10 

-4-2024682007q12008q12009q12010q12011q12012q12013q12014q12015q12016q12017q12018q12019q1Year-on-year percentage changeNominal compensation per employee (pps.)Productivity (pps., inverted sign)Nominal unit labour costs 
                                                           
   
                                                           
1. Economic situation and outlook 

Italian  government’s  decisions 

the 
to  make 
adjustments  to  their  fiscal  targets.  The  sovereign 
risk  premium  on  Italian  government  securities,  as 
measured  by  credit  default  swaps  (CDS),  has 
declined but is still higher than at the beginning of 
2018  (Bank  of  Italy,  2019a) (12).  Vulnerabilities 
remain as regards the debt rollover risks. The ten-
year  sovereign  bond  yield  dropped  from  2.7%  at 
the beginning of 2019 to below 1% end-August but 
has again risen above 1.3% by mid-January 2020. 
The  spread  vis-à-vis  German  bonds  narrowed  by 
almost 100 basis points over the same period but is 
still  wider than the one  for Spanish or Portuguese 
bonds. The yields on Italian sovereign bonds with 
maturities  of  up  to  2  years  turned  negative  in 
summer  2019  and  were  close  to  zero  in-mid 
January 2020. In 2019, rating agencies kept Italy's 
credit rating stable and the outlook unchanged. (13) 

The  sharp  decline  in  long-term  interest  rates 
buoyed share and corporate bond prices.  Amid 
pronounced volatility on global stock markets due 
to  the  weakening  global  outlook  and  heightened 
trade  policy  risks,  Italian  equity  prices  gained 
substantially in 2019. The Milan benchmark stock 
exchange  index  increased  by  30%  between  end-
2018  and  mid-January  2020,  with  the  bank  sub-
index rising about 22%. Following the reduction in 
Italy’s  sovereign  yields,  the  risk  premiums  on  the 
two  main  Italian  banking  groups,  as  measured  by 
CDS  spreads,  have  declined  and  are  only  slightly 
higher than the average of the other large European 
banks.  However,  the  price-to-book  ratio  of  Italian 
listed  banks,  a  standard  metric  to  gauge  their 
economic value, is below unity and lower than for 
other  European  banks’, 
subdued 
earnings  expectations  and  elevated  risk  premiums 
demanded by investors. 

indicating 

Since  early  2019,  foreign  investors  have  again 
increased  their  exposure  to  Italian  assets.  After 
the sharp sell-offs in the second half of 2018, non-

announcement made at the ECB Forum on Central Banking 
held in June 2019. 

(12)  The gap between the premium on CDS contracts that offer 
that  on 
protection  against  redenomination  risk  and 
contracts  with  no  such  provision  (ISDA  basis)  has 
narrowed  to  levels  only  a  little  higher  than  in  the  first 
months of 2018, although the spread compared with other 
euro  area  countries  remains  sizeable  (see  Bank  of  Italy, 
2019a, p. 24f.). 

(13)  Moody’s  rates  Italy  at  Baa3  (BBB-),  one  notch  above 
investment  grade,  while  Standard  &  Poor’s  left  its  rating 
unchanged  at  BBB  on  25  October  2019,  but  kept  its 
outlook at  ‘negative’. 

Inequality and poverty risk 

in  2018, 

Income  inequality  is  among  the  highest  in  the 
EU.  The  Gini  coefficient  (of  equalised  disposable 
income), already one of the highest in the EU, rose 
indicating  a  more  uneven 
further 
distribution  of 
tax-and-benefit 
incomes.  The 
system, albeit among the least effective in the EU, 
is  mitigating  the  unequal  distribution  of  market 
incomes  but  largely  to  the  benefit  of  pensioners. 
The large weight of pensions in social expenditure 
is reflected in  lower income inequality among the 
elderly.  In  2018,  the  ratio  of  the  total  income 
received  by  the  20%  of  the  population  with  the 
highest  income  to  that  received  by  the  20 %  with 
the lowest income stood at 6.55 for persons under 
65 years old, but only at 4.86 for persons aged 65 
or above. 

remains  high.  Helped  by 

The  risk  of  poverty  is  declining,  but  in-work 
solid 
poverty 
employment  growth  in  recent  years,  the  risk  of 
poverty and social exclusion declined to 27.3% in 
2018, down from its peak of 30% in 2016. Yet, it 
remains  sizeably  above  the  EU  average  (21.7%) 
and  above  the  level  registered  in  2007  (26%), 
while regional disparities loom  large. By contrast, 
the  rate  for  those  in  work  who  are  at-risk  of 
poverty  has  trended  upwards  since  2010  and 
reached 12.3% in 2018, almost 3 percentage points 
above  the  EU  average.  Key  reasons  are  that, 
despite  an 
labour  market 
situation,  the  share  of  (involuntary)  part-time 
employment  has  increased,  and  wage  growth  has 
remained  subdued.  As  a 
real  gross 
disposable income was almost 10% lower in 2018 
than in 2007 (10). 

improving  overall 

result, 

Financial developments 

Government bond yields have fallen sharply on 
the  back  of  declining  sovereign  risk  premiums. 
Currently,  yields  for  Italian  sovereign  bonds  are 
well  below  the  peak  levels  observed  in  2018. 
Political uncertainty has gradually abated, financial 
tensions  eased  and  market  conditions  improved. 
This was supported by both the ECB’s return to a 
more expansionary monetary policy stance (11) and 

(10)  See also Section 4.3.2. 
(11)  In September 2019, the ECB Governing Council adopted a 
broad package of expansionary measures (ECB, 2019). The 
the 
effect  was  already  visible 

in  summer  due 

to 

11 

 
                                                           
                                                                                   
1. Economic situation and outlook 

resident  investors  raised  their  portfolio  of  Italian 
government 
securities  by  €90 billion  until 
November  2019.  In  the  same  period,  foreign 
holdings  of  bank  bonds  rose  by  €9.9 billion. 
Deposits  placed  with  Italian  banks  remained 
stable, and private sector deposits rose by 7.6% in 
November  2019  compared  to  the  same  month  of 
2018.  Since  May  2018,  deposits  from  domestic 
households  and  non-financial  corporations  have 
overall slightly increased.   

Lending  to  households  is  rising  at  a  moderate 
pace, while  lending to firms is decreasing.  The 
growth  of  lending  to  households  slowed  down 
slightly  over  2019,  but  is  still  solid  for  house 
purchases and consumer credit.  On average, loans 
to  the  non-financial  corporate  sector  continue  to 
decrease  on  an  annual  basis,  albeit  with  large 
variations across risk classes (Graph 1.5). 

Graph 1.5: 

Lending volumes and interest rates, private 
sector 

(1) Interest rates for new businesses. 
Source: Bank of Italy. 

The  contraction  in  lending  is  concentrated 
among  the  riskiest  firms.  By  contrast,  lending 
continues  to  grow  for  financially  sound  larger 
firms  (Bank  of  Italy,  2019a).  The  cost  of  new 
loans, which has been decreasing in recent months, 
is at historically low levels.  Bank lending surveys 
indicate  an  easing  of  credit  conditions  for  firms 
and  households.  Meanwhile,  credit  demand  from 
companies has declined, given firms’ reduced need 
to  finance  fixed  capital  formation  or  inventories 
and working capital. 

Financial  conditions  are  stable  but  remain 
vulnerable to adverse cyclical conditions. Firms’ 
profitability  is  weakening,  but  debt  repayment 
capacity remains strong thanks to low interest rates 
and  sounder  balance  sheet  structures  than  in  the 
past. Moreover, the high average residual maturity 
of Italy’s public debt slows down the transmission 
of an increase in government yields to the average 
cost  of  debt.  However,  a  marked  economic 
slowdown and higher interest rates in light of high 
public debt could expose financial vulnerabilities. 

External position 

Italy’s current account surplus rose in 2019 due 
to  an  increasing  goods  balance.  Despite  the 
slowdown in global trade, export growth remained 
stable  and  exporting  firms  broadly  maintained 
market  shares.  By  contrast,  imports  decelerated 
sharply, owing to a negative inventory cycle. As a 
result,  the  current  account  balance  registered  a 
surplus  of  2.9%  in  the  12-month  period  up  to 
November  2019 
and 
investment  decisions  at  sector  level  determine 
current  account  fluctuations.  Since  2009,  the 
corporate sector, traditionally in a debtor position, 
has acted as net lender to the economy and its net 
lending position widened to 0.8% of GDP in 2018. 
By  contrast,  households  reduced  net  lending  from 
2.3% of GDP in 2014 to 1.3% of GDP in 2018. 

(Graph 1.6).  Savings 

The cyclically adjusted current account surplus 
is  estimated  at  2.7%  of  GDP  in  2019.  This 
surplus is estimated to be sufficient to keep Italy’s 
net international investment position (NIIP) stable 
and  bring  it  closer  to  the  level  that  fundamentals 
suggest (in the absence of valuation effects) (14). 

Italy’s  NIIP 

The NIIP is almost balanced. Since the low point 
in  early  2014, 
improved  by 
€351 billion. As a  result,  the  stock of  net external 
liabilities  fell  to  €55.3 billion  (or  3.1%  of  2018 
GDP) by Q3-2019. That positive trend was helped 
by  persistent  current  account  surpluses  and 
supported by valuation effects.  

In  2019,  the  TARGET2  balance  improved.  In 
December  2019,  the  Bank  of  Italy’s  net  debtor 
position  in  the  TARGET2  European  payment 

(14)  For  details  regarding  the  estimation  of  current  accounts 
based on fundamentals, see Coutinho, L. et al. (2018). 

12 

00.511.522.53-5-3-11357911131520152016201720182019PercentYear-on-year percentage changeLoans to NFCsLoans to householdsInterest rate on mortgages (rhs)Interest rate on loans to NFCs (rhs) 
   
                                                           
system  stood  at  €439 billion,  down  from  the 
€493 billion in August 2018. 

Graph 1.6:  Current account balance 

1. Economic situation and outlook 

and the Bank of Italy published revised data on the 
country’s  public  debt,  which  implied  an  upward 
level  shift  over  the  recent  years.  Following  the 
revision,  Italy’s  debt-to-GDP  ratio  peaked  at 
135.4%  in  2014,  before  declining  to  134.1%  in 
2017  and  rising  again  to  134.8%  in  2018.  The 
increase  in  2018  was  due  to  particularly  low  real 
GDP  growth  and  a  large  stock-flow  adjustment 
(0.7%  of  GDP),  mainly  related  to  fluctuations  of 
liquidity  reserves  and  negative 
the  Treasury 
developments 
the  financial  markets.  The 
in 
Commission 2019 Autumn Forecast expects Italy’s 
debt-to-GDP  ratio  to  further  rise  to  136.2%  in 
2019, 136.8%  in  2020  and  137.5%  in  2021,  amid 
persistently  weak  nominal  GDP  growth  and  a 
deteriorating  primary  balance  (see  Section  4.1). 
Given  the  track  record  of  recent  years,  those 
projections  do  not  consider  any  proceeds  from 
privatisations, 
is 
targeting 0.2% of GDP per year over 2020-2022. 

the  government 

although 

Source: Bank of Italy. 

Graph 1.7: 

Public finances indicators 

Public finances: public deficit and debt 

The  government  headline  deficit  is  expected  to 
remain broadly stable in 2019 and 2020, leading 
to  a  worsening  primary  balance.  After  slightly 
declining  from  2.4%  of  GDP  in  2017  to  2.2%  of 
GDP  in  2018,  the  government  deficit  is  projected 
to have remained stable in 2019 and to marginally 
increase  to  2.3%  of  GDP  in  2020,  based  on  the 
Commission  2019  Autumn  Forecast.  The  new 
minimum  income  and  early  retirement  schemes 
will  lead  to  a  large  increase  of  public  spending 
over  2019-2020,  which  will  only  partially  be 
compensated  by  measures  on  the  revenue  side.  In 
2021,  under  a  no-policy-change  assumption  (in 
particular,  not  considering  the  increase  in  VAT 
legislated  as  a  safeguard  clause),  the  headline 
deficit  is  expected  to  increase  to  2.7%  of  GDP. 
Given the projected reduction of interest spending 
(from  3.7%  of  GDP  in  2018  to  3.1%  of  GDP  in 
2021), the government primary surplus is expected 
to  decline  from  1.5%  of  GDP  in  2018  to  0.4%  of 
GDP in 2021 (Graph 1.7). The structural balance is 
projected to improve from  -2.4% of GDP in 2018 
to -2.2% in 2019, and to deteriorate to -2.5% and -
2.9% of GDP in 2020 and 2021 respectively. 

The  government  debt-to-GDP  ratio  is  expected 
to  continue  growing  until  2021.  In  September 
2019,  Italy’s  national  statistical  institute  (ISTAT) 

Source: European Commission 

Italy is making progress in achieving the United 
Nations’  Sustainable  Development  goals.  Over 
the past 5 years, progress has been relevant in most 
of 
the  UN  Sustainable  Development  Goals 
(SDGs), particularly for SDGs 3 (good health and 
well-being),  7  (affordable  and  clean  energy),  12 
(responsible  consumption  and  production)  and  16 
(peace, justice and strong institutions). By contrast, 
SDGs 1 (no poverty), 10 (reduce inequalities) and 
15  (life  on  land)  present  a  mixed  picture,  with 
some  indexes  worsening in the short run. Overall, 
Italy underperforms the EU average in most of the 

13 

-4-3-2-101234510111213141516171819% of GDP (12-month moving sum)Secondary income balancePrimary income balanceBalance of servicesBalance of goodsCurrent account balance9095100105110115120125130135140-6.0-4.5-3.0-1.50.01.53.04.56.00506070809101112131415161718192021% of GDP% of GDPGross public debt (rhs)Budget balance (lhs)Primary balance (lhs)Interest expenditure (lhs)forecast 
   
 
    
1. Economic situation and outlook 

indexes related to SDGs 4 (quality of education), 5 
(gender  equality),  8  (economic  growth)  while  it 
performs  better  than  average  on  SDGs  6  (clean 
water and sanitation), 11 (sustainable cities) and 12 
(responsible  consumption).  In  this  context,  Italy’s 
initiative  on  well-being  indicators  (based  on  the 
well-being  evaluation  scale  -  WES)  and  on  SDGs 
at national and regional level (ISTAT, 2019i) is a 
European  best  practice  supported  by  civil  society 
organisations (see ASVIS, 2019). In particular, the 
former  indicators  include,  together  with  social 
indicators  on  poverty, 
inequality  and  gender 
balance, indicators on the level of CO2 emissions 
as  well  as  a  proxy  for  soil  erosion.  Regarding  the 
latter,  by  summer  2020  Italy’s  regions  and 
autonomous  provinces  are  to  have  approved  their 
own  sustainable  development  strategies  for  2017-
2030. 

14 

 
1. Economic situation and outlook 

Table 1.1: 

Key economic and financial indicators - Italy 

(1) NIIP excluding direct investment and portfolio equity shares         
(2) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches.         
(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the 
section on taxation         
(4) Defined as the income tax on gross wage earnings plus the employee's social security contributions less universal cash 
benefits, expressed as a percentage of gross wage earnings 
Source: Eurostat and ECB as of 4-2-2020, where available; European Commission for forecast figures (Winter forecast 2020 for 
real GDP and HICP, Autumn forecast 2019 otherwise)         

15 

2004-072008-122013-1620172018201920202021Real GDP (y-o-y)1,4-1,40,01,70,80,20,30,6Potential growth (y-o-y)0,8-0,2-0,20,10,10,50,40,5Private consumption (y-o-y)1,2-1,10,21,50,8...Public consumption (y-o-y)0,3-0,4-0,4-0,20,4...Gross fixed capital formation (y-o-y)1,8-4,9-0,83,33,2...Exports of goods and services (y-o-y)5,9-0,92,36,01,8...Imports of goods and services (y-o-y) 5,3-2,92,76,23,0...Contribution to GDP growth:Domestic demand (y-o-y)1,2-1,7-0,11,41,1...Inventories (y-o-y)0,1-0,20,20,2-0,1...Net exports (y-o-y)0,10,6-0,10,1-0,3...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0,3-0,40,10,10,10,30,10,2Capital accumulation (y-o-y)0,60,3-0,10,00,00,10,10,1Total factor productivity (y-o-y)-0,1-0,1-0,2-0,10,00,10,10,2Output gap1,8-1,6-3,7-0,40,2-0,2-0,10,2Unemployment rate7,28,412,111,210,610,010,010,0GDP deflator (y-o-y)2,31,51,00,70,90,60,91,1Harmonised index of consumer prices (HICP, y-o-y)2,22,40,41,31,20,60,81,0Nominal compensation per employee (y-o-y)2,92,00,60,72,21,01,11,0Labour productivity (real, person employed, y-o-y)0,3-1,0-0,10,5-0,1...Unit labour costs (ULC, whole economy, y-o-y)2,32,40,5-0,12,21,60,80,5Real unit labour costs (y-o-y)0,00,8-0,6-0,81,31,0-0,2-0,5Real effective exchange rate (ULC, y-o-y)1,5-0,2-0,50,12,2-2,1-1,8-1,5Real effective exchange rate (HICP, y-o-y)0,1-0,8-0,40,71,8-2,1-1,5-1,0Net savings rate of households (net saving as percentage of net disposable income)8,64,63,22,52,5...Private credit flow, consolidated (% of GDP)9,92,9-1,11,31,6...Private sector debt, consolidated (% of GDP)99,1120,9116,7108,8107,0...of which household debt, consolidated (% of GDP)34,142,442,240,840,8...of which non-financial corporate debt, consolidated (% of GDP)65,078,574,568,066,2...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)4,48,313,19,46,9...Corporations, net lending (+) or net borrowing (-) (% of GDP)-0,20,62,73,63,53,83,94,3Corporations, gross operating surplus (% of GDP)23,021,321,122,121,421,020,820,9Households, net lending (+) or net borrowing (-) (% of GDP)2,40,91,91,51,21,31,31,2Deflated house price index (y-o-y)3,7-1,6-5,1-2,3-1,5...Residential investment (% of GDP)5,55,44,34,14,2...Current account balance (% of GDP), balance of payments-1,1-2,21,82,72,62,92,92,9Trade balance (% of GDP), balance of payments-0,2-0,72,93,02,5...Terms of trade of goods and services (y-o-y)-1,4-1,02,5-1,5-0,7-0,10,2-0,1Capital account balance (% of GDP)0,10,10,10,00,0...Net international investment position (% of GDP)-17,9-21,0-18,9-7,7-4,7...NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)-9,4-22,4-18,5-6,1-6,2...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)94,5113,9123,4121,1119,4...Export performance vs. advanced countries (% change over 5 years)0,5-12,2-9,8-1,6-1,7...Export market share, goods and services (y-o-y)-2,6-5,80,3-0,1-0,70,6-1,1-1,0Net FDI flows (% of GDP)0,81,0-0,10,00,0...General government balance (% of GDP)-3,1-3,7-2,7-2,4-2,2-2,2-2,3-2,7Structural budget balance (% of GDP)-4,5-3,1-0,8-2,2-2,4-2,2-2,5-2,9General government gross debt (% of GDP)105,6117,6134,5134,1134,8136,2136,8137,4Tax-to-GDP ratio (%) (3)40,141,943,142,142,042,242,442,0Tax rate for a single person earning the average wage (%) (4)28,630,231,131,131,3...Tax rate for a single person earning 50% of the average wage (%) (4)19,321,718,115,916,2...forecast 
 
 
 
 
1. Economic situation and outlook 

2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

all 

68% 

Since  the  start  of  the  European  Semester  in 
2011, 
country-specific 
recommendations  (CSRs)  addressed  to  Italy 
have  recorded  at  least  ‘some  progress’  (15).  By 
contrast,  32%  have  recorded 
'no 
progress' (Graph 2.1). The areas that registered the 
best performance include measures to improve the 
labour 
business  environment  and  reform 
market.  Good  performances  have  also  been 
recorded  in  the  banking  sector  and  in  improving 
the quality of Italy’s fiscal governance. 

'limited'  or 

the 

affected  tax  compliance.  There  has  been  some 
progress  in  reducing  taxes  on  labour  but  none  in 
shifting  taxes  to  other  revenue  sources,  as  tax 
reviewed  but  not 
expenditures  have  been 
streamlined and the outdated  cadastral system  has 
not  been  reformed.  Moreover,  while  past  pension 
reforms 
long-term 
improve 
sustainability  of  public  finances,  the  share  of  old-
age pensions in total expenditure is still set to rise 
mainly  due 
the  early  retirement  scheme 
introduced in 2019.  

helped 

the 

to 

Graph 2.1:  Overall multiannual implementation of 2011-

2019 CSRs to date 

(1) The overall assessment of the country-specific 
recommendations related to fiscal policy exclude 
compliance with the Stability and Growth Pact. 
(2) 2011-2012: different CSR assessment categories.  
(3) The multiannual CSR assessment looks at the 
implementation since the CSRs were first adopted until the 
February 2020 Country report. 
Source: European Commission 

Concerning  public  finances  and  taxation,  some 
progress was made to address the related CSRs. 
Overall, the budgetary process has been improved, 
including by introducing regular spending reviews. 
In  recent  years,  several  measures  have  been 
adopted 
the 
introduction  of  compulsory  e-invoicing  and  e-
transmission  of  receipts.  Moreover,  the  2020 
budget  has  introduced  several  measures  to  tackle 
tax  evasion  from  omitted  invoicing,  including  by 
encouraging  e-payments.  On 
the  other  hand, 
tax  amnesties  may  have  negatively 
repeated 

tax  evasion, 

including 

to  fight 

(15)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see Section 4 in particular.   

As  regards  labour  market  and  social  policies, 
progress  in  carrying  out  reforms  was  limited. 
Five years after its adoption, the implementation of 
the ‘Jobs Act’ reform remains incomplete. Despite 
recent  efforts  to  make  active 
labour  market 
policies  more  effective  and  reinforce  public 
employment  centres,  performance  varies  widely 
among  regions  and  integration  and  coordination 
with other social and educational policies remains 
weak.  The  employment  rate  of  women  remains 
sizeably below the EU average and family-related 
social policies still lack proper coordination. While 
some  steps  have  been  taken  to  facilitate  access  to 
childcare  services  through  financial  support  to 
families, a comprehensive strategy that combines a 
more  efficient  tax  system  with  access  to  care 
services  and  measures  to  reconcile  career  and 
family life is missing.  

and 

environment 

Some progress was registered in improving the 
investment 
business 
conditions.  Efforts 
to  simplify  administrative 
procedures continued, but the burden remains high 
overall.  Some  progress  has  also  been  recorded  in 
increasing the effectiveness and digitisation of the 
public administration, but a reform of local public 
services  and  measures  to  tackle  restrictions  to 
competition  are  still  pending.  Public  investment 
remains  subdued  in  Italy,  but  the  strengthened 
budgetary  autonomy  of  local  governments  is 
showing positive signs, and more funds have been 
earmarked 
investment.  Moreover, 
numerous measures have been introduced in recent 
years to support private investment, including with 
a  focus  on  innovation  and  green  expenditure.  On 
the  other  hand,  the  investment  capacity  of  the 

for  public 

16 

No Progress2%Limited Progress30%Some Progress36%Substantial Progress28%Full Implementation4% 
 
  
                                                           
2. Progress with country-specific recommendations 

contrast,  measures  to  improve  the  recourse  to 
venture capital have not been implemented yet. 

the 

forward 

the  magnitude  of 

Overall,  Italy  has  made  some  progress  in 
addressing 
country-specific 
2019 
recommendations(17).  Limited  progress  has  been 
made in shifting the tax burden away from labour, 
as  there  was  no  reduction  of  the  large  tax 
expenditures in value added taxes nor a reform of 
the  outdated  cadastral  values.  No  progress  has 
been  recorded  in  reducing  the  share  of  old-age 
pensions  in  public  spending  to  create  space  for 
other  social  and  growth-enhancing  spending. 
Substantial progress has been made in fighting tax 
including  by  encouraging  electronic 
evasion, 
payments.  However, 
the 
challenge  warrants  a  continuous  reform  effort. 
Limited  progress  has  been  made  in  tackling 
putting 
undeclared  work, 
a 
in 
comprehensive  strategy 
to  support  women’s 
participation in the labour market and in fostering 
educational outcomes, upskilling and digital skills. 
Some  progress  has  been  made  in  improving  the 
effectiveness  of  active  labour  market  policies  and 
integration  with  social  policies.  Some 
their 
progress  has  also  been  recorded  in  improving 
investment conditions, both  for public and private 
investment,  and  in  strengthening  administrative 
capacity.  There  has  been  no  progress  on 
competition policies, as no new initiatives were put 
forward  and  backtracking  is  still  being  discussed. 
Limited  progress  has  been  made  in  reducing  the 
length  of  civil  trials  at  all  instances  by  enforcing 
and streamlining procedural rules. Progress is also 
limited in improving the effectiveness of the fight 
against corruption by reforming procedural rules to 
reduce the length of criminal trials. Some progress 
has  been  made  in  fostering  bank  balance  sheet 
restructuring,  by  improving  efficiency  and  asset 
quality  through  non-performing  loans  disposals, 
and  diversifying  funding.  There  has  also  been 
some  progress  in  improving  non-bank  financing 
for smaller and innovative firms. 

Upon  request  by  a  Member  State, 
the 
Commission  can  provide  tailor-made  expertise 
via the Structural Reform Support Programme 
implement  growth-
to  help  design  and 

(17)  Information  on  progress  and  action  taken  to  address  the 
advice  in  each  respective  subpart  of  a  country-specific 
recommendation  is  presented  in  the  overview  table  in 
Annex  A.  The  overall  assessment  does  not  include  an 
assessment of the Stability and Growth Pact compliance.   

administration 

remains  weak,  R&D 
public 
expenditure  remains 
low  and  unequal  across 
regions,  and  there  is  still  scope  for  streamlining 
and  stabilising  the  most  efficient  incentives.  The 
assessment of this CSR does not take into account 
the  contribution  of  the  EU  2021-2027  cohesion 
policy funds (16). 

for 

civil 

rules 

resolution 

justice  and 

introducing 
appeals. 

There has been some progress in increasing the 
efficiency  of 
fighting 
corruption. Civil justice reforms have been passed 
in  recent  years,  increasing  the  specialisation  and 
digitalisation  of  courts,  reinforcing  alternative 
stricter 
dispute 
and 
admissibility 
That 
notwithstanding,  the  time  it  takes  to  resolve  civil 
and  commercial  litigious  cases  in  Italy  remains  a 
challenge.  Long  disposition  times  for  criminal 
trials also continue to raise concerns at the appeal 
level.  Italy  has  recently 
its  anti-
corruption system,  through, among other things, a 
framework  to  protect  whistle-blowers,  a  stronger 
role  for  the  National  Anti-Corruption  Authority 
and the anti-corruption law of January 2019, which 
stops the statute of limitations after a first-instance 
ruling. However, the low efficiency of the criminal 
justice  keeps  hindering 
the  prosecution  of 
corruption,  in  the  absence  of  a  needed  reform  of 
criminal  procedure,  especially  to  tackle  the  high 
number of cases at appeal courts. 

improved 

Some progress has been made regarding banks’ 
balance sheet repair and access to finance. This 
includes  non-performing  loans  disposals  through 
outright  sales and  securitisations  supported by the 
government  guarantees.  The  reform  of 
large 
cooperative banks has not been fully implemented 
yet,  unlike  the  reform  of  small  mutual  banks, 
which has essentially been concluded. The reform 
of  the  insolvency  framework,  finalised  by  the 
government  in early 2019,  will enter  into  force in 
August  2020.  Although  firms’  financing  remains 
predominantly  bank-based,  past  measures  to  give 
firms  greater  access  to  capital  markets  are  having 
some  positive  effects.  The  reintroduction  of  the 
allowance for corporate equity in the 2020 budget 
can help address corporate undercapitalisation. By 

(16)  The  regulatory  framework  underpinning  the  programming 
of  the  2021-2027  EU  cohesion  policy  funds  has  not  yet 
been  adopted  by  the  co-legislators,  pending  inter  alia  an 
agreement on the multiannual financial framework (MFF). 

17 

 
                                                           
                                                           
2. Progress with country-specific recommendations 

enhancing reforms. Since 2017, support has been 
provided  to  Italy  for  36  projects.  In  2019,  several 
projects  were  delivered  on 
the  ground.  The 
Commission, for example, provided an action plan 
for  the  accrual-based  accounting  reform  in  Italy’s 
public  administration  and  is  now  supporting  its 
implementation. 
the  Commission 
In  2018, 
supported the establishment of Zones of Economic 
Interest  in  the  South.  In  2019  the  Commission 
further helped defining the governance structure of 
the  three  already-established  zones  as  well  as  the 

central  government’s  oversight  and  monitoring. 
Work has also started on improving data collection 
and courts’ organisation as regards insolvency and 
enforcement;  strengthening  the  system  of  active 
labour  market  policies;  developing  a  model  to 
improve  evaluation  of  VAT  and  excise  policies; 
further  improving  national  coordination  of  efforts 
to  prevent  corruption;  and  improving  both  central 
and local management of European Structural and 
Investment Funds. 

18 

 
2. Progress with country-specific recommendations 

Overall assessment of progress with 
2019 CSRs: some progress 

Some progress 
 Not assessed: The compliance assessment 
with the Stability and Growth Pact will be 
included in Spring when final data for 2019 
will be available. 
 Limited progress in shifting taxation away 
from labour, in reducing tax expenditure and 
in reforming the cadastral system. 
 Substantial progress in fighting tax 
evasion, including by strengthening the 
compulsory use of electronic payments. 
 No progress in reducing the share of old 
pensions in public spending. 

Limited progress 
 Limited progress in stepping up efforts to 
tackle undeclared work  
 Some progress in ensuring that labour 
market and social policy are effectively 
integrated and reach out to vulnerable groups 
  Limited progress supporting women’s 
participation in the labour market 
 Limited progress in improving educational 
outcomes and fostering upskilling, including  
by strengthening digital skills  

Some progress 
 Some progress in focusing investment-
related economic policy on research and 
innovation and quality of infrastructures 
 Some progress in improving the 
effectiveness of public administration 
including investing in skills, accelerating 
digitalisation and increasing the efficiency of 
local public services 
 No progress in addressing restrictions to 
competition 

Limited progress 
 Limited progress in reducing the lengths of 
civil trials   
 Limited progress in improving the 
effectiveness of the fight against corruption 

Table 2.1: 

Assessment of 2019 CSR implementation (*) 

Italy 

CSR  1:  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 
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. (MIP 
relevant) 

including  by  strengthening 

invoicing, 

CSR 2: 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 
through  a 
in 
women’s  participation 
the 
comprehensive  strategy, 
to  quality 
including 
childcare  and  long-term  care.  Improve  educational  outcomes,  also 
through  adequate  and  targeted  investment,  and  foster  upskilling, 
including by strengthening digital skills. (MIP relevant) 

through  access 

labour  market 

Improve 

CSR 3: Focus investment-related economic policy on research and 
innovation,  and  the  quality  of  infrastructure,  taking  into  account 
regional  disparities. 
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. (MIP relevant) 

CSR 4: Reduce the length of civil trials at all instances by enforcing 
and  streamlining  procedural  rules, 
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. (MIP relevant) 

including 

CSR  5:  Foster  bank  balance  sheet  restructuring,  in  particular  for 
small  and  medium-sized  banks,  by  improving  efficiency  and  asset 
quality,  continuing  the  reduction  of  non-performing  loans,  and 
diversifying  funding.  Improve  non-bank  financing  for  smaller  and 
innovative firms. (MIP relevant) 

Some progress 
 Some progress in fostering bank balance 
sheet restructuring 
 Some progress in improving non-bank 
financing for smaller and innovative firms 

Source: European Commission 
(*)The assessment of CSR 3 does not take into account the contribution of the EU 2021-2027 cohesion policy funds. The 
regulatory framework underpinning the programming of the 2021-2027 EU cohesion policy funds has not yet been adopted 
by the co-legislators, pending inter alia an agreement on the multiannual financial framework (MFF) 

19 

 
 
 
 
 
 
  
 
2. Progress with country-specific recommendations 

Box 2.1: EU funds and programmes to address structural challenges and foster growth and 
competitiveness in Italy 

Italy  is  one  of  the  countries  benefiting  most  from  EU  support.  The  financial  allocation  from  the  EU 
cohesion policy funds (1) for Italy amounts to €53.2 billion in the current Multiannual Financial Framework 
equivalent  to  around  0.4%  of  its  GDP  annually.  As  of  the  end  of  2019,  Italy  lagged  behind  in  its 
implementation  of  cohesion  policy  compared  to  the  EU  average:  Italy  allocated  to  specific  projects  some 
€42.2  billion  (79%  of  the  total  allocation  planned  against  88%  for  the  EU)  and  spent  €17.2  billion  (about 
32.0% against 38% for the EU)(2). 

EU  cohesion  policy  funding  heavily  supports  structural  challenges  in  Italy.  The  cohesion  policy 
programmes  for  Italy  have  allocated  €9.1  billion  for  smart  growth,  €9.5  billion  for  sustainable  growth  and 
sustainable transport and €14 billion for inclusive growth. In 2019 following a performance review(3), €2.26 
billion were made available for Italy. In addition, €782 million have to be reprogrammed by Italy within the 
priority areas listed above. 

EU  cohesion  policy  funding  is  contributing  to  major  transformations  of  the  Italian  economy.  EU 
cohesion policy funding together with the Connecting Europe Facility are supporting the development of key 
infrastructure  within  the  TEN-T  core  network,  with  €1.8  billion  and  €1.6  billion  respectively.  By  2019, 
investments  driven  by  the  EU  Funds  had  ensured  broadband  access  for  more  than  15,700  additional 
households;  4,600  enterprises  and  523  start-ups  had  also  received  support,  generating  1,533  new  jobs.  For 
research and innovation, EU cohesion policy funds allocate €3.3 billion to support R&D, innovation in firms, 
and training for innovative skills. Around 5 million people participated in training initiatives and more than 1 
million people found employment after 6 months. The Youth Guarantee and the Youth employment initiative 
supported 676,000 young people, and more than half of them are already in employment (ANPAL, 2019). EU 
funding  has  addressed  poverty  and  social  exclusion  by  strengthening  the  capacity  of  the  social  and 
employment services to accompany the process of active inclusion. The ESF has supported the participation 
in  employment  and  social  inclusion  initiatives  of  more  than  444,000  persons  with  migrant  or  foreign 
background or from minorities, and 107,600 persons with disabilities. EU funds helped to reduce greenhouse 
gas  emissions  by  48,253  tons  of  CO2  and  to  reduce  primary  energy  consumption  for  public  buildings  by 
43,288,552  Kw/year.  The  funds  also  improved  health  services  for  more  than  1.5  million  persons.  A  good 
performance was also observed in the tourism industry and especially in the valorisation of natural heritage 
and  cultural  assets  with  an  additional  962,818  visits  per  year  and  an  increase  in  particular  in  non-Italian 
visitors, including in the “Mezzogiorno”. 

EU funding helps to mobilise significant private investment. At the end of 2018, €3.5 billion(4) from the 
European  Regional  Development  Fund  had  been  programmed  for  funding  in  the  Italian  operational 
programmes (regional and national). The amounts committed in the funding agreements totalled about €2.8 
billion (80%) and €430 million (12%) were paid to the final recipients. Of the €2.8 billion committed, €1.1 
billion are loans; €546 million guarantees and €351 million are equity.  

Agricultural  and  fisheries  funds  and  other  EU  programmes  also  help  to  address  development  needs. 
Together with the European Agricultural Fund for Rural Development (EARDF) support, with €20.9 billion, 
and the European Maritime and Fisheries Fund (EMFF) support, with €979 million, Italy benefits from other 
EU  programmes.  Horizon  2020  provided  €3.9  billion  for  R&D  and  innovation,  including  €703  million  for 
SMEs. 

EU funds already invest substantial amounts on actions in line with the Sustainable Development Goals 
(SDGs). In Italy, the European Structural and Investment Funds support 13 out the 17 SDGs and up to 95% 
of the expenditure is contributing to those. 

(1)  European Regional Development Fund, European Social Fund, Youth Employment Initiative.  
(2)  https://cohesiondata.ec.europa.eu/countries/IT.  Note:  for  the  programs  for  which  data  were  not  reported  by  the 

regulatory deadline of 31.01.2020, the previously reported data were used.  

(3)  The performance review is regulated by art 22 of the Regulation (EU) No 1303/2013 
(4)  Member  States’  reporting  on  financial  instruments  based  on  Article  46  of  Regulation  No  1303/2013,  cut-off  date 

31/01/2020. 

20 

 
 
3.  OVERALL FINDINGS REGARDING IMBALANCES, RISKS AND 

ADJUSTMENT ISSUES 

if 

stock  of 

as  having 

In  February  2019, 
excessive 

The  2020  Alert  Mechanism  Report  concluded 
that  a  new  in-depth  review  should  be  carried 
out  for  Italy  to  assess 
imbalances  are 
unwinding,  persisting  or  aggravating,  while 
corrective  policies 
taking 
the 
Italy  was 
implemented. 
identified 
imbalances 
(European  Commission,  2019d).  The  identified 
imbalances and legacy issues relate to high public 
debt,  low  productivity  growth,  and  high  rate  of 
unemployment  and  non-performing  loans.  This 
of 
section 
the 
findings 
the 
Macroeconomic  Imbalance  Procedure 
in-depth 
review contained in various sections of this report 
(18). 

summarises 

Imbalances and their gravity 

At  134.8%  of  GDP  in  2018,  high  public  debt 
remains  an  important  source  of  vulnerability 
for  the  economy.  In  the  medium  and  long  term, 
the  Commission’s  debt  sustainability  analysis (19) 
points to high risks, related to Italy’s high level of 
debt and ageing costs. In the short term, given the 
current  interest  rate  environment,  sustainability 
risks  are  considered  low.  However,  sizeable  debt 
rollover  needs  (around  20%  of  GDP  per  year) 
expose Italy’s public  finances to sudden increases 
in  financial  market  risk  aversion.  Furthermore, 
high  debt-servicing  costs  reduce  the  fiscal  space 
for growth-enhancing and countercyclical policies.  

for 

and 

firms, 

smaller 

Subdued  productivity  growth,  particularly  in 
services 
limits 
competitiveness  and  potential  growth.  In  2018, 
GDP growth continued to be driven by increases in 
employment.  Aggregate 
labour  productivity 
continued to decline in 2018 (-0.3% versus +0.5% 
in  EA19)  and  productivity  growth  is  expected  to 
remain  subdued  in  2019-2020.  The  decline  in 
labour  productivity  in  some  Southern  regions  and 
in  services  contributed  to  the  subdued  aggregate 
evolution  of  productivity.  On  the  other  hand, 
productivity in manufacturing rose since 2000, but 
more  slowly  than  in  peer  countries.  TFP  rose 

(18)  Analyses relevant for the in-depth review can be found in 
the  following  sections:  Public  finances  (Section  4.1); 
Financial sector (Section 4.2); Labour market (Section 4.3); 
and Investment (Section 4.4). 

(19)  European  Commission,  Debt  Sustainability  Monitor  2019, 

forthcoming. 

slightly  in  2018  (0.3 pps.  versus  0.6%  in  the 
EA19),  but  is  still  lower  than  in  2000.  Persistent 
structural  barriers, 
investment, 
constrain 
Italy’s  productivity  dynamics  and 
growth,  hampering  in  turn  the  reduction  of  the 
public debt-to-GDP ratio. 

including 

to 

Employment continued to increase in 2019, but 
the  unemployment  rate  remains  high.  Despite 
weak  economic  activity,  employment  growth 
continued in the first three quarters of 2019, when 
total  headcount  employment  grew  by  0.6 % 
compared  to  the  same  period  of  2018.  However, 
hours worked grew at a slower pace and were still 
below  the  2007  levels.  Unemployment  dropped 
below  10 %,  amid  a  shrinking  labour  force  and 
persistently 
rates.  Youth 
unemployment  also  trended  downwards  but,  at  a 
rate  of  28.3%  in  the  third  quarter  of  2019, 
remained among the highest in the EU. Moreover, 
high 
and 
discouraged  workers  suggest  a  still  large  slack  in 
the labour market.   

involuntary  part-time 

shares  of 

inactivity 

high 

Italian  banks  continued  to  make  significant 
progress  in  reducing  Non  Performing  Loans 
(NPLs), but the legacy stock remains high. The 
gross  NPL  ratio  at  system  level  declined  from 
8.4 %  at  end-2018  to  8.1 %  in  the  second  quarter 
of  2019.  However,  the  legacy  stock  of  bad  loans 
remains  high 
and  unlikely-to-pay  exposures 
compared 
less 
for 
to  EU  peers,  especially 
significant  banks.  Following  the  easing  of  market 
tensions  and  the  reduction  in  sovereign  bond 
yields,  Italian  banks  have  recently  reduced  their 
exposure  to  domestic  sovereign  debt.  However, 
they 
their 
sovereign,  implying  a  home  bias  and  risk  of 
feedback  loops.  Despite  recent  improvements  in 
banks’  balance  sheets,  lending  to  households  rose 
only  moderately,  while lending to  firms has come 
to a halt.  

substantially  exposed 

remain 

to 

likely 

Simulations  show  that  a  stimulus  to  public 
investment  would 
entail  positive 
spillovers  to  the  rest  of  the  euro  area.  An 
increase  in  public  investment,  financed  in  a 
budget-neutral  way  (Box  3.1),  is  estimated  to  lift 
Italy’s  GDP sizeably, even  when using a cautious 
assumption  for  the  growth-enhancing  impact  of 

21 

 
 
                                                           
3. Overall findings regarding imbalances, risks and adjustment issues 

capital  spending.  Spillovers  to  other  euro  area 
Member  States  are  non-negligible,  at  least  in  the 
first years after the initial investment stimulus. 

capacity  remains  weak.  Moreover,  measures  to 
strengthen  women’s  participation  in  the  labour 
market remain insufficient. 

Evolution, prospects and policy responses 

Italy’s debt-to-GDP ratio is projected to further 
rise  under  a  no-policy  change  assumption.  The 
ratio increased from 134.1% in 2017 to 134.8% in 
2018  and  is  projected  by  the  Commission  2019 
Autumn Forecast to reach 137.4% in 2021, due to 
weak  nominal  GDP  growth  and  lack  of  fiscal 
effort.  Between  May  2018  and  July  2019, 
sovereign yields shifted upward, experiencing high 
peaks  and  strong  volatility.  Despite  a  substantial 
decline  since  August  2019,  they  remain  sensitive 
to increases in financial market risk aversion. The 
pension  provisions  introduced  in  2019  will  cause 
additional  costs  up  to  2028  and,  if  extended,  they 
would 
debt 
sustainability.  Furthermore,  those  measures  could 
negatively  affect  potential  growth.  Several 
measures  have  been  adopted  to  fight  tax  evasion, 
including by encouraging electronic payments. 

the  medium-term 

worsen 

code 

Measures  to  boost  productivity  have  been 
taken,  but  their  impact  is  limited  by  policy 
uncertainty  and  the  lack  of  a  comprehensive 
strategy.  In  early  2019,  Italy  passed  a  new  anti-
corruption  law,  which  could  contribute  to  a  more 
supportive  business  environment.  On  the  other 
hand,  further  announced  revisions  to  the  public 
for 
procurement 
investment  planning.  The  impact  of  incentives  to 
promote  investment  and  innovation  has  had  a 
positive  effect,  but  streamlining  and  stabilisation 
could  increase  their  efficiency.  Funds  for  public 
investment have been increased, but the efficiency 
of  the  public  sector  remains  low,  notably  in  its 
capacity 
invest.  Better  capital  allocation, 
including through non-bank finance, could help to 
increase investment and productivity.  

uncertainty 

create 

to 

remains 

The  implementation  of  policies  to  raise  labour 
market  participation 
incomplete. 
Activity  rates,  in  particular  of  women  and  young 
people,  are  markedly  below  the  EU  average.  A 
reform of active labour market policies was part of 
both  the  2015  “Jobs  Act”  and  the  recently 
introduced  minimum  income  scheme.  In  that 
context, steps have been taken to strengthen public 
through  staff 
employment  services, 
job  placement 
reinforcements.  However, 

including 

the 

Banks  have  continued  to  reduce  NPLs  and 
address  sovereign  risk.  Besides  improving  their 
internal  workout  capacity,  banks  benefited  from 
the prolongation in May 2019 of a state-guaranteed 
securitisation  scheme  for  another  24  months.  To 
shield their capital base from the impact of higher 
sovereign yields, banks have pursued a rebalancing 
of  part  of  their  sovereign  bond  portfolios  to  the 
held-to-collect  category.  Given  the  comparatively 
favourable  conditions,  the  pace  of  balance  sheet 
restructuring  should  be  kept,  in  particular  for  less 
significant  banks,  in  order  to  further  strengthen 
financial  stability  and  facilitate  the  provision  of 
credit to the economy.   

Overall assessment  

of 

services. 

contribution 

Italy’s  imbalances  are  not  expected  to  unwind 
in  the  near  term,  although  the  situation  in  the 
banking  sector  and  in  the  labour  market  has 
improved.  The  public  debt-to-GDP  ratio  rose  in 
2018 and is expected to further rise in the coming 
years due to low nominal GDP growth and lack of 
fiscal  consolidation.  The  new  social  schemes 
introduced  in  2019  will  further  weigh  on  public 
finances  in  2020,  and  the  pension  provisions  will 
worsen  the  public  spending  bias  towards  old-age 
pensions.  On  the  other  hand,  progress  has  been 
made  in  fighting  tax  evasion  and  corruption. 
Productivity  remains  subdued,  mainly  due  to  the 
negative 
Public 
investment  increased  from  a  very  low  level,  but 
more  efforts  are  needed  to  raise  administrative 
capacity.  Investment  is  still  hampered  by  an 
unstable  policy  setting.  The  unemployment  rate 
continued  to  fall  but  remains  high.  Measures  to 
increase  labour  market  participation,  in  particular 
of women, are not yet complete but go in the right 
direction.  The  situation  of  banks  has  considerably 
improved,  with  a  further  reduction  of  NPLs. 
However, 
the  stock  of  NPLs  remains  high, 
especially  for  small  and  medium  banks,  while 
firms’ limited recourse to non-bank finance leaves 
them  vulnerable  to  banking  shocks.  Overall,  a 
sustained 
the 
reduction  of  public  debt,  with  an  improvement  of 
its 
adequate 
(notably 
investment)  and  structural  reforms  is  crucial  to 

reform  agenda  accompanying 

composition 

towards 

22 

 
3. Overall findings regarding imbalances, risks and adjustment issues 

support  a  virtuous  cycle  for  the  unwinding  of 
imbalances.  

Box 3.1: Public investment and potential spillovers – The case of Italy 

Following  the  2019  Country  specific  recommendations  on  investment-related  economic  policy  the 
European Commission QUEST (1) model is applied to simulate the domestic and cross border impact 
of an investment stimulus of 1% of GDP sustained over 10 years. Public investment in Italy as a share of 
GDP  has  been  almost  continuously  shrinking  since  2010,  implying  a  substantial  investment  gap  (European 
Commission, 2018a). A sustained reversal of the previous declining trend is expected to support growth and 
imply  positive  spillovers  on  neighboring  countries.  The  simulation  assumes  that  additional  investment  is 
financed  in  a  budgetary-neutral  way,  in  this  case  through  an  increase  in  consumption  taxes.  The  output 
elasticity with respect to the public capital stock for the central scenario is assumed to be 0.12, which roughly 
corresponds  to  the  median  estimate  in  the  empirical  literature.  Two  additional  scenarios  are  considered, 
applying  a  higher  (0.17)  and  lower  output  elasticity  (0.07),  thus  reflecting  a  high-efficiency  and  a  low-
efficiency scenario (in ‘t Veld, 2016). Monetary policy is assumed to retain its accommodative stance at the 
zero lower bound (ZLB) for the first two years and gradually normalize afterwards. 

A sustained public investment stimulus would create sizeable output effects in Italy and positive cross-
border  spillovers.  Compared  with  a  rise  in  public  consumption  or  lower  tax  rates  public  investment 
spending tends to have a higher output multiplier. The output effect of the increase in public investment is 
sizeable, due to the longer-term impact of public investment on growth and the capital stock (Table 1). The 
fact that the additional investment is financed via a rise in consumption taxes weighs on private consumption 
and dampens the overall output effect. By contrast, the debt-to-GDP ratio declines throughout the simulation 
period  due  to  the  positive  growth  effect  and  the  external  position  improves.  A  lower  real  interest  rate 
(inflation in the euro area increases while nominal interest rates remain constant) and higher demand from 
Italy lead to positive spillovers to the rest of the euro area. At the ZLB, the ECB does not react to higher 
euro area wide inflation with an increase of the nominal interest rate. This implies that the real interest rate 
falls, inducing a rise in private demand. 

Table 3.1a:Spillover effects of Italy implementing an investment programme over 10 years - Central scenario 

Note: Results in % or pps (trade balance and gross debt) from the baseline. 
Source: European Commission. 

The efficiency of public investment has a significant bearing on output effects.  Compared to the central 
scenario,  output  effects  differ  widely,  especially  after  the  initial  years  of  the  investment  stimulus.  While 
additional  public  investment  increases  domestic  real  GDP  by  0.6%  by  2029  in  the  low-efficiency  scenario 
compared to the baseline, real  GDP is 1.7% higher in the high-efficiency scenario. This confirms  the view 
that alongside the quantity of the public capital stock the quality of public infrastructure and the way in which 
a public investment programme is implemented is equally important (Busetti et al., 2019).  
____________________ 
(1)  For 

model 
http://ec.europa.eu/economy_finance/research/macroeconomic_models_en.htm. 

applications, 

information 

QUEST 

detailed 

see: 

and 

the 

on 

23 

2020202120222023202420252026202720282029ItalyReal GDP0.40.30.30.40.60.70.81.01.11.2Employment0.20.10.0-0.1-0.10.00.00.00.0-0.1General government gross debt (% GDP)-0.5-0.6-0.8-0.9-1.1-1.4-1.7-2.1-2.5-2.9Trade balance (% GDP)0.10.00.10.20.30.30.30.30.30.3Rest of euro areaReal GDP0.10.10.10.10.10.10.10.10.10.1 
 
 
 
  
 
 
 
3. Overall findings regarding imbalances, risks and adjustment issues 

Table 3.1: 

MIP Assessment Matrix 

(Continued on the next page) 

24 

 Gravity of the challenge Evolution and prospects Policy response Productivity and competitiveness Aggregate productivity growth has been dismal in last decades; total factor productivity (TFP) is some 5% below its 2000 level. Weak productivity growth constrains competitiveness, wage rises and potential growth which, together with a shrinking working population, hampers public debt ratio dynamics. Low investment, especially public (2.1% of GDP in 2018) and in innovation, a weak public sector, a non-supportive business environment, capital misallocation and a lack of high-skilled people contribute to weak productivity growth. Labour productivity declined in 2018 (-0.3%) and is expected to remain subdued in 2019-2021, while TFP grew by +0.3%.  Productivity growth is especially dismal in services and in some Southern regions.  Private, and only more recently public, investment increased, but they are still below their pre-crisis level. After years of contained growth, ULC increased moderately in 2018 but it estimated to have moderated somewhat in 2019 and forecast to remain below the euro area this year and next. The trade balance surplus is forecast to remain close to 3% of GDP until 2021. Public schemes supporting innovative investment had generally a positive effect, but remain temporary and still lack and in-depth assessment of their efficiency. Some reforms go in the direction of increasing the efficiency of the public administration and supporting the business environment, while others are still pending or missing, notably in competition and justice. Effective investments are needed to strengthen administrative capacity, human capital and innovation, as well as to reduce regional disparities. Public debt Italy’s public debt ratio-to-GDP stood at 134.8% in 2018. It represents a major vulnerability for the Italian economy, as well as a potential source of negative spillovers to the euro area. The high debt servicing costs crowd out productive public expenditure and reduce the fiscal space to respond to economic shocks. The high rollover needs expose Italy to sudden increases in financial market risk aversion. The significant exposure of domestic banks to public debt implies the risk of negative spillovers to the banking sector and ultimately to financing conditions for firms and households. The debt-to-GDP ratio is expected to have increased to 136.2% in 2019 and forecast to further rise in the coming years, reaching 137.4% in 2021. Sovereign yields increased significantly between May 2018 and July 2019, also due to uncertainties around the government fiscal policy. Although they recorded an historical low in September 2019, they remain particularly sensitive to financial market risk perceptions.  Fiscal sustainability risks are high both in the medium and the long term, based on the Commission debt sustainability analysis. Only a small fiscal consolidation effort was made in 2019 while a fiscal expansion is expected in 2020 and 2021, based on the Commission 2019 autumn forecast. Reducing uncertainty on fiscal plans for 2020 contributed to increase investors’ confidence and reduce sovereign yields. Additional measures have been taken to fight tax evasion. Despite ambitious targets, there were no privatisation proceeds over 2017-2019. The new social schemes introduced in 2019 substantially increased government spending, with additional costs from 2020. The new pension provisions will also increase the public spending bias towards old-age pensions and risk hampering potential growth.  Labour market participation and unemployment The unemployment rate doubled during the crisis, and the long-term unemployment rate steadily increased over the period for all age groups. The risk of labour market exclusion is particularly high for youngsters: the youth unemployment rate and the share of young people not in employment, education or training (NEET) are among the highest in the EU. The participation rate, particularly of women, is still very low despite recent increases. The unemployment rate averaged 10.6 % in 2018 down from 12.7 % at the end of 2014 and is expected to have fallen  below 10 % by the end of 2019. In 2020-2021, weak economic activity is likely to dampen jobs growth substantially, implying a stable unemployment rate  about 10 %. Long-term and youth unemployment are slowly declining and the participation rate is increasing moderately. The reform of active labour market policies and the strengthening of work-based learning could help to improve labour market matching and support the transition from education to work in the medium term. However, implementation is proving challenging.  Measures to foster labour market participation are limited.  
 
 
  
 
3. Overall findings regarding imbalances, risks and adjustment issues 

Table (continued) 

(*) The first column summarises “gravity” issues, which aim at providing an order of magnitude of the level of imbalances. The 
second column reports findings concerning the “evolution and prospects” of imbalances. The third column reports recent 
and planned relevant measures. Findings are reported for each source of imbalance and adjustment issue. The final three 
paragraphs of the matrix summarise the overall challenges. In terms of their gravity, developments and prospects, policy 
response 
Source: European Commission 

25 

Banks’ asset quality The gross non-performing loans (NPL) ratio came at still 8.1% in June 2019. The gross NPL ratio has more than halved since the peak level in Q-3 2015. However, and despite the substantial progress made, the legacy stock of bad loans (sofferenze) and of unlikely-to-pay exposures still remains high compared to EU peers and in particular for some of the less significant institutions. Bank credit to non-financial firms, especially smaller and innovative ones, is still subdued and limiting investment growth. Besides existing structural vulnerabilities (in particular the slow judicial system), the current economic downturn could slow down the pace of reduction of NPLs going forward. Second-tier banks are also more challenged in resolving their NPLs. The NPL disposal has been facilitated by the development of the secondary market for impaired assets besides public support for NPL disposal such as State-guaranteed securitisations. The bad loan securitisation scheme (GACS) was extended in May 2019 for another 24 months, which is expected to help banks to further decrease their stock of NPL. Conclusions from the IDR analysis • The public debt-to-GDP ratio remains very high, exposing public finances to changes in financial market risk aversion. Productivity growth has been weak for long, which has dampened potential GDP growth and the room for deleveraging. Unemployment, especially long-term, is still comparatively high even if it has declined somewhat. Banks' balance sheet repair has further progressed but the non-performing loans (NPL) ratio is still high. • The government debt ratio is expected to further increase in 2020 and 2021 amid weak nominal GDP growth and a worsening primary balance. Productivity dynamics are weak, especially in services, and not closing the gap with the EU. The unemployment rate is forecast to stabilise around 10% this year and next. Despite the decline in the legacy NPL stock, vulnerabilities remain, in particular related to banks' exposure to the sovereign and to the state of medium and small banks.  • Overall, a clearer and more sustained reform agenda would crucial for supporting a virtuous cycle in the unwinding of Italy’s macroeconomic imbalances. Some policy measures, such as those on fighting tax evasion, boosting public investment and supporting childcare, go in the right direction, the implementation of reforms in some other areas, for instance ALMP, has been slow. Policies to boost productivity and innovation are continued but remain temporary and fragmented. In addition, the main measures introduced by the 2019 budget will further weigh on Italy’s public finances in 2020.    
 
 
  
 
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION 

4.1.1.  PUBLIC DEBT, DEBT SUSTAINABILITY 
ANALYSIS AND FISCAL RISKS 

Weak  nominal  GDP  growth  and  a  worsening 
primary  balance  are  expected  to  cause  an 
increase  in  the  government  debt-to-GDP  ratio.  
Based on the Commission 2019 Autumn Forecast, 
the  government  debt-to-GDP  ratio  is  expected  to 
have  increased  in  2019  by  1.4  percentage  points. 
The  real  implicit  cost  of  debt  is  set  to  have 
marginally  increased  due  to  an  upward  level  shift 
in  sovereign  yields  observed  between  May  2018 
and  July  2019,  while  real  GDP  growth  has 
declined  to  close  to  zero.  The  positive  and 
widening  difference  between  the  two  indicators 
leads  to  a  large  and  debt-increasing  “snow-ball” 
effect.  Furthermore,  a  lower  GDP  deflator  is 
expected  in  2019  and  the  government  primary 
balance is projected to have declined as a share of 
GDP by 0.2 percentage points. In 2020 and 2021, 
the  “snow-ball”  effect,  although  still  debt-
increasing, is set to progressively shrink, thanks to 
recovering  real  GDP  growth  and  a  declining  real 
implicit  cost  of  debt.  The  GDP  deflator  is  also 
projected to slightly recover. However, the primary 
balance is expected to decline more markedly as a 
share of GDP, by 0.3 and 0.6 percentage points in 
2020  and  2021  respectively.  Overall,  Italy’s  debt-
to-GDP  ratio  is  projected  to  increase  by  0.6 
percentage points in both 2020 and 2021.  

Government  sovereign  yields  have  declined 
substantially  compared  to  the  end  of  2018  but 
remain sensitive to sudden increases in financial 
market  risk  aversion.  The  large  size  of  Italy’s 
public  debt  makes  investors  very  sensitive  to 
perceived  risks,  including  the  government’s  fiscal 
policy and its stance towards European fiscal rules. 
After  substantially  increasing  in  May  2018  (from 
around  130  to  290  bps),  the  10-year  sovereign 
spread versus German bonds peaked at 320 bps in 
October 
the 
Italy’s  2019  budget,  before 
discussions  on 
declining in January 2019 after the amendments to 
the  budget  law.  Similarly,  the  spread  widened 
again  in  May  2019  during  the  discussions  on 
Italy’s  stability  programme,  before  declining  in 
July thanks to the mid-year budget. Also in light of 
the  fiscal  policy  announced  by  the  incoming 

and  November  2018  during 

government,  by  September  2019, 
the  spread 
returned to early 2018 levels and the yields on 10-
year government bonds recorded an historical low 
level (0.8%), before increasing to around 1.0% by 
January 2020. 

Graph 4.1.1:  Drivers of the "snowball” effect on public debt 

Source: European Commission 

Graph 4.1.2:  Italy's sovereign yields 

Source: Bloomberg 

The  share  of  government  securities  held  by 
foreign investors is recovering from the drop in 
2018.  In  2018,  foreign  investors  divested  part  of 
their government securities, reducing their share of 
outstanding  securities  to  32.1%  from  35.6%  in 
2017.  However,  starting  from  January  2019,  their 
share  progressively  recovered,  reaching  35.1%  by 
October  2019.  Conversely,  Italian  banks  reduced 
their exposure only marginally (Section 4.2).  

26 

-4-3-2-10123456101112131415161718192021(Real implicit cost of debt - real GDP growth)Real implicit cost of debtReal GDP growthReal spot yield at issuance (weighted average)forecast% 
 
        
 
   
4.1. Public finances and taxation 

2020  budget  law  confirmed  the  new  pension 
measures  and  extended  to  2020  the  temporary 
early  retirement  schemes  for  women  and  for 
vulnerable workers (“APE sociale”). 

4.1.2.  FISCAL FRAMEWORK AND COMPOSITION 

OF PUBLIC EXPENDITURE 

Public  investment  and  social  expenditure  are 
expected  to  increase  over  the  coming  years. 
Together  with  the  recent  pension  provisions,  the 
new minimum income scheme will increase social 
transfers in cash over the coming  years.  Although 
the  time  needed  to  process  applications  to  the 
scheme  led  to  savings  in  2019  compared  to  the 
government’s initial cost estimates,  the  full yearly 
costs of 0.3% of GDP will materialise from 2020. 
Based  on 
the  government’s  estimates,  social 
transfers  other  than  pensions  will  increase  by  8% 
in  2019,  3.6%  in  2020  and  1.3%  in  2021.  Public 
investment 
to  progressively 
recover  as  a  share  of  GDP,  after  a  continuous 
decline  over  the  past  years  (see  Section  4.4). 
Interest  spending  is  set  to  continue  decreasing,  as 
past  government  securities  are  rolled  over  in  the 
current 
the 
upward  shift  in  Italy’s  sovereign  risk  premiums 
observed  from  May  2018  to  September  2019 
offsets part of the potential savings.  

low-rate  environment.  However, 

is  also  expected 

spending 

reviews  help 

it  also  highlighted 

Yearly 
reducing 
expenditure  growth,  but  improving  spending-
efficiency  needs  a  medium-term  approach.  The 
the  first  spending 
government  assessment  of 
review  conducted  under 
the  new  budgetary 
framework for budgetary year 2018 concluded that 
the  overall  target  of  saving  €1  billion  had  been 
reached.  However, 
that 
ministries  tended  to  reach  such  targets  by  cutting 
or  postponing  spending  programmes  and  only 
through  efficiency  gains.  Additional 
partially 
spending  reviews  have  been  carried  out  for 
budgetary years 2019 and 2020, but, as the saving 
targets  were  assigned  to  the  ministries  with  a 
the  quality  of  public 
delay, 
expenditure could be suboptimal. Furthermore, the 
spending 
central 
government,  while  no  equivalent  process  exists  at 
the  regional  or  local  level  despite  accounting  for 
around 30% of public expenditure. 

the  effects  on 

reviews  only 

affect 

the 

The  Commission’s  debt  sustainability  analysis 
points  to  high  risks  in  the  medium  and  long 
term.  The  indicator  for  short-term  developments 
(S0)  points  to  low  risks,  mainly  thanks  to  the 
financial-competitiveness indicators. However, the 
fiscal  component  of  the  short-term  indicator  is 
above  the  indicative  threshold  for  high  risk,  also 
due  to  the  high  public  debt  and  gross  financing 
needs.  In  fact,  in  the  short  term,  the  sizeable 
rollover  needs  related  to  Italy's  government  debt, 
around  20%  of  GDP  per  year,  expose  its  public 
finances  to  sudden  increases  in  financial  market 
the 
risk  aversion. 
Commission’s  indicator  (S1)  points  to  high  risks, 
as the high level of government debt would require 
a  substantial  fiscal effort to bring its ratio to 60% 
by  2034.  The  Commission’s  debt  sustainability 
analysis  confirms  this  finding  (see  Annex  B).  In 
the  long  term,  the  Commission’s  indicator  (S2), 
although improved compared to the 2019 Country 
report  (European  Commission,  2019a),  points  to 
medium risks, in light of the fiscal effort required 
to stabilise the debt-to-GDP ratio, also taking into 
account the cost of ageing. A more comprehensive 
debt  sustainability  analysis,  which  also  takes  into 
account the vulnerabilities related to the high level 
of debt, points to high risks. 

the  medium 

term, 

In 

in  2019  will 
implemented 
The  provisions 
further  increase  pension  expenditure  in  the 
coming  years.  The  2019  budget  and  a  following 
implementing  decree  broadened  possibilities  for 
early  retirement,  including  through  a  new  early 
retirement  scheme  (“Quota  100”).  The  scheme  is 
currently accessible until 2021, and allows retiring 
at  age  62  with  38  years  of  contributions.  Overall, 
the government estimates that pension expenditure, 
which is already among the highest in the EU as a 
share  of  GDP  (15.6%  in  2018),  will  further 
increase  as  a  consequence  of  the  reform  by  0.1% 
of GDP in 2019, 0.3% of GDP in 2020 and 0.4% 
(MEF,  2019a).  Updated 
of  GDP 
projections from the Economic Policy Committee - 
Ageing  Working  Group  suggest  that  the  reform 
will  cause  additional  costs  also  in  the  following 
years,  amounting  to  0.4%  of  GDP  in  2022  and 
gradually  declining  to  0.1%  of  GDP  per  year  by 
2028.  If  extended  beyond  their  trial  period,  the 
new  pension  measures  would  cause  even  higher 
debt 
and 
sustainability  in  the  medium  term.  Furthermore, 
these  measures  could  negatively  affect  labour 
supply and potential growth (see Section 4.3). The 

costs,  worsening 

longer-lasting 

in  2021 

27 

 
4.1. Public finances and taxation 

fewer  resources  for  the  other  regions  in  the 
medium term. The central government is currently 
envisaging  adopting  a  framework  law  before 
continuing  the  negotiations.  However,  the  draft 
law discussed with the regions in November 2019 
does  little  to  ensure  the  budget  neutrality  of  the 
reform,  including  with  respect  to  other  regions, 
to  grant 
and  does  not  set  common  criteria 
additional  autonomy.  Moreover,  any  additional 
regional autonomy should not be considered before 
having  set  the  standard  financing  of  regions,  as 
designed by the fiscal federalism reform. 

4.1.3.  TAXATION 

Italy’s  tax  structure  still  weighs  heavily  on 
labour. Revenues from all the main tax categories 
are  above  the  EU  average  as  a  share  of  GDP, 
resulting  in  a  high  tax-to-GDP  ratio  (41.8%  in 
2018,  EU  average  at  39.2%).  The  high  revenues 
from  indirect  taxes  are  driven  by  stamp  taxes  and 
the  regional  tax  on  productive  activities,  an  Italy-
specific tax which results in high yields from other 
taxes  on  production,  while  revenues  from  value-
added  tax  (VAT)  are  rather  low.  Taxes  on  labour 
are  particularly  high,  as  confirmed  by  revenues 
above the EU average as a share of GDP (21.0% in 
2018 against 19.6% in the EU), and by one of the 
highest  implicit  tax  rates  on  labour  in  the  EU  (at 
42.7% in 2018 against 36.2% in the  EU). The tax 
wedge  on  labour  is  among  the  highest  in  the  EU 
across  income  categories  (Graph  4.1.3).  For  low-
income earners, this is due to the relatively strong 
weight  of  social  security  contributions.  At  the 
same time, social security contributions are capped 
only at a  high income level,  ensuring an effective 
progressivity of the tax system.    

The  value-added  tax  is  underexploited  due  to 
the extended use of reduced rates. VAT revenues 
are  comparatively  low,  at  6.2%  of  GDP  in  2018 
against an EU average of 7.1%. This is due to the 
high  level  of  tax  evasion  (resulting  in  a  VAT 
compliance  gap  of  23.8%  in  2017,  far  above  the 
EU  arithmetic  average  of  11.2%)  and  to  the 
extended  use  of  reduced  rates  and  exemptions 
(reflected  in  high  rate  and  actionable  exemption 
gaps, at 12.8% and 8.4% in 2017 versus 9.6% and 
3.4%  in  the  EU,  respectively)  (CASE,  2019).  In 
fact, while the standard VAT rate (22%) is slightly 
above  the  EU  average  (21.5%),  a  comparatively 
large  basket  of  goods  and  services  is  taxed  at  the 

in  reporting  the 
Italy 
is  quite  advanced 
environmental  impact  of 
its  budget  (green 
budgeting). Since 2000, Italy has been publishing 
an  annex  to  its  budgetary  plans  which  details 
planned  expenditure  on  environmental  protection 
and  on  resource  management  (“ecobilancio”). 
Since 2010, a similar document (“ecorendiconto”) 
reports  the  budgetary  execution  of  the  same 
expenditure  items.  Furthermore,  Italy’s  budgetary 
documents  include  an  annex  reporting  on  recent 
trends  and  expected  progress  with  respect  to  12 
indicators  on  fair  and  sustainable  well-being. 
inequality, 
These 
gender balance and emissions of greenhouse gases. 
Additional  yearly 
the  Finance 
reports 
Minister  to  the  Parliament  consider  the  evolution 
of these indicators in the light of the latest Budget 
Law.  Finally,  the  Ministry  of  Environment  is 
mandated  to  publish  every  year  a  ‘Catalogue  of 
harmful 
the 
environment’  and   a  report  on  the  state  of  natural 
capital. 

include  poverty, 

favourable 

indicators 

subsidies 

from 

and 

to 

levels  of 

The  reform  of  fiscal  relations  between  the 
central, regional and local governments (“fiscal 
federalism”)  has  not  been  completed.  The 
reform,  launched  in  2009  (Law  42/2009),  aims  at 
allocating  resources  to  subnational  governments 
based  on  objective  criteria,  while  encouraging 
efficiency  in  public  spending.  Revenue-sharing 
systems  would  ensure  full  financing  of 
the 
“essential 
services”  provided  by 
subnational  governments,  based  on  “standard 
needs”.  Dedicated  funds  would  provide  partial 
financing  of 
to  which 
subnational authorities should also contribute with 
own 
through  greater  efficiency. 
However,  the  key  parameters  have  not  been 
defined  yet  for  metropolitan  cities,  provinces  and 
regional  functions  other  than  healthcare,  and  the 
completion  of  the  reform  has  been  systematically 
postponed and is currently planned for 2021.  

the  other  functions, 

taxes  and 

the  central  government 

In  their  current  form,  proposals  for  regional 
differentiated autonomy may have an impact on 
regional disparities. In 2017, three regions started 
negotiations  with 
to 
acquire  additional  competencies,  as  allowed  by 
Italy’s  Constitution  following  the  2001  reform. 
The  negotiations  led  to  two  subsequent  sets  of 
draft  agreements  in  2018  and  2019.  However,  the 
corresponding  financial  arrangements  might  have 
implied higher costs for the central government or 

28 

 
4.1. Public finances and taxation 

super  reduced  rate  (4-5%)  or  reduced  rate  (10%), 
although  such  reductions  do  not  always  appear 
justified  on  economic,  social  or  environmental 
grounds. This results in an effective tax rate among 
the lowest in the EU, at 10.2% (CASE, 2019). 

Graph 4.1.3:  Tax wedge across income levels 

There 
is  scope  to  increase  revenues  from 
recurrent  property  taxes  and  to  update  the 
corresponding  tax  base.  Recurrent  taxes  on 
properties used as main residence were dropped in 
2014,  leading  to  a  substantial  revenue-loss.  This 
exemption is not justified on efficiency grounds, as 
recurrent  property  taxes  are  a  more  growth-
friendly  source  of  revenue  compared  to  taxes  on 
labour.  Simulations  show  that  a  tax  shift  from 
labour 
to  property  would  provide  stronger 
incentives  to  work  with  a  positive  impact  on 
economic growth (Box 4.1.1). In order to ensure a 
fair 
should  be 
systematically  reviewed  and  updated.  Given  that 
the  last  evaluation  of  properties  for  tax  purposes 
occurred in the 1970s, cadastral values today bear 
little  link  to  their  market  values.  The  linear 
increase  of  cadastral  values  implemented  in  2012 
did not correct distortions, as values have evolved 
very differently since the last evaluation depending 
on  the  geographical  area,  the  building  typology 
and  degree  of  urbanisation.  Despite  creating  a 
digital  platform  with  necessary  information  to 
update  cadastral  values,  there  are  currently  no 
plans to reform the cadastral system. 

cadastral  values 

taxation, 

The  2020  budget  reduces  labour  taxes  and 
income  tax  expenditures.  The  2020  budget 
includes a fund to reduce the tax wedge on labour 
by around 0.2% of GDP in 2020 and 0.3% of GDP 
from  2021.  Based  on  decree-law  n.  3  from 
February  2020,  the  additional  resources  will  be 
used to increase the employees’ income tax credit 
introduced  in  2014  (MEF,  2020).  In  its  current 
form, the tax credit amounts to €80 per month for 
workers with a yearly income between €8,000 and 
24,600,  and  gradually  declines  reaching  zero  for 
incomes of €26,600 or more. Under the announced 
new  system,  the  bonus  will  increase  to  €100  per 
month  for  workers  with  yearly  income  between 
€8,000  and  28,000,  will  gradually  decline  to  €80 
per  month  for  workers  with  yearly  income  of 
€35,000 and then to zero for yearly incomes above 
€40,000. As for tax expenditures, the 2020 budget 
introduces a progressive  limit on personal income 
tax deductions above a specific income threshold. 

Source: OECD, European Commission 
Note: Figures refer to a single earner without children in 2018 

The  higher  income  tax  credit  provides  positive 
work incentives, but a comprehensive reform to 
shift  taxes  away  from  labour  is  still  needed. 
According  to  the  government,  the  reform  will 
increase  the  number  of  beneficiaries  of  the  tax 
credit from 11.7 million to about 16 million. Based 
on  an  EUROMOD  (20)  simulation,  the  reform 
would lower the median effective marginal tax rate 
from the current 75% to 39% for incomes between 
€24,600  and  €26,600.  However,  in  the  higher 
phase-out  income  range  (between  €35,000  and 
€40,000)  it  would  reach  63%,  14  pps  higher 
compared to the baseline (21). Based on the labour 
supply model described in Box 4.1.1, participation 
rates would rise by 2.3% for women and 0.9% for 
men, and total hours worked by 2.6% and 0.9% for 
women  and  men,  respectively.  The  simulation 
suggests  that  gains  in  disposable  income  would 
mainly affect households between the third and the 
ninth  income  decile,  with  no  impact  on  income 
inequality as measured by the Gini index.  

The  design  of  energy  taxes  in  Italy  does  not 
promote  the  transition  to  clean  technologies. 
Revenues  from  environmental  taxes  in  Italy  are 
above  the  EU  average  (3.3%  of  GDP  in  2018,  as 
against 2.4% in the EU), driven by taxes on energy 
(2.6%  of  GDP,  1.9%  in  the  EU).  However,  taxes 
and  levies  on  electricity  are  currently  higher  per 

(20)  For details on EUROMOD see Box 4.1.1. 
(21)  The median effective marginal tax rate is computed on the 
whole  population,  as  represented  in  EU-SILC.  For  more 
information on EU-SILC and EUROMOD see Box 4.1.1. 

29 

01020304050605060708090100110120130140150160170180190200% of total labour costearnings in % of average wageEU - income taxEU - employer SSCEU - employee SSCIT - income taxIT - employer SSCIT - employee SSC 
   
                                                           
4.1. Public finances and taxation 

unit  of  energy  compared  to  other  energy  carriers 
such  as  natural  gas  and  heating  oil.  Among  fossil 
fuels,  there  is  still  a  favourable  tax  treatment  of 
diesel compared to petrol. Overall, the government 
estimates  that  environmentally  harmful  subsidies 
amounted to €19.3 billion in 2017 (1.1% of GDP). 
The  2020  budget  progressively 
tax 
incentives on the most polluting company cars and 
on transport diesel for the most polluting vehicles.  

reduces 

Several measures have been taken to encourage 
tax  compliance.  Electronic  invoicing  and  the 
electronic  transmission  of  receipts  have  become 
compulsory  for  all  transactions  since  2019  and 
2020  respectively.  These  measures  will  improve 
the quality and timing of the information available 
to the tax administration, discouraging in particular 
omitted payments for declared income.  

tax 

This 

concerns 

reintroduces 

implemented. 

Corporate  taxation  continues  to  be  subject  to 
frequent  changes.  The  2020  budget  extends 
incentives  for  new  equipment 
temporary 
investment  until  2022  and 
the 
allowance for corporate equity (“ACE”). However, 
several other measures affecting corporate taxation 
have  been  adopted  but  then  withdrawn  before 
being 
the 
harmonisation  of  taxation  between  self-employed 
workers and small firms, for which first a specific 
tax  regime  and  then  a  flat-rate  regime  were  both 
planned  and  then  abrogated  before  entering  into 
force. Similarly, ACE was replaced in 2019 by two 
subsequent 
regimes  providing  structural 
incentives  to  investment,  which  were  abolished 
before  entering  into  force,  when  the  2020  budget 
re-introduced  ACE.  Half  of 
the  companies 
surveyed in 2017 considered the lack of stability of 
to 
the 
investment in Italy (Eurobarometer 2018). 

legislation  as  a  major  obstacle 

tax 

tax 

Tax  evasion  is  still  widespread  in  Italy.  In  its 
annual  report  (MEF,  2019b),  the  government 
estimates the total tax gap at €109.1 billion in 2016 
(9.4%  of  GDP),  with  relatively  small  fluctuations 
recorded  in  recent  years.  The  categories  most 
affected  are  income  taxes  paid  by  self-employed 
workers  and  corporations  (2%  of  GDP),  VAT 
(2.1%  of  GDP)  and  employer  social  security 
contributions  (0.5%  of  GDP).  Most  of  the  gap  is 
related to undeclared income  (83%  of the  average 
propensity to evade over 2012-2017), while only a 
small part concerns  mistakes or omitted payments 
for  declared  income  (17%).  The  share  of  value 
added  which  remained  undeclared  in  2016  is 
particularly  high  in  professional  services  (16.3%), 
retail,  wholesale,  transports,  warehouses,  hotels 
and restaurants (12.4%) and constructions (11.9%). 

The  2020  budget  pursues  the  fight  against  tax 
evasion,  including  by  encouraging  electronic 
payments.  The  2020  budget  includes  several 
measures  to  fight  omitted  declarations,  including  
encouraging 
traceable  means  of  payment, 
particularly important in light of the high share of 
cash  transactions  in  Italy.  A  fund  (0.2%  of  GDP 
from 2021) has been created to reward consumers 
who  pay  via  electronic  means.  However,  an 
efficient  use  of  resources  needs  incentives  to  be 
targeted at the sectors most exposed to tax evasion. 
Other  measures  encouraging  electronic  payments 
include  lower  limits  for  cash  payments (22),  a 
special 
for  consumers  paying  with 
electronic  means  and  the  possibility  to  deduct 
expenditures  from  personal  income  taxes  only  if 
they  have  been  paid  with  traceable  means.  The 
2020 budget also introduces disincentives to undue 
compensation of tax credits, shifts VAT and social 
from 
security 
subcontractors to the main contractors and several 
measures  against  excise  duties  and  VAT  fraud  in 
the fuel sector. Furthermore, Tax Agency staff was 
increased to be able to intensify tax audits. 

liabilities 

(“reverse 

charge”) 

lottery 

The  2020  budget  increases  taxes  on  gambling 
and  introduces  a  tax  on  digital  services.  After 
the increase implemented in 2019, the 2020 budget 
streamlines  and  further  raises  taxes  on  gambling, 
including by increasing the withholding tax on the 
winnings.  Control  mechanisms 
also 
strengthened  in  order  to  prevent  illegal  gambling 
and  tax  fraud.  While  taxes  on  gambling  provide 
positive  disincentives,  it  is  also  important  that 
additional  mechanisms  be  put  in  place  to  avoid 
addiction  and  compulsive  gambling.  The  2020 
budget  also  introduces  a  new  tax  on  beverages 
with a high content of added-sugar. 

are 

(22)  The limit will be reduced from €3,000 to €2,000 from July 

2020 and to €1,000 from January 2022. 

30 

 
                                                           
4.1. Public finances and taxation 

Box 4.1.1: EUROMOD-QUEST simulation - Shifting taxes from labour to property in Italy 

Reintroducing property taxes on owner-occupied properties could raise substantial revenues in Italy, 
even  if  low-value  properties  and  low-income  pensioners  were  exempted.  The  reintroduction  of  the 
property  tax  (IMU)  has  been  simulated  in  three  different  scenarios  using  EUROMOD  (1).  All  scenarios 
apply  the  rates  currently  used  for  non-exempted  owner-occupied  properties  (luxurious  properties).  In 
scenario  1  (SC1),  IMU  is  reintroduced  on  all  residential  properties;  in  scenario  2  (SC2),  properties  with 
annual  cadastral  income  below  €600(2)  are  exempted;  in  scenario  3  (SC3),  the  exemption  also  applies  to 
pensioners with a yearly taxable income below €24,600(3). The additional revenues would amount to €8.6 
billion (0.5% of GDP), 5.2 billion (0.3% of GDP) and 4.1 billion (0.2% of GDP), respectively.  

Using  the  additional  revenues  for  reducing  taxes  on  labour  would  improve  distributional  outcomes 
and  increase  incentives  to  work,  supporting  economic  growth.  The  share  of  house-owners  and  the 
average cadastral values are relatively high at the bottom of the income distribution and increase only mildly 
with  income  (Graph  1a).  Therefore,  although  reintroducing  taxes  on  all  residences  (SC1)  would  imply  a 
bigger  tax  increase  for  high-income  households  in  absolute  terms,  low-income  households  would  lose  a 
higher share of their disposable income, causing a small increase in income inequality. Exempting low-value 
properties  (SC2)  and  eventually  low-income  pensioners  (SC3)  would  almost  neutralise  this  effect  (4). 
Furthermore,  using  the  additional  fiscal  space  to  reduce  the  tax  burden  on  labour  could  produce  positive 
results. As an example, the additional revenue from scenario 2 is used to reduce social security contributions 
paid  by  employees  with  yearly  income  below  €24,600  (SC2.1).  Such  a  tax  shift  would  have  a  slightly 
positive distributional effect, with a marginal decrease in the Gini index by 0.05%. Furthermore, the labour 
force participation rate would rise by 1.6% and total hours worked by 2.3% for women and 0.8% for men on 
average, with stronger increases for low-income workers (Graph 1b) (5). Based on a QUEST analysis (see 
Box 3.1 on the model), 5 years after the tax shift real GDP would be higher by almost 0.1% compared to the 
baseline,  thanks  to  higher  employment  and  private  consumption.  Despite  a  decline  in  housing  investment 
due to the property tax increase, the effect on investment would be overall positive after 7 years (Graph 1c). 
Thanks  to  higher  revenues,  the  government  debt-to-GDP  ratio  would  be  0.3  percentage  points  lower 
compared  to  the  baseline  after  10  years.  After  10  years,  the  positive  impact  on  GDP  would  be  double 
without considering the statistical impact from lower imputed rents, which are recorded as part of GDP.  

Source: European Commission Joint Research Centre and DG ECFIN, based on EUROMOD / EU-SILC and QUEST.  

(1)  EUROMOD  is  the  tax-benefit  microsimulation  model  for  the  EU.  It  simulates  individuals’  and  households’  benefit 
entitlements and tax  liabilities according  to the  rules  in place  in  each Member  State, based  on  representative  survey 
data from the European Statistics on Income and Living Conditions (2017 Italian SILC, which refers to 2016 incomes, 
updated to 2019 through uprating factors). The baseline scenario uses tax-benefit policies as of 30 June 2019.  

(2)  The threshold broadly corresponds to the average cadastral value of residential properties in Italy. 
(3)  The  exemption  applies  to  households  exclusively  composed  of  pensioners.  The  threshold  is  doubled  for  pensioner 

couples, and corresponds to the income threshold above which the existing 80-euro bonus starts to phase out.  
(4)  The Gini index would increase compared to the baseline by 0.23% in SC1, 0.07% in SC2 and 0.05% in SC3.  
(5)  Labour  supply  effects  are  estimated  with  a  structural  discrete  choice  labour  supply  model,  based  on  Aaberge  et  al. 
(1995) and Van Soest (1995) and on a sample of wage-employed, unemployed or inactive households aged 20-60. 

31 

020406080100010020030040050060070080012345678910Income decilesAverage cadastral value (lhs)Share of house-owners (rhs)Share of house-owners, Cadastral value > 600 (rhs)EUR%Graph 1a: House values and ownership rates-5-3-113512345678910Income deciles%Graph 1b: Change in income & hours workedDisposable income (markers):Hours worked (columns):-0.5-0.4-0.3-0.2-0.10.00.10.20.3-0.5-0.4-0.3-0.2-0.10.00.10.20.312345678910Real GDPEmploymentConsumptionInvestmentImputed rentsGov. debt (rhs)%% GDPGraph 1c: Macroeconomic effectsYears from the reformDifference from baseline scenario 
  
 
4.2.  FINANCIAL SECTOR 

Recent banking sector developments  

Following  sustained  efforts  to  de-risk  balance 
sheets, asset quality has significantly improved. 
Banks  have  continued  cleaning  up  their  balance 
sheets  by  disposing  of  a  large  amount  of  NPLs 
(roughly €20 billion in the first 10 months of 2019, 
mostly  bad  loans)  through  outright  sales  and 
securitisations(23). The  further  development  of  the 
secondary NPL  market is also evident in terms of 
pricing,  especially  for  uncollateralised  positions. 
As a result, the stock of gross NPLs stood at €177 
billion in June 2019, 21% less than in June 2018, 
with  an  NPL  coverage  ratio  of  52.5%  (euro-area 
average:  47.7%).  Banks  have  also  continued 
strengthening  their  internal  workout  capacities, 
while  the  inflow  of  new  NPLs  stood  at  1.2%  at 
end-September 2019, below pre-crisis levels. 

Pockets of vulnerability remain, as asset quality 
improvements  are  not  homogeneous  among 
banks.  The  system-wide  gross  NPL  ratio  fell  to 
8.1% in June 2019, down from 10% a year earlier 
and  from  16.8%  at  the  peak  level  in  Q3-2015. 
However, the gross NPL ratio is still significantly 
above  the  euro  area  average  of  3.4%,  and  many 
banks still exhibit double-digit gross NPL ratios, in 
particular  second-tier  banks  and  less  significant 
institutions, which had gross NPL ratios of 10.3% 
in June 2019. While past market volatility did not 
have a significant negative impact on NPL outright 
sales,  including  on  pricing,  downside  risks  for 
disposal  of  NPLs  remain,  given  the  weakening 
economic  cycle.  Furthermore,  the  potential  re-
emergence  of  heightened  market  volatility  could 
make the use of the Guarantee on Securitisation of 
Bank  NPLs  scheme  less  attractive  for  credit 
institutions due to higher fees on State guarantees. 

The  resolution  of  unlikely-to-pay  loans  has 
gradually gained momentum in recent years. So 
far,  most of the decrease in the  legacy  NPL stock 
has been due to disposals of bad loans (sofferenze). 
The  more  complex  unlikely-to-pay  (UTP)  asset 
class requires restructuring of the underlying asset, 
which  may  entail,  among  other  things,  granting 
operating  and  financial  support  to  borrowers 
during  the  turnaround.  Due  to  the  significant 
volume  of  UTPs  in  bank  balance  sheets  (some 
43%  of  the  total  NPL  stock  in  June  2019),  the 

(23)  The  Guarantee  on  Securitization  of  Bank  Non  Performing 
Loans  (GACS)  was  extended  in May  2019  for  another 24 
months.  

in 

terms  of 

secondary market for distressed debt has margin to 
further  develop 
transactions, 
specialised  asset  servicing  companies  and  IT 
platforms.  The  fact  that  the  divestments  (€5 
billion)  and  special  servicing  of  UTP 
loans 
recorded an upward trend in 2018, is encouraging. 
Yet  banks  would  need  to  reinforce  their  internal 
workout capacities for UTP loans. 

The  decline  in  sovereign  spreads  has  taken 
pressure off Italian banks’ capital and funding. 
Lower  sovereign  yields  since  November  2018, 
coupled  with  measures  to  mitigate  the  impact  of 
sovereign spread volatility,  have enabled banks to 
their  capital  buffers. 
contain 
the  erosion  of 
However,  Italian  banks  continue 
to  hold  a 
significant  amount  of  government  bonds.  The 
recovery  in  government  bond  prices  has  allowed 
banks  to  reverse  the  trend  observed  since  mid-
2018.  Meanwhile,  banks  slightly  reduced  their 
holdings  of  Italian  government  securities  to  €334 
billion  (9.7%  of  total  assets)  in  September  2019 
compared  to  April.  However,  this  share  exceeds 
markedly  the  euro-area  average  (3.2%),  with 
smaller  banks  often  being  more  exposed  than 
larger ones.  

Banks  have  taken  measures  to  reduce  the 
sensitivity  of  their  capital  to  changes  in  the 
value  of  domestic  sovereign  bonds.  To  shield 
their capital buffers, credit institutions have largely 
rebalanced 
their  portfolios  of  government 
securities  towards  the  held-to-collect  category 
(valued at amortised cost),  which reached 62% of 
total holdings at the end of September 2019. Still, 
the Bank of Italy estimates that an upward shift in 
the government yield curve (by 100 basis points as 
of the June 2019 level) would reduce the common 
equity  Tier  1  (CET1)  ratio  of  banks  (both 
significant  and  less  significant)  on  average  by  30 
basis  points.  After  an  erosion  in  the  first  half  of 
2018, Italian banks’ capital buffers recovered as of 
the  first  half  of  2019,  with  the  average  CET1 
standing at 13.5%, up by 70 basis points relative to 
Q2-2018 but still some way off the 14.8% average 
CET1 ratio of euro-area peers. 

Renewed  market  volatility  could  affect  banks’ 
cost  of  funding  and  credit  provision  to  the 
economy. Beyond capital losses, this impact could 
materialise through higher funding costs, impaired 
market  access,  and  lower  collateral  valuation  or 
credit  ratings.  Moreover,  the  impact  of  higher 

32 

 
 
                                                           
4.2. Financial sector 

banks’ retail bonds  fell  from  €422 billion in 2011 
to €87 billion in 2018.  

In the  medium-term, Italy’s banks will need to 
be  more  active  in  issuing  bail-in-able  debt. 
Further  efforts  are  needed  to  meet  the  minimum 
requirement  for  own  funds  and  eligible  liabilities, 
including  through  the  issuance  of  subordinated 
liabilities.  Although 
past 
heightened  market  volatility,  some  banks  started 
issuing  senior  non-preferred  notes  in  2018-2019, 
but most have so far issued senior preferred debt or 
outright  Tier 2  capital  instruments.  Despite  the 
amount of debt securities issued under UK  law in 
their portfolios, banks appear to face a manageable 
impact from Brexit. 

constrained 

by 

Recent  developments  regarding  some  State-
aided  banks  warrant  oversight.  After 
the 
completion  of  a  large  NPL  securitisation  in  2018, 
Banca Monte dei Paschi di Siena has continued to 
implement its restructuring plan as required under 
State aid rules and commitments. Its NPL ratio fell 
to 12.4% in Q4-2019, on the  back of disposals of 
€4.9  billion  of  NPL  since  the  end  of  2018. 
However,  its  NPL  ratio  is  higher  than  that  of 
domestic peers, while the Tier 2 bond issuances at 
yields of 10.5% and later 8% show that the bank is 
still  exposed  to  a  significant,  albeit  diminishing 
funding cost, particularly at times of market stress. 
The  group  further  reduced  its  staff  costs,  but 
recorded  negative  results  at  the  end  of  2019, 
mainly due to the impact of the revised amount of 
deferred tax assets. Although TLTRO-III will play 
a significant role in  facilitating the rollover of the 
TLTRO-II 
government 
guaranteed  bonds  maturing  in  2020,  the  evolution 
of  the  bank’s  funding  costs  will  require  close 
monitoring.  

financing 

and 

of 

The compensation scheme for shareholders and 
retail  bondholders  of  gone-concern  banks  is 
operational.  The  2019  budget  set  up  a  new  mis-
selling  compensation  fund  for  bank  shareholders 
and subordinated bondholders with retail client and 
individual  entrepreneur  profiles,  who  suffered 
losses  during 
the  compulsory  administrative 
liquidations of banks between 16 November 2015 
and  end-2017.  The  provisions  on  the  access  to 
savers’  compensation  were  detailed  in  the  2019 
Decreto  Crescita  and  in  its  implementing  decree. 
As  a  rule,  compensation  is  granted  following  the 
decision  of  an  independent  technical  commission, 

sovereign spreads on banks’ funding cost tends to 
be  passed  on  to  households  through  a  rise  in  the 
pricing of new loans. Heightened market volatility 
throughout  2018  resulted  in  a  30  basis  points  rise 
in  the  margin  on  fixed-rate  mortgage  loans  from 
September 2018 to January 2019, with the cost gap 
between  them  and  variable-rate  loans  also  going 
up  by  10  basis  points  over  the  same  period.  By 
contrast,  this  transmission  mechanism  has  been 
less pronounced for the new loans granted to firms, 
due to the increased competition among banks.  

Improving  profitability  in  a  low  interest  rate 
environment  remains  challenging.  Profitability 
in the first half of 2019 was up year-on-year, with 
an  annualised  return-on-equity  of  8.3%,  mostly 
supported by lower provisions and operating costs 
for loan loss. Moreover,in the first half of 2019 the 
contribution of net fees and commission income to 
banks’  total  income  was  well  above  the  euro  area 
average  (37.2%  and  30.1%).  Despite  cost-cutting 
efforts and the observed improvement in Q2-2019, 
some  banks  are  still  struggling  with  high  cost-to-
income  ratios.  Therefore,  they  need  to  make 
further progress downsizing their branch networks 
and  headcount,  while  maintaining  the  above-
average  contribution  of  net  fees  and  commissions 
to total income.  

liquidity  position 

The  liquidity  position  of  banks  has  remained 
adequate,  supported  by  significant  Eurosystem 
financing.  The  system-wide  liquidity  coverage 
ratio  reached  176.5%  in  September  2019,  up  by 
20.5 pps from end-June 2018. In June 2019, the net 
stable  funding  ratio  averaged  114%  for 
the 
significant  banks,  with  none  below  the  minimum 
100%  requirement.  This 
is 
largely  supported  by  the  Eurosystem  financing, 
which amounted to €220 billion in December 2019 
(corresponding  to  7.17%  of  total  bank  liabilities 
and 35.3% of  total Eurosystem  financing for euro 
area  banks).  The  high  reliance  on  Eurosystem 
financing,  mainly  through  the  previous  round  of 
targeted 
operations 
(TLTRO-II),  emphasises  the  role  played  by  the 
financing. 
to  replace  outstanding 
TLTRO-III 
Nevertheless,  due  to  the  large  debt  rollover  needs 
in 2020, some banks are still exposed to a hike in 
funding costs. For instance, households are holding 
some  €  27  billion  in  bonds  maturing  in  2020. 
Households  gradually  substituted 
their  bond 
holdings  with  current  account  deposits,  so  that 

refinancing 

long-term 

33 

 
4.2. Financial sector 

reform of small mutual banks. Following several 
delays, the full implementation of the 2015 reform 
of  large  cooperative  banks  (banche  popolari)  was 
suspended  again  in  late  2018,  when  the  Italian 
State Council referred this reform to the European 
Court  of  Justice.  Further  consolidation  of  these 
banks  would  allow  them  to  reap  benefits  from 
operational  synergies  and  better  market  access. 
Furthermore,  at  the  end  of  2018  the  Italian 
Parliament  modified  the  2016  reform  of  small 
mutual banks (BCCs) by allowing the BCCs in the 
Bolzano  and  Trento  provinces  (Raiffeisen  banks) 
to  participate  in  institutional  protection  schemes. 
The  BCCs  reform  thus  led  to  the  emergence  of 
only 
two  cooperative  groups  with  national 
coverage,  ICCREA  and  Cassa  Centrale  Banca, 
subject  to  a  comprehensive  assessment  by  the 
Single Supervisory Mechanism in spring 2020.  

(Codice 

d'impresa 

In  early  2019,  the  government  finalised  the 
reform  of  the  insolvency  framework.  The  new 
provisions  included  in  the  Crisis  and  Insolvency 
Code 
e 
della  Crisi 
dell'insolvenza)  will  enter  into  force  in  August 
2020.  The  provisions  promote  out-of-court 
agreements  between  debtors  and  creditors, 
simplified  bankruptcy  procedures  and  a  pre-
emptive  mechanism  for  corporate  insolvencies.  A 
timely  implementation  of  the  Code  is  key  to 
accelerate  the  slow  foreclosure  and  collateral 
enforcement  procedures.  Previous  measures  to 
accelerate  out-of-court  collateral  enforcement 
(Patto Marciano) have not been significantly  used 
so far. 

Insurance sector developments 

insurers  remain 

largely 
Similar  to  banks, 
exposed  to  sovereign  spread  movements.  As  of 
September 2019, public sector securities accounted 
for 52% of the total investment of insurers in Italy 
(European  average  below  30%).  According  to  the 
Bank of Italy, a parallel upward shift of 100 basis 
points  in  the  overall  bond  yield  curve  would 
reduce  on  average  the  value  of  assets  net  of 
liabilities  by  20%. Valuation  adjustments  on 
government  securities in the life business also led 
to  volatility  in  terms  of  return-on-equity  in  2018-
2019  (down  to  6.4%  from  9%  in  2018  and  up 
again  to  11%  in  June  2019).  Nonetheless,  the 
average  solvency  ratio  of  insurance  undertakings 
stabilised  at  228%  in  September  2019,  while  the 

which  assesses  compensation  requests  submitted 
by the mis-sold shareholders and bondholders. 

Balance  sheet  repair  remains  a  priority  for 
second-tier  banks.  These  banks  have  continued 
disposing  of  NPLs  through  outright  sales  and 
securitisations and have upgraded the management 
of impaired assets also due to supervisory pressure. 
Despite  progress  with  balance  sheet  de-risking, 
asset quality remains a concern for the second-tier 
banks,  which  still  have  NPL  ratios  above  the 
system average and need to further strengthen their 
capital  buffers  and  capacity  to  withstand  shocks. 
Their funding and liquidity has remained adequate, 
with TLTRO-III allowing them to replace the large 
contribution  of  TLTRO-II  without  pressures  on 
funding costs.  Compliance  with MREL targets,  in 
particular  the  issuance  of  subordinated  liabilities, 
may  put  pressure  on  bank’s  profitability,  which 
may  be  mitigated  to  a  large  extent  by  the  current 
ECB quantitative easing.  

Plans  to  recapitalise  Banca  Carige  and  Banca 
Popolare  di  Bari  (BPB)  are  underway.  Carige 
was placed under temporary administration by the 
ECB in January 2019, following the shareholders’ 
rejection  of  an  initial  capital-raising  plan  in 
December 2018. Eventually, a new private capital-
plan  was  approved  by  shareholders  in  September 
2019. The plan foresees the disposal of the bank’s 
NPLs and a €700 million capital increase, coupled 
with  the  issuance  of  €200  million  of  Tier  2 
subordinated  bonds,  with  the  participation  of  the 
Interbank  Deposit  Protection  Fund  (FITD)  and 
Cassa Centrale Banca. The capital position of BPB 
markedly  deteriorated  in  December  2019  and  the 
bank  was  placed  under  special  administration  by 
Bank of Italy. The government approved a decree 
law  to  grant  a  capital  increase  to  the  state-owned 
lender Mediocredito Centrale. This capital increase 
may  be  used  to  finance  an  investment  at  market 
terms in BPB, which needs a capital increase of up 
to €1.4 billion. FITD committed to contribute up to 
€700  million,  of  which  €310  million  were 
approved as early intervention.  As part of its  new 
business  plan,  preceded  by  a  due  diligence  of 
assets  and  liabilities,  BPB  is  expected  to  proceed 
with NPL disposals and streamlining of operations. 

Corporate governance and insolvency reforms  

The  reform  of  the  large  cooperative  banks  has 
not  been  fully  implemented  yet,  unlike  the 

34 

 
4.2. Financial sector 

2018 EU-wide EIOPA (24) stress test indicated that 
the  main  insurance  groups  can  withstand  the 
impact of severe shocks. 

capital.  In  early  2020,  a  vehicle  (CDP  Venture 
Capital)  has  been  set  up  to  manage  this  National 
Fund for Innovation. 

Recent measures to support access to non-bank 
finance  are  gradually  kicking  in.  From  2012  to 
end-2018,  the  mini-bond  market  raised  €25.2 
billion (18% by SMEs). The volume in 2018 (€4.3 
billion) was lower than in 2017 (€6.6 billion), due 
to a drop in mean size, but not in number (27). The 
set-up  of  PIR  (individual  savings  plans  through 
collective  investment  schemes)  was  successful,  as 
over  half  of  the  assets  managed  by  PIR  funds  are 
invested  in  securities  issued  by  resident  NFCs 
(compared  to  2%  for  other  funds).  Although  a 
2019 reform slowed down new PIR subscriptions, 
a recent decree addressed the issues. 

the 

New measures to boost market-based financing 
are  in  place,  but  demand  is  still  weak.  The 
CONSOB  crowdfunding  regulation  was  expanded 
to  shares  issued  by  all  SMEs  and  asset  managers. 
The  2019  budget  extended 
scope  of 
crowdfunding to offers of bonds issued by SMEs. 
The reintroduction of  ACE  may also  help address 
corporate  undercapitalisation.  Moreover,  the  2019 
Decreto  Crescita 
di 
investimento  semplice’,  a  vehicle  company  that 
can  invest  in  unlisted  SMEs  at  an  early  stage.  A 
regulatory  sandbox  is  under  preparation  to  foster 
the development of the Fintech sector.  

introduced 

‘società 

Sustainable finance is growing, but there is still 
large  scope  for  development.  In  2018,  the 
National  Observatory  on  Sustainable  Finance  and 
the  Financial  Centre  for  Sustainability  were 
created.  Borsa 
Italiana  has  shown  growing 
commitment  to  sustainability  issues,  as  evidenced 
by  the  segment  on  its  ExtraMOT  PRO  market 
green and social bonds. In 2019, the Bank of Italy 
changed its investment portfolio strategy in favour 
of  firms  with  higher  social  and  environmental 
credentials, while the Green New Deal also aims to 
push Italy’s green finance sector. 

(27)  Politecnico di Milano, Osservatorio Mini-Bond (2019). 

Access to finance 

Despite  improvements,  bank  credit  remains 
subdued,  especially  for  SMEs,  and  the  capital 
market  underdeveloped.  The  rejection  rate  for 
bank  loan  applications  declined  from  9%  in  2009 
to 6% in 2019 (2 pps up from 2018), supported by 
lower  interest  rates  and  better  credit  conditions. 
However,  the  percentage  of  SMEs  not  receiving 
the  full  amount  requested  is  over  three  times 
higher (19%) and on the rise (25). As of June 2019, 
lending  to  households  rose  at  a  modest  pace 
to  non-
(+2.4%  year-on-year),  while 
financial  corporations  (NFCs),  especially  smaller 
ones  with  comparable  risk  levels  (Bank  of  Italy, 
2019a),  ground  to  a  halt  to  -0.7%  year-on-year. 
Meanwhile,  credit  demand  declined,  as  firms 
reduced  leverage,  while  boosting  their  equity  and 
self-financing capacity.  

lending 

The SME Guarantee Fund continues to support 
access  to  credit  and  opened  up  to  market 
finance.  In  2019,  SME  access  was  further 
simplified,  mainly  for  investments  in  tangible 
assets,  while  opening  up  to  transactions  via 
crowdfunding platforms and mini-bonds issuances. 
Furthermore,  the  EU's  COSME  Loan  Guarantee 
Facility is expected to provide the SME Guarantee 
Fund with additional counter-guarantees. 

The use  of initial public offerings showed signs 
of  recovery.  The  number  of  listed  companies  on 
the  alternative  investment  market  rose  in  2018, 
partly  due  to  government  initiatives  like  the 
introduction  of 
special  purpose  acquisition 
companies.  Raising  the  threshold  from  €5  to  €8 
million to be exempt from the obligation to publish 
a prospectus is likely to further boost initial public 
offerings.  

Measures to increase the use of venture capital 
are  still  pending.  Italy  ranks  below  the  EU 
average in venture capital investment as a share of 
GDP  (26).  In  early  2019,  the  government  created 
the National Fund for Innovation to boost venture 

(24)  European Insurance and Occupational Pensions Authority. 
(25)  Based on 2019 SAFE data. 
(26)  InvestEurope, 2018 European Private Equity Activity. 

35 

 
                                                           
                                                           
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

4.3.1.  LABOUR MARKET 

Graph 4.3.1:  Transition rates and share of temporary 

employment 

Despite the economic slowdown, labour market 
conditions  continued  to  improve  in  2019.  In 
2019,  employment  grew  for  the  sixth  consecutive 
year  and  the  employment  rate  reached  63.8%  in 
Q3-2019. This is the highest rate ever recorded but 
still  significantly  below  the  EU  average  (74.1%). 
Employment  growth  was  entirely  driven  by 
employees,  while  self-employment  continued  to 
decline. Gains were stronger in the services sector, 
driven by central and northern regions and by older 
cohorts.  However,  employment  expressed  in  full-
time  equivalents  is  still  below  (-3.5%)  its  level  in 
early  2008,  given  the  relatively  slow  pick-up  in 
hours  worked.  The  unemployment  rate  fell  below 
10% in 2019, but participation in the labour market 
remains  low.  Youth  unemployment  (ages  15-24) 
remains among the highest in the EU but continued 
to  fall  (28.3%)  in  Q3-2019,  down  from  31.9%  a 
year earlier). 

including  a 

Since mid-2018, job creation has been driven by 
permanent  contracts.  Overall,  since  the  second 
half  of  2018  the  number  of  permanent  jobs  has 
grown  much  faster  than  the  number  of  temporary 
jobs.  This  shift  has  been  supported  by  hiring 
incentives  for  permanent  positions  and  by  the 
“Decreto  Dignità”,  which,  since  November  2018, 
sets  more  stringent  conditions  for  fixed-term 
employment, 
reduced  maximum 
duration  of  temporary  contracts.  The  associated 
rising  number  of  contract  transformations  into 
permanent positions might also be due to the large 
number of fixed-term contracts concluded in 2017 
and 2018. Since the beginning of 2019, the number 
of permanent employees has risen by 1.1%, while 
the  number  of  temporary  positions  has  grown  by 
0.6%.  Over  the  medium  term,  the  share  of 
temporary  employees  rose  from  13.1%  of  total 
employees  in  2013  to  17.1%  in  2018.  Over  the 
same period, the probability of a transition from a 
temporary  to  a  permanent  contract  has  declined 
(Graph 4.3.1).  Moreover,  contract  duration  has 
been  steadily  declining  and  almost  half  of 
temporary employees have a  contract shorter than 
6 months. 

Source: Eurostat. 

Broader indicators of labour market slack point 
to  persisting  challenges.  In  2018,  the  stock  of 
part-timers remained broadly stable (18.6% of total 
employment),  but  the  share  of  involuntary  part-
timers increased. The increase in involuntary part-
time  and 
temporary  employment  has  been 
particularly  marked  in  the  South  (Fellini  and 
Reyneri,  2019).  In  2018,  in  addition  to  the  2.7 
million  unemployed,  close  to  3  million  of  the 
labour  force  were  partially  attached  to  the  labour 
market  (a  measure  including  discouraged  workers 
and  people  looking  for  a  job  but  not  available). 
Underemployed  part-timers  amounted  to  668,000, 
leading to a total slack of 6.4 million. As a result, 
in 2018, this broad measure of labour market slack 
stood  at  22.3%  of  the  labour  force  (13.7%  in  the 
EU).  Since  2013,  total  slack  fell  at  a  slower  pace 
than unemployment. In particular, the incidence of 
those  “partially  attached  to  the  labour  market” 
(mostly  discouraged  workers)  on  the  extended 
labour  force,  at  10.4%  in  2018,  is  among  the 
highest in the EU. Women, young and low-skilled 
people  are  more  likely  to  belong  to  this  category. 
Italy  is  also  characterised  by  the  highest  regional 
dispersion  in  the  EU  for  the  broadest  indicator  of 
slack  (LS4).  The  composition  of  slack  also  varies 
across  regions.  In  particular,  the  weight  of  the 
“partially attached” labour force is much higher in 
the South (Table 4.3.1). 

36 

02468101214161805101520253035400809101112131415161718PercentPercentTransition to permanent job, ITTransition to permanent job, EUShare of temporary contracts, IT (rhs)Share of temporary contracts, EU (rhs) 
 
   
4.3. Labour market, education and social policies 

rules 

Clear 

organisations. 

Social  Security  (INPS),  the  Labour  Inspectorate 
and  the  main  representatives  of  trade  unions  and 
employers  (CGIL,  CISL,  UIL  and  Confindustria) 
the  procedures  for 
signed  an  agreement  on 
collecting,  processing  and  publishing  data  on 
union  membership  and  elections.  This  is  a  step 
towards  the  implementation  of  past  framework 
agreements on measuring the representativeness of 
different 
on 
representativeness  are  also  a  precondition  for 
promoting bargaining at the firm or local level and 
avoiding  uncoordinated  decentralisation,  by, 
among  other  things,  limiting  the  proliferation  of 
contracts 
less  favourable  conditions 
compared  to  the  most  representative  national 
contracts. 
distributing 
“productivity  premiums”  to  workers  can  help 
better  align  wages  with  regional  and  firm-level 
conditions. However, they remain limited in scope 
(around  50,000  collective  contracts,  mainly 
in  Lombardy,  Emilia-Romagna, 
concentrated 
Veneto and Piedmont), despite fiscal incentives. 

Firm-level 

contracts 

that  set 

of 

the 

proposals 

submitted 

Several  proposals  to  introduce  a  statutory 
minimum  wage  have  been  made.  The  main 
features 
to 
Parliament(28) include the possibility to extend the 
wage floors agreed through collective contracts for 
all  workers,  the  possibility  to  apply  minimum 
wage floors to some categories of self-employed or 
the  setting  of  a  national  minimum  wage  in  the 
absence  of  a  collective  agreement.  Estimates  on 
the  impact  of  the  measure  vary  in  terms  of  costs 
for  employers,  reduction  of  in-work  poverty  and 
overall  impact  on  employment  and  they  crucially 
depend  on  the  exact  wage  level  and  the  wage-
setting  mechanism.  According to early  studies(29), 
a  gross  minimum  wage  set  at  €9  per  hour  would 
concern  more  than  20%  of  employees,  mainly  in 
small firms and in firms located in the South. 

The  gender  gap  in  the  employment  rate  is 
among  the  highest  in  the  EU.  The  gap  was 
19.8 pps.  in  2018,  unchanged  compared  to  2017. 
Women’s  participation 
labour  market 
(53.1%)  is  one  of  the  lowest  in  the  EU  and 
significantly  below  the  EU  average  (67.4%). 
Regional  differences  are  major.  Five  southern 

the 

in 

Table 4.3.1: 

Labour market slack LS4 (Nuts2) composition, 
2018 

Source: European Commission calculations based on 
Labour Force Survey micro data. 

Wages  continue  to  grow  at  a  very  moderate 
pace.  In  2019,  hourly  negotiated  wages  grew  on 
average  by  1.0%,  with  higher  increases  in  the 
public  sector  (+1.8%), 
in  particular  for  fire 
brigades,  the  army  and  security  forces.  In  the 
private  sector,  the  highest  wage  growth  was 
recorded  in  agriculture  (+1.8%),  mining  (1.6%),  
and  chemistry  and  pharmaceuticals  (+1.5%).  In 
2019, along with a slowdown in the pace of growth 
of  negotiated  wages,  the  share  of  employees  with 
negotiations  ongoing  on  the  renewal  of  national 
sectoral  collective  contracts  stood  at  46%.  The 
average length of wage contracts in Italy is 3 years, 
but  the  effective  duration  is  much  longer,  given 
substantial  delays  in  contract  renewals.  National 
contracts  for  which  renewal  negotiations  are  still 
pending  had  on  average  expired  for  20  months. 
Overall,  real  wage  growth  remains  close  to  zero, 
and  wages  in  real  terms  still  lag  well  below  pre-
crisis levels. 

The  recent  agreement  between  social  partners 
may  support  bargaining  at  the  firm  or  local 
level. In September 2019, the National Institute for 

(28)  See  resolutions  (Risoluzioni)  7-00012  (Rizzetto),  7-00215 
(Serracchiani), 7-00216 (Segneri) and 7-00234 (Murelli). 
(29)  For a more detailed assessment of the potential impact of a 
statutory  minimum  wage,  see  INAPP  (2019),  ISTAT 
(2019a) and INPS (2019). 

37 

« Partially attached »UnderemployedUnemployedIT46,910,442,8Abruzzo46,911,741,4Basilicata59,78,631,7Calabria53,55,540,9Campania54,65,340,1Emilia-Romagna36,919,144,0Friuli-Venezia Giulia39,216,444,4Lazio39,910,349,8Liguria33,618,248,2Lombardia37,918,343,8Marche40,112,047,9Molise54,26,139,7Piemonte32,815,951,3Prov_BZ40,015,144,9Prov_TN44,512,842,7Puglia54,26,439,3Sardegna47,311,241,5Sicilia57,54,837,7Toscana38,817,943,4Umbria35,714,649,8Valle d’Aosta35,012,652,4Veneto37,114,348,6 
 
   
                                                           
4.3. Labour market, education and social policies 

the 

specific  efforts  in  ALMP  are  needed  to  increase 
women’s  employment  as  part  of  a  comprehensive 
gender  equality  strategy.  The  national  agency’s 
(ANPAL)  coordination  role  for  ALMP,  which  is 
managed  by  the  regions,  continues  to  be  weaker 
than  originally  intended.  The  main  challenges  for 
better 
implementing 
the 
coordination, 
standardisation of services provided. As part of the 
new minimum income scheme up to €1 billion per 
year  has  been  budgeted  in  2019  and  2020  to 
strengthen  PES  and  implement  the  activation 
component  of  the  reform.  In  2019,  Italian  regions 
hired almost 3,000 new employees with fixed-term 
contracts for their PES. 

the  exchange  of  data  and 

remain 

reform 

to 

Investing in public employment services’ (PES) 
staff, including in training and upskilling, is key 
to improve service quality. Monitoring indicators 
and  minimum  standards  were  set  at  the  national 
level by decree in January 2018, but strengthening 
coordination  between  ANPAL  and  the  regions 
remains  a  major  challenge.  Significant  efforts  are 
needed 
reinforce  PES,  whose  placement 
capacity  remains  low:  the  resources  allocated  are 
still  insufficient,  while  monitoring  and  evaluation 
are  very  limited.  The  involvement  of  employers 
has also been marginal so far and the PES strategy 
for employers  has  not been adopted yet. The  PES 
network  can  now  count  on  a  newly  developed 
national  IT  system.  Following  the  2016  Council 
Recommendation on long-term unemployed, there 
information 
have  been 
provided  to  non-registered  people,  the  online 
registration  of  jobseekers  and  the  procedures 
related 
assessments. 
However,  case-management  and  the  provision  of 
individual  assessment  plans  would  benefit  from 
more training of PES employees. The development 
of a qualitative profiling tool,  as a  complement to 
the 
profiling 
methodology, is a promising step. Take-up rates of 
the  re-placement  voucher  experimental  scheme 
launched in May 2018 are still low, suggesting that 
further efforts are needed to  better reach potential 
beneficiaries.  

improvements 

individual 

statistical 

in-depth 

existing 

already 

the 

to 

in 

for 

opportunities 

unemployed, 
Training 
underemployed  and 
inactive  people  are 
particularly  low  in  Italy.  In  2018,  only  7.2%  of 
individuals  who  were 
unemployed, 
underemployed  or  inactive  received  a  training 
measure  in  the  4  weeks  before  an  interview 

either 

regions  (Basilicata,  Calabria,  Campania,  Apulia 
and Sicily) are among the 10 EU regions with the 
lowest female employment rates. The gap extends 
also  to  the  share  of  part-time  work  (32.4%  for 
women  against  7.9%  for  men).  Finally, 
the 
inactivity 
to  caring 
rate  of  women  due 
responsibilities  has  continued  to  grow  since  2010 
and remains above the EU average (35.7% against 
31.8%).  A  comprehensive  work-life  balance 
strategy, including access to services and provision 
of  benefits,  is  missing  (Section 4.4.3).  Such  a 
strategy  would  also  help  Italy  advancing  towards 
SDG 5 – gender equality.  

to 

up 

tackle 

efforts 

Stepping 
youth 
unemployment  remains  crucial.  The  rate  of 
young  people  not  in  employment,  education  or 
training (NEET) remains one of the  highest in the 
EU  (19.2%  in  2018  versus.  an  EU  average  of 
10.5%). NEETs registered in the Youth Guarantee 
(YG)  scheme  amount  to  more  than  1.5  million 
persons (42.1% of which in the South), and about 
1.2  million  have  been  taken  care  of  by  public 
employment  services  (PES).    Around  60%  of  the 
selected NEETs completed at least one of the  YG 
measures,  with  an  average  placement  rate  of 
54.9%.  Cases  with  a  more  difficult  profile  are 
more frequent in the South (63.9%, against 40.3% 
in  the  North).  While  apprenticeships  could  be 
further  developed, 
the  most 
implemented  measure.  Close  monitoring  could 
help  to  minimise  the  risk  of  misuses  as  an 
to  employment  contracts.  A  new 
alternative 
measure (Plan 1D) for outreach and activation for 
the  most  vulnerable  young  people  has  been 
recently  introduced.  Fiscal  hiring  incentives  for 
young  people  (such  as  the  Incentivo  Occupazione 
NEET)  are  being  extensively  used,  but  their 
effectiveness  and  efficiency  has  not  yet  been 
evaluated.  More  can  be  done  to  tap  into  the 
potential  of  apprenticeships.  Overall,  EU  funds 
help  tackling  youth  unemployment,  especially  in 
the South, with more than €1.8 billion allocated to 
Italy. 

traineeships  are 

labour  market  policies 
Reforms  of  active 
remain  at  an  early  stage  of  implementation. 
First  steps  have  been  taken  to  strengthen  public 
employment 
regional 
disparities. However, active labour market policies 
(ALMP) remain barely integrated and coordinated 
with  other  related  policies  (e.g.  social  services, 
training).  Further 
adult 

learning,  vocational 

services 

reduce 

and 

38 

 
4.3. Labour market, education and social policies 

training  (CEDEFOP,  2019).  Challenges  persist  in 
all 
these  phases.  The  general  government 
expenditure on education was among the lowest in 
the  EU  in  2017,  both  as  a  proportion  of  GDP 
(3.8%)  and  total  general  government  expenditure 
(7.9%) (31),  particularly  due  to  low  spending  on 
tertiary education. The early school leaving rate, at 
14.5% in 2018, remains well above the EU average 
(10.6%)  and  worsened compared to 2017. Almost 
20%  of  all  15-24-year-olds  are  neither 
in 
employment,  education  nor  training,  the  highest 
rate  in  the  EU.  The  gap  in  early  school  leaving 
rates  between  non-EU  born  and  native  students  is 
also  among 
it 
significantly 
in  2018  (to  24.3 pps. 
compared  to  the  EU  average  of  11.2 pps.).  The 
tertiary  educational  attainment  rate  is  among  the 
lowest  in  the  EU,  in  particular  for  scientific  or 
technical  studies  (Section  4.4.1).  Entry  into  the 
labour  market  for  young  people  remains  a 
challenge, including for the high-skilled. 

the  highest 
increased 

the  EU,  and 

in 

Pre-primary, 
education 

primary 

and 

secondary 

Demand for early childhood education and care 
is  held  back  by 
low  coverage,  uneven 
geographical  distribution  and  high  cost.  While 
participation in early childhood education and care 
for  3-6-year-olds  is  almost  universal,  the  share  of 
children  under  3  in  formal  childcare  was  only 
25.7%  in  2018,  with  major  disparities  across 
(32).  The 
the 
regions 
“integrated  education  system 
to  6” 
envisaged by the 2015 school reform is expected to 
improve the coverage and reduce the geographical 
disparities.  The  2020  Budget  Law  strengthens 
financial support for families with children aged 0 
to  3  enrolled  in  ECEC,  but  additional  efforts  are 
needed to increase the supply of the service. 

implementation  of 

from  0 

in  Italy  produces  mixed 
School  education 
outcomes  in  terms  of  basic  skills  attainment. 
Compared  to  2015,  Italy’s  results  in  the  2018 
OECD  Programme 
International  Student 
for 
Assessment  (PISA)  remained  broadly  stable  in 
mathematics and reading, but worsened in science. 
The percentage of low achievers in Italy is close to 

(31)  Eurostat,  General  government  expenditure  by  function 

(COFOG). 

(32)  In 2017/2018 coverage ranged from 9% of eligible children 
in Campania to 4.7% in Valle D'Aosta (ISTAT 2019a and 
EUROSTAT). 

to 

(against 16.9% in the EU on average). Continuous 
vocational training provided by employers is a key 
instrument 
increase  competitiveness  and 
productivity  and  to  enable  workers  to  adapt  to 
changing  patterns  of  production  and  work 
organisation(30).  The  probability  of  receiving 
training 
firms  with  collective 
in 
bargaining or other forms of staff representation. 

is  higher 

contracts”, 

Undeclared  work  remains  a  serious  concern. 
The  shadow  economy  is  estimated  at  12.1%  of 
GDP in 2017 (ISTAT, 2019b), accounting  for 3.7 
million irregular job positions (+0.7% compared to 
2016), with especially critical sector conditions in 
services 
to  persons,  agriculture,  construction, 
trade, transport, housing and food services. Around 
162,000  workers  were  found  to  be  irregular  and 
around  42,000  were  totally  undeclared.  INPS  is 
developing  a  statistical  programme  to  tackle  the 
phenomenon 
i.e. 
“fictitious 
of 
the  aim  of 
simulated  contracts  signed  with 
receiving  undue  social  security  benefits.  This 
practice 
agriculture, 
construction  and  part  of  the  services  sector.  The 
national  working  group  on  illegal  recruitment  of 
underpaid  farm  workers  (‘caporalato’)  set  up  at 
the end of 2018 to fight labour exploitation in the 
agriculture sector, is  working on defining a  three-
a 
year 
Eurobarometer  survey  carried  out  in  September 
2019,  12%  of  the  respondents  in  Italy  said  they 
have purchased goods or services where they had a 
included 
good 
undeclared work. The majority of respondents tend 
not  to  trust  tax  and  social  security  authorities  and 
labour inspectorates. 

strategy.  According 

to  assume 

spreading 

reason 

policy 

they 

that 

the 

in 

to 

is 

4.3.2.  EDUCATION AND SKILLS 

Italy’s 

economic 

Investing  in  education  and  skills  is  key  to 
performance. 
reviving 
Effective investment in human capital to make the 
most 
a 
comprehensive  approach  to  the  whole  cycle  of 
education,  transition  to  the  labour  market  and 

potential 

people’s 

requires 

of 

(30)  In  Italy,  in  2015,  60.2%  of  active  firms  (with  at  least  10 
employees)  provided  some  form  of  professional  training, 
below  the  EU  average  (72.6%)  but  a  significant  increase 
from 2010 (55.6%). The share of the workforce involved in 
CVT was 46%. Professional training is provided by 52.3% 
of the firms. The probability that a given firm is providing 
CVT is much lower in smaller firms (10-49 employees). 

39 

 
                                                           
                                                           
4.3. Labour market, education and social policies 

Graph 4.3.2:  Early school leavers by NUTs 2 region (%) 

Source: Eurostat 

several 

science.  Despite 

Teacher shortages are a major challenge. At the 
start  of  the  2019/20  school  year,  only  50%  of 
vacancies  were  filled.  The  remaining  posts  were 
covered  by  supply  teachers,  accounting  now  for 
almost  12%  of  the  teaching  posts.  The  shortages 
are  more  acute  in  some  regions  and  subjects, 
reform 
particularly 
attempts,  the  procedures  for  selecting  and  hiring 
teachers  do  not  ensure  a  reliable  supply  of 
qualified and well-trained teachers. Moreover, low 
salaries  and  limited  career  prospects  make  it 
difficult  to  attract  the  best-qualified  graduates 
(European  Commission,  2019e).  The  national 
contract  does  not  include  any  performance-based 
component (envisaged by the 2015 school reform). 
the  skills  and 
Finally,  more 
professional  competences  of  teachers  would  also 
benefit the integration of students with disabilities.  

investment 

in 

Tertiary education 

Italy’s 

improvements, 

Despite 
tertiary 
education  system  remains  underfinanced  and 
the  attainment  rate  continues  to  lag  behind. 
Completion  rates  and  the  average  duration  of 
studies  are  improving,  although  expenditure  on 
tertiary education, at 0.3% of GDP in 2017, is well 
below  the  EU  average  (0.7%).  In  2018,  the  share 
of  30-34  year-olds  with  a  tertiary  educational 
attainment was also below the EU average (27.8% 
against 40.7%). This gap is higher for the foreign-

than 

those 

significantly  higher 

the EU average in reading and maths, and higher in 
science.  Results  vary  according  to  type  of  school, 
with  students  in  upper  general  education  (licei) 
in 
scoring 
vocational  education.  Socioeconomic  background 
has  a  limited  influence  on  learning  achievement, 
explaining  a  difference  of  75  score  points  in 
reading  compared  to  an  EU  average  of  95. 
However,  when  it  comes  to  career  expectations, 
only  59.5%  of  high-achieving  disadvantaged 
students  expect  to  complete  tertiary  education, 
against  88%  of  their  advantaged  counterparts. 
Overall,  performance  is  above  the  EU  average  in 
the North and significantly worse in the South. 

and 

Regional  differences  in  learning  achievements 
are  marked and increase with education levels. 
Despite the share of GDP allocated to pre-primary, 
primary and secondary education (ISCED levels 0-
3)  being  broadly  in  line  with  the  EU  average, 
educational outcomes are below that of peers’ and 
subject to big geographical disparities. In line with 
the  2018  PISA  results,  the  2019  standardised 
student  tests  by  the  National  Agency  for  School 
Evaluation  (INVALSI)  show  northern  regions 
consistently 
significantly  outperforming 
southern  ones  in  Italian,  maths  and  English(33). 
This  adds  up  to  the  higher  rates  of  early  school 
(Graph  4.3.2). 
leaving 
Differences 
socioeconomic 
background  and  different  returns  to  education 
between  regions  contribute 
these  results. 
However,  the  fact  that  gaps,  negligible  in  early 
primary  school,  grow  steadily  over  the  years  of 
education  suggests  that  differences  in  the  quality 
of  education  exist.  Addressing  such  disparities 
would  contribute  to  advancing  towards  SDG  4 
quality education. 

in  southern 
in 

regions 
students’ 

to 

test 

same 

for  grade  13  was 

Progress in promoting quality evaluation in the 
education  system  is  slow.  In  2019,  a  final 
finally 
competence 
introduced, but on a voluntary basis only. In 2020, 
the 
test  will  become  a  mandatory 
requirement  for  admission  to  the  final  exam,  as 
originally envisaged by the 2015 school reform. In 
this  context,  preserving  the  autonomy  of  the 
national  evaluation  agencies, 
INVALSI  and 
ANVUR, is of particular importance. 

(33)  Student testing is currently mandatory in grades 2,5, 8, 10. 
Tests in grade 13 were conducted for the first time in 2019 
on a voluntary basis. Source: INVALSI 2019. 

40 

 
                                                           
    
4.3. Labour market, education and social policies 

allocation,  has  been  postponed.  The  new  round, 
covering  2014-2019,  will  take  at  least  1  year. 
Therefore, until 2021, funds  will still be allocated 
on the outdated results of the 2010-2014 round.  

Vocational  education,  adult 
digital skills 

learning  and 

Investment  in  upskilling  and  reskilling  are  key 
for  Italy’s  growth  and  competitiveness.  The 
share  of  adults  without  an  upper  secondary 
qualification  is  high  and  participation  in  adult 
learning  remains  low.  In  2018,  38.3%  of  Italian 
adults  aged  25-64  had  at  most  a  lower  secondary 
qualification (21.9% in the EU) and only 8.1% of 
adults aged 25-64 had a recent learning experience 
(11.1%  in  the  EU).  The  low  participation  rate  of 
low-qualified adults in training (2%) is a matter of 
concern,  given  the  increasing  mismatch  between 
the  number  of  jobs  requiring  low  qualifications 
(2.5  million  in  2017)  and  the  number  of  low-
qualified  adults  (over  12  million).  Effective 
guidance  would  be  necessary  but  the  share  of 
adults  who  used  free  guidance  services  (around 
10%) is less than half of the European average. 

their 

implementation 

Several  measures  on  vocational  training  are  in 
place  but 
remains 
the  State-Regions 
sluggish.  In  August  2019, 
Conference  adopted  the  National  Repository  of 
Education  and  Training  Qualifications  and 
Professional Qualifications, covering qualifications 
from general education, higher education and VET 
qualifications.  A  ministerial  decree  is  expected  to 
follow 
soon.  A  new  national  network  of 
professional schools is planned, aiming to improve 
VET  governance,  regional  vocational  centres  and 
their  link  with  the  labour  market.  The  recently 
revised system of work-based learning needs close 
monitoring. 

Shortcomings in basic digital skills persist, with 
the  risk  of  digital  divide  widening.  In  2019, 
41.5%  of  Italian  population  had  at  least  basic 
digital skills (below the EU average of 58.3%) and 
only  22%  had  more  advanced  (i.e.  above  basic) 
digital  skills  (EU  average  is  33.3%)  (37).  The 
recently  launched  project  “Repubblica  Digitale” 

(37)  Eurostat - Community survey on ICT usage in Households 

and by Individuals. 

born  population.  Family  background  is  still  a 
determining  factor  for  educational  attainment:  in 
2018, 30% of graduates have at least one tertiary-
educated parent, a proportion that rises to 43% for 
five-year 
(e.g.  medicine, 
courses 
engineering and law) (AlmaLaurea, 2019).  

degree 

vocational 

The  employment  rate  of  tertiary  graduates 
remains 
tertiary 
low,  while  non-academic 
education performs better. The employment rate 
of  recent  tertiary  graduates  has  been  slowly 
recovering  since  the  2008  crisis  but  remains  well 
below  the  EU  average  (respectively  62.8%  and 
85.5%). Non-academic tertiary education institutes 
(Istituti  Tecnici  Superiori)  offer  much  better 
employment  prospects:  80%  of  graduates  find 
employment within a year (34). Still, they remain a 
niche education provider, covering only 2% of the 
student population (35). To boost them, a new type 
of 
(lauree 
tertiary 
professionalizzanti) is being piloted in universities 
as  of  2018/19. 
In  close  cooperation  with 
professional  associations,  tertiary-educated  highly 
specialised 
in 
construction and environment, engineering, energy 
and  transport.  Opening  new  paths  into  tertiary 
education,  particularly  for  graduates  of  upper 
secondary  VET,  could  help  lower  Italy’s  early 
tertiary 
school 
educational  attainment  rate.  The  overall  limited 
prospect  of  employment  is  prompting  a  growing 
number  of  university  graduates  to  leave  the 
country (up by 41.8% since 2013). The outflow of 
highly skilled people is not offset by a comparable 
influx from abroad, leading to a net brain drain. 

professionals 

rate  and 

leaving 

trained 

degree 

raise 

the 

are 

Enrolment in higher education will also depend 
on  the  capacity  to  foster  turn-over  in  the 
teaching  body.  The  decline  in  academic  staffing 
levels  shows  no  sign  of  reversal.  Over  a  fifth  of 
academic  staff  was  60  yearsor  older  in  2017  and 
only  14%  under  40(36).  In  2019,  the  government 
allocated additional funding for 1,500 tenure-track 
positions  for  assistant  professors  (ricercatore 
universitario  di  tipo  B),  to  be  distributed  among 
public  universities  based  on  size  and  quality  of 
research.  In 
the  next  ANVUR 
evaluation  round  of  scientific  research,  whose 
results  influence  almost  one  third  of  the  funding 

this  respect, 

(34)  Monitoraggio Nazionale sul Sistema ITS Miur-Indire 2019. 
(35)  ibid. 
(36)  Online data code: educ_uoe_perp01 

41 

 
                                                           
                                                           
4.3. Labour market, education and social policies 

(38)  represents  a  positive  step.  However,  Italy  has 
no  comprehensive  digital  skills  strategy  targeting 
the digital literacy of the population at large, apart 
the  National  Plan  for  Digital  Schools. 
from 
Investment  in  this  field  is  needed  to  speed  up 
digitisation  of  the  whole  economy,  including  the 
public  administration  (Section  4.4.2),  and 
to 
prevent a widening digital divide and risks of new 
forms of social exclusion.  

policies needed to implement the Paris Agreement 
on  climate  would  generate  an  additional  0.5% 
growth  in  employment.  At  the  same  time,  labour 
reallocation  across  sectors  will  be  significant 
(European  Commission,  2019f).  Investing 
in 
upskilling  and  reskilling  policies  and  devising 
strategies that anticipate skills are crucial to equip 
workers with new competencies. 

against 

15.5%) (39).  According 

Investment  in  technical,  scientific  and  digital 
skills is crucial for innovation but remains low. 
Compared to the EU average, Italy reports a lower 
share  of  graduates  in  science  and  engineering 
(12.2% 
to 
Confindustria(40),  the  lack  of  STEM(41)  graduates 
could become critical in the near future being ICT, 
Chemical  and  Machinery  the  sectors  creating  the 
most  new  jobs  in  coming  years.  ICT  specialists 
account  for  only  2.8%  of  the  workforce  (EU 
average of 3.9%)(42), while ICT graduates are only 
1% of total graduates against 3.6% at EU level(43). 
Also, Italian enterprises invest less in ICT trainings 
for employees than firms in the EU on average(44). 
In a context of increasing automatisation, 53.9% of 
in 
Italian  enterprises  experienced  difficulties 
recruiting  personnel 
ICT 
for 
specialist skills in 2019(45). This adds up to the low 
levels  of  digitisation  of  Italian  firms  (section  4.4) 
and the limited attractiveness for digital specialists. 
According  to  JRC,  Italy  is  among  the  countries 
likely to be most exposed to future mismatches in 
advanced digital skills (46). 

requiring 

jobs 

Investing  in  skills  can  also  help  to  harness  the 
employment  potential  of  the  green  transition. 
The  number  of  people  employed  in  environment-
related  sectors  has  been  growing  at  a  fast  pace  in 
Italy. Eurofound (2019) estimates that adopting the 

(38)  Project  launched  by  the  Digital  Transformation  Team 
(https://teamdigitale.governo.it/it/repubblica-digitale)  and 
mobilizing  stakeholders  to  undertake  actions  promoting 
digital skills. 

(39)  European Commission, DG R&I, 2019 
(40)  For  bibliography:  Confindustria,  The  Factory,  Fabbisogni 

2019-2021 

(41)  STEM  stands  for  Science,  Technology,  Engineering  and 

Mathematics 

(42)  Eurostat – labour Force Survey.  
(43)  Eurostat 
(table 

educ_uoegrad03, 

using 

selection 

ISCED11=ED5-8).  

(44)  Eurostat 

-  Community  survey  on 

ICT  usage  and 

eCommerce in Enterprises. 

(45)  Ibid. 
(46)  The  changing nature  of  work  and  skills  in  the  digital  age, 

Luxembourg, 2019. 

4.3.3.  SOCIAL POLICY AND DEMOGRAPHY 

The  risk  of  poverty  is  diminishing  but  remains 
high and  marked  by large regional differences. 
In  2018,  the  share  of  people  at  risk  of  poverty  or 
social  exclusion  declined  from  28.9%  to  27.3%, 
the  lowest  level  since  2011.  However,  it  remains 
above the pre-crisis level (25.5% in 2008) and the 
EU  average  (21.7%).  In  2018,  the  severe  material 
deprivation  rate  ranged  from  3.2%  in  the  North-
East  to  15.9%  in  the  South  and  18.3%  on  the 
Islands.  The  risk  is  also  higher  in  cities  (10.7%) 
than  in  towns  and  suburbs  (7.7%)  and  rural  areas 
(7.0%). The redistributive role of social transfers is 
weak  and  the  capacity  of  social  transfers  (other 
than pensions) to reduce poverty remains low.  

Income  inequality  is  among  the  highest  in  the 
EU. In 2018, the total income of the richest 20% of 
the  population  (top  quintile)  was  more  than  six 
times  higher  than  that  of  the  poorest  20%  of  the 
population  (bottom  quintile).  This  ratio  (S80/S20) 
has increased since the beginning of the crisis (5.2 
in 2008) and it is well above the EU average (5.2 
in 2018). The income share of the poorest 40% of 
the population has also been declining and stood at 
19.3%  in  2018  (compared  to  20.3%  in  2009). 
Income inequalities are higher in southern regions. 
The S80/S20 ratio varies from 4.0 in Bolzano and 
4.1  in  Friuli-Venezia-Giulia  to  7.4  in  Campania 
and Sicily.   

The  risk  of  poverty  is  higher  for  families  with 
children. In 2018, the  at-risk-of-poverty or social 
exclusion  (AROPE)  rate  for  children  (aged  0-18) 
was  significantly  higher  in  Italy  (30.6%)  than  in 
the  EU  on  average  (24.0%).  The  gap  widens 
further  when  only  considering  children  aged  0-5 
(30.6% against 22.0%). This rate is also higher for 
households  composed  of  a  single  adult  and  one 
dependent  child  (41.0%)  and  for  households  with 
(38.3%). 
three  dependent  children 
at 

least 

42 

 
                                                           
4.3. Labour market, education and social policies 

reach-out  to  vulnerable  groups,  including  non-
Italian citizens and larger households, may reduce 
the measure’s impact on poverty reduction. At the 
same  time,  the  weakness  of  active  labour  market 
policies  (Section  4.3.1)  may  hamper  the  job 
integration component of the measure. 

is  a  major  concern 

Adequacy  and  access  to  quality  social  services 
remains  a  challenge.  Social  services 
lack 
resources and their availability in remote and rural 
areas 
that  can  drive 
depopulation. The strengthening of social services 
is  key  for  the  success  of  the  minimum  income 
scheme.  However,  in  the  absence  of  additional 
resources  the  implementation  of  the  new  scheme 
risks overburdening social services, which are now 
required to provide coverage to a larger number of 
beneficiaries.  Other  groups  of  vulnerable  persons 
who depend on social services but who may not be 
among  the  beneficiaries  of  the  minimum  income, 
such as the elderly or people with disabilities, may 
be particularly affected. 

The risk of in-work poverty remains above  the 
EU average. In 2018, 12.2% of persons employed 
faced the risk of poverty (above the EU average of 
9.5%).  The  risk  is  higher  for  households  with 
dependent  children  (15.5%)  and  workers  in  non-
standard  employment.  In  particular,  part-time 
workers  are  more  likely  to  be  poor  than  full-time 
workers (19.5% against 10.9%). The divergence is 
even  greater  between  workers  with  a  fixed-term 
contract  and  workers  with  a  permanent  contract 
(22.8% against 8.6%). Empirical evidence suggests 
that  the  high  share  of  households  with  low  work 
intensity  contributes  to  the  high  incidence  of  in-
work poverty in Italy (47). 

Despite some progress, social protection for the 
self-employed  remains  limited.  Italy  has  the 
second highest rate of  self-employment in the EU 
(22% in 2018, against 14% in the EU on average). 
The Decree Law 101/2019 introduces a regulatory 
framework  for  working  conditions  and  social 
protection  for  workers  on  digital  platforms.  It 
through  digital 
defines 
platforms  as  subordinated  work  and  introduces  a 
minimum  standard  of  protection  for  platform 
workers.  It  further  stipulates  that  criteria  for 
determining the total remuneration of workers may 
be defined by collective agreements. 

the  work  performed 

(47)  See also Peña-Casas et al. (2019). 

Moreover,  children  with  non-Italian-born  parents 
suffer from higher poverty (40.2% against 22%). 

In 2019, the government introduced a minimum 
income  scheme  as  a  measure  against  poverty, 
inequality and  social exclusion. The “citizenship 
income”  (Reddito  di  cittadinanza,  RdC)  replaced 
the REI (Reddito d’inclusione) with a considerable 
increase in allocated resources. The estimated cost 
of  the  minimum  income  scheme  amounts  to 
€6.1 billion  and  €8.1 billion  for  2019  and  2020 
respectively  (Graph 4.3.3).  The  RdC  has  three 
pillars: income support, labour activation measures 
and  support  from  social  services.  The  scheme 
targets  households  (including  pensioners)  with  an 
ISEE  -  indicator  of  the  equivalent  economic 
situation  that  is  lower  than  €9,360  and  who  have 
been  residing  in  Italy  for  at  least  10  years,  of 
which the last 2 in a continuous way. According to 
the  latest  data  up  to  December  2019  provided  by 
the  National  Social  Security  Institute  (INPS, 
2020), one million households received benefits as 
part  of  the  minimum  income  scheme,  of  which 
125,860  households  were  pensioners. The  benefit 
per  household  averaged  €532  for  working  age 
households and €222 for pensioners).  

Graph 4.3.3:  Public spending on anti-poverty schemes 

Source: INPS. 

in 

fighting  poverty,  but  more 

The  minimum  income  scheme  is  an  important 
step 
job 
integration  and  social  inclusion  is  needed.  The 
difference  between  the  average  monthly  benefit 
per  household  with  minors  (€579)  or  without 
(€426)  is  relatively  limited.  The  low  effective 

43 

 - 100 200 300 400 500 600Million EURReddito di inclusioneReddito di cittadinanza 
   
                                                           
4.3. Labour market, education and social policies 

and 

socioeconomic 

good  health  outcomes (49).  Long-term  care 
spending in terms of GDP is slightly above the EU 
average 
(1.7%  compared  with  1.6%).  Life 
expectancy is among the highest in the EU, but life 
expectancy  in  good  health  at  the  age  of  65  is 
slightly  below  the  EU  average.  Cancer  care 
following  diagnosis  is  effective  and  timely  for 
patients  (survival  rates  above  the  EU  average). 
Potential  challenges  for  public  health  include  the 
impact  of 
educational 
disparities  on  health  outcomes,  the  rising  obesity 
rates  for  children  and  the  risks  related  to  anti-
(50).  An  ageing  health 
microbial 
workforce is likely to create skills shortages in the 
future, which are further exacerbated by admission 
restrictions 
the 
emigration  of  an  increasing  number  of  medical 
school  graduates.  The  number  of  nurses  remains 
limited  and  the  range  of  their  professional  tasks 
and  responsibilities  could  be  widened.  Investment 
in  medical  infrastructure  has  decreased  in  the  last 
decade  and  medical  equipment  is  on  average 
relatively  old  and  unevenly  distributed  across 
hospitals and regions. 

to  medical  schools  and  by 

resistance 

Regional  disparities  in  health  services  remain 
significant. While overall low, self-reported unmet 
needs were three times higher in the South and on 
the  Islands  compared  to  the  North-East  in  2018. 
The  number  of  hospital  beds  per  inhabitants  has 
been declining for the last decade and is below the 
EU  average,  with  big  differences  across  regions. 
While the level of standard health services is set at 
the  central  level,  uneven  fiscal  capacity  across 
regions  and  vague  national  guidelines  favour 
disparities  in  the  provision  of  health  services  and 
different  levels  of  out-of-pocket  payments.  As  a 
result,  inter-regional  mobility  of  patients  is  high. 
for  efficiency  gains  would  be 
The  margin 
considerable, 
developing 
for 
innovative  models  for  health  service  provision, 
including  digital  solutions,  and  co-ordinated 
patient-centred  responses  (a  set  of  standards,  a 
smarter  payment  system  and  a  stronger  focus  on 
prevention). According to the 2020 budget law, the 
government  plans  to  increase  funding  for  the 
National  Health  System  by  €240  million  and  in 

instance 

by 

(49)  The  Italian  national  health  service  (“Servizio  sanitario 
nazionale”) is second and fourth-best performer in the EU 
for preventable and treatable causes of deaths. 

(50)  For  an  overview  of  health  challenges  faced  by  Italy,  see 
OECD/European  Observatory  on  Health  Systems  and 
Policies (2019). 

Expenditure  on  old-age  pensions  accounts  for 
almost half of total social spending. In 2017, the 
percentage  of  old-age  pension  expenditure  over 
total  social  spending  was  47%  (EU  average: 
38.9%).  While  overall  social  spending  is  around 
the EU average, the expenditure on pensions stood 
at 15.9% of GDP in 2017, against an EU average 
of  12.6%.  This  percentage  is  expected  to  further 
increase  following  the  introduction  of  the  “Quota 
100”  reform  in  2019,  which  lowers  the  minimum 
retirement  age  for  certain  categories  of  older 
workers.  In  2018,  the  ratio  between  the  median 
disposable  income  of  people  older  than  65  and 
those  younger  was  1.01,  against  0.92  for  the  EU 
average.  Despite  the  overall  high  spending,  the 
provision  of  pension  benefits  is  uneven  and 
traditionally  focused  on  preserving  income  levels 
rather 
than  on  protecting  against  poverty. 
Following  the  2019  reform,  the  latter  goal  should 
be pursued through the “Pensione di Cittadinanza” 
(citizenship pension) which is directly financed by 
the budget. 

Access  to  affordable  and  adequate  housing 
remains  challenging  due  to  the  limited  public 
investment in the housing sector. As a result, the 
stock  of  social  and  public  housing  is  one  of  the 
lowest in Europe. The proportion of people living 
in overcrowded households is estimated at 27.8%, 
well above the EU average (15.3%). Moreover, the 
share of the population unable to keep their home 
adequately  warm  is  very  high  (14.1%  vs  EU 
7.3%).  A  policy  strategy  to  promote  affordable 
housing  is  missing,  and  in  practice,  third  sector 
organisations 
public 
administration  in  providing  housing  services.  The 
new  minimum  income  scheme  includes  a  rent 
contribution,  up  to  €3,360  per  year.  However,  the 
strict  eligibility  criteria  of  the  minimum  income 
scheme  often 
and 
particularly foreigners, who represent the majority 
in  Italy,  from  receiving 
of  homeless  people 
housing benefits (48). 

the  homeless 

exclude 

replace 

often 

the 

Health 

The access to and quality of health services are 
overall  good  despite  below-average  spending. 
Public expenditure on healthcare stood at 6.3% of 
GDP  in  2016  (EU  average:  6.8%)  and  universal 
and  largely  free  health  coverage  contributes  to 

(48)  Jessoula, M. et al. (2019). 

44 

 
                                                           
                                                           
return  abolish  co-payments  on  consultations  and 
examinations starting from September 2020. 

Demographic trends 

In  2018,  Italy’s  birth  rate  reached  an  all-time 
low. With the  EU’s lowest birth rate, 7.3 children 
per  1  000  residents,  Italy  recorded  for  the  tenth 
consecutive  year  a  negative  natural  demographic 
balance. According to ISTAT (2019c), this trend is 
no  longer  counterbalanced  by  the  positive  but 
declining net migration flow, resulting in a net loss 
of  population  of  0.2 %  in  2018,  especially  in  the 
South.  Correspondingly,  the  population  is  ageing 
quickly, with an old-age dependency ratio standing 
at 35.2 % in 2018 (up from 31.2 % in 2010). These 
demographic  trends,  together  with  the  ongoing 
brain drain, could hinder both the short- and long-
run  economic  outlook,  including  through  a  higher 
burden  on  government  finances  and  potential 
adverse effects on productivity. 

and 

families 

composition, 

The effectiveness of family-supporting measures 
is low. Public spending on family and child mainly 
consists  of  cash  benefits.  Depending  on  their 
income 
receive 
allowances such as the Bonus Bebè (up to €192 per 
month)  and  Assegno  per  il  nucleo  familiare.  The 
2020 budget increased the yearly voucher for pre-
(Bonus  Nido) (51)  by  an 
school  attendance 
additional  €1,500  for  lower  income  families  (now 
at  €3,000).  However,  available  pre-school  places 
covered  on  average  only  24%  of  children  under 
three years of age in the 2016/17 school year, with 
big  regional  variations  (ISTAT,  2019d).  This 
figure  is  far  below  the  target  of  33%  set  by  the 
Council  in  its  employment  guidelines  (2008-10). 
The different family-related social policy measures 
are  often  not  coordinated  and  a  comprehensive 
strategy is missing. The government has started to 
take  action  to  enhance  the  system  of  child-related 
welfare transfers by facilitating access to childcare 
services  for  children  aged  0-3,  also  through 
economic support. Compulsory paternity leave has 
been increased (from 5 to 7 days). 

4.3. Labour market, education and social policies 

Mobility  from  southern  to  northern  regions 
remains  high.  In  2018,  more  than  1.35  million 
inhabitants  relocated  within  Italy.  The  South 
showed  a  negative  internal  migration  rate  varying 
from  -5.2  per  1000  inhabitants  in  Calabria  to  -0.6 
in  Abruzzo.  By  contrast,  the  North  registered 
population  inflows.  In  particular,  according  to 
ISTAT,  more  than  240,000  young  people  with 
medium-high  education 
from 
southern regions to norther ones between 2008 and 
2017,  worsening  the  brain  drain  in  the  former 
while  mitigating  it  in  the  latter..  Overall,  since 
left  southern 
2000,  almost  2  million  people 
regions,  mainly  in  search  of  work  (SVIMEZ 
2019).  

relocated 

level 

Integrating  people  with  a  migrant  background 
and  attracting  skilled  workers  are  important 
challenges.  The  number  of  non-EU  nationals 
remained  constant  in  2019.  The  number  of  new 
permits of stay decreased in 2018 (7.9% less than 
in  2017),  mainly  due  to  asylum  permits  (-41.9%) 
while  permits  for  work  and  family  reasons 
increased  (19.7%  and  8.2%  respectively).  Despite 
having a slightly higher employment rate than the 
native population (63.2% against 62.9%), non-EU 
citizens  face  a  much  higher  risk  of  poverty  or 
exclusion  (47.7%  against  25.2%)  and  in-work 
poverty  (32.7%  against  10%).  The  gap  in  early 
school 
leaving  between  native  and  migrant-
background  children  is  also  one  of  the  highest  in 
the  EU  (39.4%  against  12.3%).  Moreover,  the 
average  skills  level  of  migrants  is  lower  than  that 
of nationals (52). A comprehensive strategy for the 
integration of non-EU nationals, regardless of their 
legal status, is missing. The 2017 Piano nazionale 
d’integrazione 
protezione 
internazionale has not been fully implemented yet. 
The  impact  of  the  recent  reform  of  the  reception 
system  for  asylum  seekers  and  the  immigration 
and security laws on social integration needs to be 
further  monitored.  In  2019,  with  the  aim  of 
attracting  or  re-attracting  workforce,  indirectly 
including  skilled  migration,  “Decreto  Crescita” 
and  the  Fiscal  Decree  No.  124/2019  increased 
fiscal  benefits  for  workers  moving  their  fiscal 
residence to Italy. 

titolari 

dei 

di 

(51)  The  Bonus  Nido  finances  tuition  fees  related  to  nursery 
attendance.  Fees  can  also  be  related  to  home  support  for 
children  under 
three  suffering  from  serious  chronic 
diseases. 

(52)  See  Annex  4  in  European  Commission  (2019)  European 
Integration  of 

Semester  2019/2020  Guidance  Note: 
Migrants. 

45 

 
                                                           
                                                           
4.3. Labour market, education and social policies 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

The European Pillar of Social Rights is a compass  for a renewed  process of upward convergence towards 
better working and living conditions in the European Union. It sets out twenty essential principles and rights 
in  the  areas  of  equal  opportunities  and  access  to  the  labour  market;  fair  working  conditions;  and  social 
protection and inclusion. 

  The  Social  Scoreboard  supporting  the 
European  Pillar  of  Social  Rights  points  to 
many  employment  and  social  challenges  in 
Italy.  While 
labour  market 
improving, 
conditions remain difficult. The unemployment 
rate  is  still  high  and  employment  and  activity 
rates  remain  very  low,  especially  for  women. 
Young  people  and  long-term  unemployed  face 
particular  difficulties.  While  over  the  medium 
term  the  share  of  temporary  contracts  has 
increased, in the last year job creation has been 
driven  by  permanent  contracts.  The  weak 
labour  market  conditions  also  have  an  impact 
on 
disposable 
outcomes.  Gross 
household  income  is  still  below  pre-crisis 
levels.  While  the  risk  of  poverty  and  social 
exclusion 
inequality 
increased in 2018 (the S80/S20 indicator stood 
at  6.1).  In-work  poverty  has  been  steadily 
increasing  in  recent  years  and  stabilised  at 
12.2%  in  2018.  Access  to  services  such  as 
childcare  and  healthcare  is  around  the  EU 
average,  though  subject  to  large  territorial 
differences. 

is  declining, 

income 

social 

into  the 

Bringing  young  people 
labour 
market  remains  a  major  challenge.  Youth 
unemployment, at 29.1% in Q3 2019, is one of 
the  highest  in  the  EU.  Inactivity  and  high 
school  drop-out  rates  are  also  a  matter  of 
concern.  The  rate  of  young  people  not  in 
education,  employment  or  training  (NEET),  at 
close to 20%, is the highest in the EU, and the 
share  of  early  leavers  from  education  and 
training  increased  to  14.5%  in  2018.  High-
skilled young people also face challenges, as the employment rate of tertiary graduates remains low. Limited 
employment  prospects  are  leading  a  growing  number  of  graduates  to  emigrate  abroad  or  from  the 
Mezzogiorno  to  the  northern  and  central  regions.  Fiscal  incentives  to  hire  young  people  are  being 
extensively used, but their effectiveness and efficiency has not been yet sufficiently evaluated. 

Actions  taken  through  the  Youth  Guarantee  can  help  to  improve  the  labour  market  conditions  of 
young people. More than 1.5 million young NEETs registered in the Youth Guarantee (YG) scheme. By the 
end of 2019, about 1.2 million were referred to the services. Around 60% of them completed a YG pathway, 
with an average placement rate of 55.5%. Personal services are being developed and individualised, thanks 
to a strong profiling methodology. In terms of outcomes, large disparities persist between the North and the 
South,  where  caseloads  with  difficult  profiles  are  more  frequent.  Outreach  remains  a  challenge,  but  the 
introduction  of  a  new  measure  to  reach  out  to  the  most  vulnerable  young  people  looks  promising.  While 
apprenticeships  could  be  further  developed,  traineeships  are  the  measure  most  implemented.  Close 
monitoring could help to minimise the risk of traineeships being misused as an alternative to employment 
contracts.  

46 

Social Scoreboard for ITALY SOCIAL SCOREBOARD SDGs Equal opportunities and access to the labour market  Early leavers from  education and training  (% of population aged 18-24)      Youth NEET  (% of population aged 15-24) Gender employment gap Income quintile ratio (S80/S20) At risk of poverty or social exclusion (in %) Dynamic labour markets and fair working conditions   Employment rate  (% of population aged 20-64)  Unemployment rate  (% active population aged 15-74) Long-term unemployment rate  (% active population aged 15-74) GDHI per capita growth  Net earnings of a full-time single worker earning AW Social protection and inclusion  Impact of social transfers (other than pensions) on poverty reduction    Children aged less than 3 years in formal childcare Self-reported unmet need for medical care  [Individuals' level of digital skills] Critical situation To watch Weak but improving Good but to monitor On average Better than average Best performers Members States are classified on the Social Scoreboard according to a statistical methodology agreed with the EMCO and SPC Committees. It looks jointly at levels and changes of the indicators in comparison with the respective EU averages and classifies Member States in seven categories. For methodological details, please consult the proposal for a Joint Employment Report 2020, COM(2019) 653 final; NEET: neither in employment nor in education and training; GDHI: gross disposable household income. Update of January 2020.   
4.4. COMPETITIVENESS, REFORMS AND INVESTMENT 

4.4.1.  INVESTMENT AND PRODUCTIVITY TRENDS* 

Productivity  

The modest evolution of aggregate productivity 
hides  wide  sectoral,  firm-level  and  regional 
differences. Recent low GDP growth in Italy was 
driven  by  increases  in  employment  rather  than  in 
productivity. Italy is one of the worst performers in 
terms  of  productivity  growth  among  OECD 
countries  (Eurostat  data;  OECD,  2019).  Indeed, 
since  2000 
labour  productivity  has  nearly 
stagnated  and  total  factor  productivity  (TFP)  has 
slightly 
in 
manufacturing has increased overall, although less 
than in peer countries, while it declined in services 
regions.  Moreover, 
and 
productivity  growth  was  concentrated  among 
bigger exporting firms. 

declined.  Labour 

productivity 

southern 

some 

in 

in 

The  impact  on  productivity  of  the  secular  shift 
in the economic structure was more negative in 
Italy  than  in  peer  countries.  Between  1970  and 
2016,  productivity 
Italian  manufacturing 
increased  on  average  by  2.9%,  while  its  share  in 
value  added  declined  slightly  from  20%  to  19%. 
At the same time, the weight of services in Italy’s 
value  added  increased  from  51%  to  70%,  while 
productivity  increased  by  only  0.16%.  The  poor 
productivity  performance  of  services  explains  the 
gap with other EU countries (Bauer et al., 2020). 

The  uneven  evolution  of  productivity  across 
service  subsectors  warrants  attention.  Specific 
service sectors, accounting for a big share of gross 
value  added  (GVA),  represented  a  major  drag  on 
long-term  aggregate  productivity  growth (53).  A 
breakdown  of  business  services  shows  the  overall 
negative  trends  of  labour  productivity  during  the 
2008-2018  period  in  construction,  professional 
activities 
services. 
Accommodation,  food,  transportation  and  trade, 
that  represent  a  big  share  of  Italian  GVA,  are 
among  the  low  productivity  growth  subsectors 
(Graph 4.4.1). The analysis factors explaining this 
result could inform policy action. 

non-business 

and 

 The  importance  of  the  informal  economy  in 
services  and  the  weak  business  environment 
help  to  explain  their  low  productivity.  The 

(53)  However,  the  measurement  of  productivity  in  services 

should be interpreted with some caution. 

to  amount 

is  estimated 

informal economy reduces technical efficiency and 
productivity  (ISTAT  2019e).  Undeclared  value 
added 
to  11.9%  of 
construction  activities,  13.2%  of  trade,  transport, 
accommodation 
and  11.3%  of 
professional  activities,  while  undeclared  work 
concerns 22.7% of services to households (ISTAT 
2019e).  Low  integration  of  services  in  the  single 
market,  regulatory  barriers  and  other  business 
environment issues (Section 4.4.3) help to explain 
poor performance in some of these subsectors. 

food 

and 

Graph 4.4.1:  Productivity growth per hour worked, 2008-

2018 

(1) NACE rev.2 categories in parenthesis.  
Source: European Commission 

Higher  job  creation  in  less  productive  sectors 
suggests scope for improving the overall labour 
allocation.  Between  2008  and  2018,  the  share  of 
labour  slightly  decreased 
in  sectors  where 
productivity  increased,  while  it  slightly  increased 
in  sectors  with  productivity  losses.  Between  2010 
and  2017,  there  was  a  0.4%  job  destruction  in 
sectors where productivity was above average and 
0.7%  job  creation  in  sectors  where  productivity 
was  below  average,  notably  accommodation  and 
food  and  services  to  households  (Eurostat  data; 
OECD,  2019).  There  may  be  a  trade-off  between 
increases in productivity and employment, as well 
as  between  productivity  and  hours  of  work 
(Collwet et al., 2017; Brachet et al., 2012). 

At the same time, job creation is higher among 
the  most  productive  firms  in  the  same  sector. 
Analyses  of  labour  reallocation  within  sectors 
to  ongoing 
between  2007  and  2013  point 
improvements in allocative efficiency: firms at the 
top  of  the  productivity  distribution  are  creating 
more  jobs  and  there  is  higher  job  destruction 
among  less  productive  firms  in  both  services  and 
manufacturing  (Bauer  et  al.,  2020).  Furthermore, 

47 

-15%-10%-5%0%5%10%15%20%Agriculture (A)Industry (B-E)Manufacturing (C )Construction (F)Trade, transport, accomodation and food (G-I)Information and communication (J)Finance and insurance (K)Professional services (M-N)Public sector (O-Q)Arts & entertainment (R-S) 
 
                                                           
  
4.4. Competitiveness, reforms and investment 

2016 

since 

decreasing 

Productivity  growth  is  also  limited  by  the 
modest  and  worsening  business  dynamism  of 
Italian  firms.  Enterprise  churn  rate  has  been 
across 
steadily 
manufacturing and services sectors, particularly for 
information  and  communication  and  professional 
services. Entry rates (without sole proprietorships) 
across  industries  show  a  small  and  widespread 
decrease  between  2008  and  2016  (Bauer  et  al., 
2020).  Thus,  stimulating  business  entry  and 
business  dynamism  in  general  can  help  improve 
productivity growth (Bauer et al., 2020). 

small 

system 

Italy’s  fragmented  system  of  enterprises  also 
lags  behind  in  digitisation.  More  than  half  of 
Italian  enterprises  are  characterised  by 
low 
investment  in  digital  technologies  and  very  low 
digitisation.  In  2019,  37.8%  of  Italian  enterprises 
had a low digital intensity index and 41.8% a very 
low  one  (compared  to  EU  averages  of  35.6%  and 
38.6% respectively) (58). Moreover, the penetration 
rate  of artificial intelligence is around one  quarter 
of the EU average (Gonzalez Vazquez et al, 2019). 
The causes include the fragmentation of the Italian 
the 
into 
productive 
discontinuity  and  slow  implementation  of  some 
national  policies  and  the  low  level  of  both  basic 
and advanced digital skills (Section 4.3). There are 
terms  of  ultrafast  broadband 
also  delays 
coverage  (24%  of  households  in  Italy  vs  60%  in 
the EU)(59) and take-up (13% in Italy, 26% in the 
EU)  that  are  key  elements  to  strengthening  the 
digital economy (60). Gaps are larger in rural areas, 
also  when  it  comes  to  fast  broadband  coverage 
(43.4%  of  the  households  vs  national  and  EU 
average  of  90%  and  52.8%,  respectively).  On  the 
other  hand,  Italy  has  completed,  already  in  2018, 
the  auction  for  the  assignment  of  spectrum  in  the 
5G  pioneer  bands,  while  5G  trials  have  been 
ongoing since 2017 (61).  

firms, 

in 

Heterogeneity across firms and sectors calls for 
tailored  policy  action.  Poor  performance  by 
smaller firms confirms the need for policies to help 

(58)  The  Eurostat  Digital  Intensity  Index  (DII)  2018  measures 
the  availability  at  firm  level  of  12  different  digital 
technologies. 

(59)  Digital  Economy  and  Society  Index  (DESI)  2019,  Italy 
Chapters 

Country 
(https://ec.europa.eu/digital-single-
market/en/scoreboard/italy). Data is referred to 2018.   
(60)  European  Commission,  Digital  Scoreboard  2020.  Data  on 

Telecoms 

report, 

take-up refers to 2019. 

(61)  Digital Economy and Society Index (DESI) 2019, Ibid.   

48 

growing firms are mostly those with higher labour 
productivity (54).    

especially 

in  manufacturing, 

The  high  level  of  employment  in  small  firms 
helps  to  explain  the  productivity  gap  with  the 
EU.  Productivity  (both  labour  and  TFP)  of  micro 
firms, 
is 
systematically  lower  than  in  large  firms  (55)  and 
over the 2000-2015 period this gap increased from 
55% to almost 65% of top firms level. In services 
(characterised by a smaller average firm size) this 
gap  is  smaller,  albeit  significant,  and  stable  over 
time. In services, medium sized firms often have a 
higher 
firms 
(Compnet  data  6th  vintage).  At  the  sectoral  level, 
the  higher  productivity  of 
in 
manufacturing,  retail,  accommodation  and  food 
services  are  counterbalanced  by  the  far  higher 
number  of  smaller  firms  in  the  same  sectors.  The 
latter  can  also  explain  the  negative  productivity 
gap with the EU, particularly for construction and 
professional services (Bauer et al., 2020).  

labour  productivity 

firms 

large 

large 

than 

remain 

conditions 

Framework 
relatively 
unfavourable  to  firms’  growth.  High-tech  and 
knowledge-intensive  sectors  such  as  computer 
programming,  telecoms  and  scientific  research 
have  a  particularly  high  share  of  high  growth 
enterprises  (56)  (HGEs).  In  2015-2016  these  firms 
accounted  for  64%  of  total  employment  growth 
(Flachenecker  et  al.,  2020).  In  Italy,  HGE 
represented  about  9%  of  all  active  firms  (10%  in 
the  EU)  and  12%  of  total  employment  in  the 
business  economy  (15%  in  the  EU)  in  2016  (57). 
Italian  HGEs  also  tend  to  be  under-represented  in 
innovative  industries  relative  to  the  EU  average. 
This  weak  performance  depends  on  a  number  of 
factors like the weak availability of entrepreneurial 
skills  and 
innovators 
linkages  among  SME 
(Flachenecker  et  al.,  2020)  and  from  the  weak 
development of venture capital (Section 4.2). 

(54)  The  within-sector  covariance  between 

relative 
productivity and firm size proxies to what extent resources 
are allocated to the most productive firms in a given sector. 
Estimates  of  this  variable  based  on  firm  level  data 
(Compnet) show an improvement in allocative efficiency. 
(55)  Micro and large firms refer respectively to those employing 

the 

less than 10 or more than 249 people. 

(56)  Firms with at least 10 employees in the beginning of their 
growth  and  average  annualised  growth  in  number  of 
employees  greater  than  10%  per  annum  over  a  3-year 
period. 

(57)  The  share  of  HGEs  is  based  on  the  number  of  firms’ 

employees (and not sales growth). 

 
                                                           
                                                           
exploit 

synergies 

businesses grow and adopt productivity-enhancing 
solutions (e.g. digital innovations accompanied by 
increase  knowledge 
suitable  human  capital), 
and  overcome 
exchange, 
fragmentation along the value chain that remains a 
main  weakness  in  the  process  of  digitalisation  in 
manufacturing 
((ISTAT  2019g;  Confindustria 
2018,  2019).  In  addition,  the  low  performance  of 
specific sectors points to the need to remove major 
obstacles  to  productivity  including  administrative 
burden and regulatory restrictions (Section 4.4.2). 

The 

technology 

Current  policy  measures  are  sustaining  the 
digitalisation and innovation of firms, but there 
is  room  for  improvement.  Digital  innovation 
hubs  promote  awareness  of  digital  investment 
opportunities  among  SMEs,  and  the  National 
Competence  Centres  support  industrial  research 
and  experimental  development,  relevant  training 
and 
outreach, 
transfer. 
coordination and evaluation of these initiatives are 
innovation  performance. 
key 
Implementation  delays 
setting  up 
competence  centres)  reduce  the  impact  of  these 
and 
measures.  To 
effectiveness,  the  measures  need  to  be  more 
selective  (62).  The  weight  of  large  firms  among 
beneficiaries  of  policy  measures  remains  high 
(ISTAT  2019g).  A  cost-efficiency  assessment  of 
these  measures  could  help 
tax 
incentives, but is not available yet.  

to  strengthening 

streamline 

relevance 

ensure 

their 

(e.g. 

in 

to 

(a  proxy 

support 
The  discontinuity  of  policies 
knowledge  transfer  and  innovation  ecosystems 
hampers innovation performance. In 2019, only 
2% of Italy’s publications  were public-private co-
publications 
research-business 
collaboration),  compared  to  4%  for  the  EU.  
Moreover,  the  share  is  below  the  EU  average  in 
fields  such  as  life,  medical  and  engineering 
sciences.  However,  recent  initiatives,  such  as 
public 
technology 
partnerships,  have  been  discontinuous 
and 
fragmented, thus engendering uncertainty. 

clusters 

private 

and 

for 

(62)  For instance during its first year of application the “super-
ammortamento” had a positive impact on firm investment. 
However,  its  impact  on  adoption  of  high  technology  / 
knowledge  intensive  capital  was  more  nuanced  (ISTAT 
2019g)  and  thus  triggered  the  exclusion  of  transport 
equipment. 

4.4. Competitiveness, reforms and investment 

Investment 

from 

investment-related  payments 

As  investment  is  key  to  boosting  productivity, 
the  positive  developments  in  private  and,  more 
recently,  public  investment  are  encouraging. 
Public investment continued declining, to 2.1% of 
GDP  in  2018,  from  2.2%  in  2017  (and  3%  in 
2008).  However,  data  on  the  number  of  projects 
local 
and 
administrations suggest a change in trend since the 
end of 2018. Moreover, new additional funds have 
been set up in the 2020 Budget Law to fund public 
investment at central and local level and for green 
investment.  On  the  other  hand,  limited  progress 
has  been  achieved  in  improving  administrative 
capacity  (Section  4.4.2).  Business 
investment 
reached 10.2% of GDP in 2018, slightly below its 
2008  value 
the 
investment  rate  of  non-financial  corporation  has 
been  increasing  since  2014  and  reached  21.8%  in 
2018, still below the 2007 value (23.5%). 

(10.7%).  More  specifically, 

reduction 

Fixed  investment  is  recovering  slowly  after  the 
crisis,  while  the  intellectual  property  rights 
(IPR)  share  has  increased.  After  the  2014  dip, 
investment  has  been  consistently  growing  and 
amounted to almost €300 billion in 2018 (17.7% of 
GDP),  still  almost  60  billion  below  pre-crisis 
levels,  when  it  stood  at  21%  of  GDP.  The  long 
particular 
lasting 
construction,  notably 
its  non-residential 
component,  while  the  recovery  in  machinery  and 
transport  equipment–  supported  by  Impresa  4.0 
policy  measures,  among  other  things  -  is  roughly 
complete.  IPR 
total 
investment  in  2018,  almost  5  pps  more  than  in 
2000.  This  places  Italy  in  the  medium  range 
among  OECD  countries,  but  below  EU  peers  like 
France and Germany (OECD 2019). 

concerns 
in 

to  17.3%  of 

increased 

in 

in 

(non-NA) 

terms  of  non-NA 

Non-national  accounts 
intangible 
investment  lags  behind.  While  Italy  ranks  above 
average  among  EU-15  countries  in  terms  of  the 
intangible investment-to-capital ratio, it appears to 
lag  behind 
intangible 
investment  (33%  of  investment-to-capital  ratio 
versus  an  average  of  36%  in  2015)  (Bauer  et  al., 
2020).  The  investment  rate  in  brands  has  been 
especially  low.  As  non-NA  intangibles  have  a 
major  role  in  production,  the  contribution  from 
intangible capital growth to productivity growth is 
quite weak in Italy (less than 0.1%, about half the 
EU average). 

49 

 
                                                           
4.4. Competitiveness, reforms and investment 

Box 4.4.1: Investment Challenges 

Since  2015,  private  investment  is  moderately  recovering,  mostly  for  equipment,  but  it 
remains substantially below the pre-crisis level and euro area average. The weakness of 
investment is related, among other things, to weak demand, an inefficient credit market, 
a  relatively  low  share  of  tertiary  educated  people  and  an  insufficiently  supportive 
business  environment.  Public  investment  declined  steadily  and  only  recently  started  to 
show signs of recovery. The high stock of general government debt continues to weigh 
on public investment. Regional disparities particularly in innovative investment persist. 

Table 4.3.1a: 

Assessment of barriers to investment and ongoing reforms 

Source: European Commission 

Several  factors  play  a  role  in  holding  back  investment  and  productivity  growth. 
Inefficiencies in the public sector remain a barrier to investment, particularly for public 
investment  at  local  level  (Section  4.4),  because  of  weak  administrative  capacity.  The 
over-reliance of firms on bank credit and the weaknesses of several banks constraints on 
access to finance, especially for smaller and innovative firms (Section 4.3). Weak human 
capital and skills mismatches, an insufficiently supportive business environment, the high 
tax  burden  on  firms  and  the  uncertainty  of  the  policy  framework  also  play  a  role  to 
holding back investment (Section 4.4).  

Selected barriers to investment and priority actions underway 

1.  Italy’s  public  sector’s  weak  administrative  capacity,  including  inadequate  human 
capital,  continues  to  represent  an  investment  barrier,  especially  at  local  level,  and 
prevents  for  the  implementation  of  EU  funds.  Specialised  profiles  and  technical 
assistance to central and local administrations could help unlock public investment. Two 
public agencies (Struttura per la progettazione and Investitalia), set-up in early 2019 to 
assist  central  and  local  administrations  with  the  planning  and  implementation  of 
investment projects, are not operational yet (Section 4.4.2). 

2. The availability of tertiary graduates, particularly in fields such as computing, science 
and  engineering,  is  relatively  low  and  represents  a  barrier  especially  for  innovative 
investment. Undereducated employees and managers play a role in limiting the potential 
for  investment  and  innovation.  Tertiary  education  remains  under-financed  and  biased 
towards non-scientific and non-technical fields.  

50 

Regulatory/ administrative burdenTaxationCSRPublic administrationCSRAccess to financeCSRPublic procurement /PPPsCooperation btw academia, research and businessJudicial systemCSRFinancing of R&D&ICSRInsolvency frameworkBusiness services / Regulated professionsCSRCompetition and regulatory frameworkCSRRetailEPL & framework for labour contracts ConstructionWages & wage settingDigital Economy / TelecomEducation, skills, lifelong learning CSREnergyTransportLegend:No barrier to investment identifiedSome progressCSRInvestment barriers that are also subject to a CSRSubstantial progressNo progressFully addressedLimited progressAssessment of barriers to investment and ongoing reformsFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
 
  
 
 
4.4. Competitiveness, reforms and investment 

although  effects  on  labour  productivity  and  TFP 
appear smaller than in other Member States. 

to 

innovation.  Investment 

The government recently improved the focus of 
the  measures 
investment  and 
to  support 
competitiveness.  The  previous  plan  Impresa  4.0 
has  been  renamed  Transizione  4.0,  to  signal  the 
new  focus  on  green  investment  (Section  4.5)  in 
addition 
in  green 
technology  can  also  lower  material’s  costs.  Tax 
incentives  to  promote  investment  in  physical  and 
intangible capital have been extended for the next 
years  and  transformed  into  a  tax  credit,  which 
could increase  the  number of beneficiary  firms by 
up to 40% (63). The new tax credit also intends to 
support  the  circular  economy  and  environmental 
sustainability,  and  spending  in  skills  enabling  the 
digital  transition.  Investment  in  key  technologies, 
such  as  Artificial  Intelligence  and  cybersecurity, 
has  been  announced  in  the  National  Innovation 
Plan  2025,  next  to  key  initiatives  in  the  field  of 
High  Performance  Computing.  The  Plan  also 
stresses the role that the public administration and 
governance  could  play  as  drivers  of  the  country’s 
digital 
digital 
infrastructure  and  R&D  would  contribute 
in 
achieving  SDG  9  –  Industry,  Innovation  and 
Infrastructure. 

Investment 

transition. 

in 

4.4.2.  REGULATORY ENVIRONMENT AND 

INSTITUTIONAL QUALITY* 

Public 
environment 

administration 

and 

business 

The overall business environment has improved 
over  the  last  decade,  but  important  challenges 
persist.  The  2020  Doing  business 
indicators 
confirm  that  Italy’s  business  environment  slowly 
improved over the last decade but still lags behind 
peer  countries  (graph  4.4.2).  Getting  credit  and 
enforcing  contracts  has  one  of  the  lowest  scores 
(below 50). Paying taxes and resolving insolvency 
also have relatively low scores (about 63-64) but at 
the  same  time  registered  higher  than  average 
improvements  (up  from  about  51  in  2010).  SMEs 
are  among  those  most  affected  by  the  non-
supportive  business  environment.    According  to 
the  European  Commission’s  SME  Perfomance 

(63)  Letter of the Minister of Economic Development Patuanelli 

to “Il Sole 24 ore”, 18 December 2019. 

R&D expenditure remains relatively low. Public 
R&D  expenditure  reached  0.5%  of  GDP  in  2018, 
the  second  lowest  level  among  EU15  countries, 
and  on  a  declining  trend  since  2013.  While 
business  R&D  expenditure  has  been  increasing  in 
the last years reaching 0.86% of GDP in 2018, its 
level  remains  significantly  below  the  EU  average 
the  number  of 
(1.41%).  As  a  consequence, 
researchers  per  thousand  in  the  active  population 
employed by business is only half the EU average 
(2.3%  against  4.3%  in  2017).  Since  2017  most  of 
the R&D growth is due to the activity of new firms 
investing  in  R&D,  while  firms  that  were  already 
R&D  performers  recorded  stable  expenditure. 
Preliminary  data  for  2019  show  an  increase  of 
private R&D expenditure.  

The  lack  of  Science,  Technology,  Engineering 
and  Mathematics  graduates  risks  being  critical 
in  the  near  future.  Confindustria’s  forecast 
that  ICT,  chemical  and 
(forthcoming)  shows 
machinery  are  sectors  in  which  new  jobs  will  be 
created in the coming years. The interface with the 
Smart Specialisation Strategies can help to address 
the skills and education mismatch. Some pilots are 
taking  place  in  Emilia  Romagna  Region  and 
Trento Province to connect secondary and tertiary 
curricula 
the  regional  smart  specialisation 
strategies’ domains.  

to 

of 

private 

The  contribution  of  small  firms  to  investment 
shrank after the crisis. In 2008, micro-firms and 
firms  with  less  than  20  employees  accounted  for 
38% 
industry, 
construction,  trade  and  services.  By  2017,  the 
share  had  gone  down  by  10  pps.  due  to  factors 
linked  to  firm  demography  but  also  to  higher 
barriers  smaller  firms  face  in  access  to  finance 
(Bank of Italy, 2019a). 

investment 

in 

Distressed firms weigh negatively on investment 
and productivity. The share of distressed firms is 
estimated  at  around  8  %  in  2014,  with  the  share 
slightly  higher  in  services  than  in  manufacturing. 
In  2013,  these  firms  absorbed  about  10%  of  the 
Italy,  2019a).  By 
capital 
withholding  resources,  distressed  firms  have  the 
potential  of  affecting  employment  growth  and  the 
investment  rates  of  other  more  productive  firms, 
thus  reducing  aggregate  productivity.  For  Italy, 
Bauer  et  al.  (2020)  find  a  negative  impact  on 
employment  growth  and  the  investment  rate, 

(Bank  of 

stock 

51 

 
                                                           
4.4. Competitiveness, reforms and investment 

be  beneficial 
effectiveness of the public employment. 

terms  of  efficiency  and 

in 

Graph 4.4.2:  Evolution of the "ease of doing business 

indicator" (100=top performer) 

only 

(1)  The  indicators  have  been  recalculated  taking  into 
account 
performance  
(2) The methodology was changed in 2015 
Source: European Commission calculations on World bank - 
Doing Business data 

EU  Member 

States' 

services 
improving 

of  public 
is  slowly 

is 
The  digitisation 
progressing. 
its 
Italy 
performance in offering digital public services  for 
the public and firms(66). However, in 2019, online 
interactions  between  public  authorities  and  the 
public were still low: only 32.3% of Italian internet 
users  opted  for  online  forms  and  procedures  (EU 
average:  67.3%)(67).  The  creation  of  a  new 
Ministry  of  Technological 
and 
Digitisation  might  support  digitisation  by  better 
coordinating  the  digital  transformations  of  the 
PAs,  especially  at  local  level.  Moreover,  in  2020 
the  government  will  launch  the  IO.it  smartphone 
app.  It  is  expected  to  make  some  public  services, 
both  at  national  and  local  level,  easily  accessible 
through  mobile  devices  and  in  doing  so  increase 
the  uptake.  To  be  successful  it  will  need  to  be 
quickly extended to other services so that it acts as 
a  proper  gateway.  Finally,  the  adoption  in  March 
2019  of  the  new  three-year  plan  for  information 

Innovation 

(66)  In  2019,  Italy’s  ranking  went  up  from  19th  to  18th  in  the 
digital  public  services  dimension  of  the  Digital  Economy 
and Society Index (DESI). 

(67)  Eurostat, ICT usage in households and by individuals.  

review,  Italy  has  one  of  the  lowest  scores  in  the 
EU  for  responsive  administration,  state  aid  & 
public procurement. 

Payment  performance  between  private  firms  is 
deteriorating. Delays in payments create financial 
constraints  for  suppliers,  worsening  their  liquidity 
management.  Only  35.5%  of  payments  are 
executed  within  the  contractual  deadline  while 
excessive delays (beyond 30 days) have more than 
doubled since 2010(64). This is particularly true for 
larger  firms:  only  12%  of  larger  businesses  (vs 
36%  of  micro  SMEs)  pay  their  invoices  on  time. 
The construction sector is particularly affected, by 
late payments both by other businesses (B2B) and 
by  public  administration  which,  among  other 
challenges (65),  contribute  to  its  low  performance 
(Section 4.4.1).  

New policy initiatives have been put forward to 
improve  the  business  environment.  Following 
the  2015-2017  simplification  agenda,  a  new 
agenda  (2018-2020)  is  being  implemented  to 
support  firms  by  simplifying  the  authorisation 
processes.  However,  an  assessment  of  the  actual 
impact  of 
is  still  missing. 
Moreover,  the  ICT  plan  for  public  administration 
and  the  online  portal  for  national  incentives  are 
meant  to  further  simplify  the  procedures  and 
increase 
(PA) 
responsiveness to business. 

the  first  agenda 

administration’s 

public 

turnover  of  public 

Measures to improve public administration are 
ongoing.  While  the  public  administration  reform 
of 2015 is being operationalised, the “concretezza” 
bill  was  adopted  in  June  2019  establishing  a 
support  group  to  help  administrations  with  the 
actual enforcement of the reforms and allowing the 
complete 
employment. 
Moreover, in 2019 two draft laws were announced 
to  simplify  and  codify  the  current  legislation,  and 
including  at 
to 
management  level.  These  measures  complement 
those adopted with the 2015 reform on recruitment 
procedures,  the  planning  of  competence  needs, 
skills  and  performance  evaluation  and  whose 
operationalisation  is  still  ongoing.  The  new  set  of 
measures,  if  properly  and  swiftly  enforced,  could 

improve  public  employment, 

(64)  Osservatorio 

Pagamenti 

CRIBIS 

2019 

https://www.cribis.com/media/80596/studio-pagamenti-
italia-q1-2019.pdf 

(65)  Add reference OSSERVATORIO 

52 

55.0060.0065.0070.0075.0080.0085.002010201120122013201420152016201720182019ItalyFranceGermanySpainUK 
                                                           
   
                                                           
4.4. Competitiveness, reforms and investment 

the  central  and 

making it transparent, despite significant efforts in 
recent  years  by  both 
local 
authorities (e.g. initiatives to improve aggregation, 
the  creation  of  a  contract  register  and  technical 
work  to  build  a  coherent  e-procurement  system). 
An efficient public procurement system could also 
help  preventing  the  infiltrations  of  organised 
crime,  which  are  a  serious  concern  in  various 
regions,  also 
the  detriment  of  overall 
institutional quality. (71) 

to 

of 

of 

the 

and 

182 

limited 

awareness 

in  Germany). 

Administrative capacity also affects the correct 
single  market 
implementation 
framework.  In  2018,  the  number  of  notifications 
of  draft  technical  regulations  in  Italy  (82)  was 
much  lower  than  in  peer  countries  (e.g.  199  in 
Public 
France 
administration’s 
the 
obligations  under the Single  Market Transparency 
Directive (72)  and  the  lack  of  coordination  might 
play a role. Knowledge gaps affect in particular the 
Ministry  of  Infrastructure  and  Transport, 
the 
agencies 
for  communication,  digital  affairs, 
aviation and railway security. Lack of notifications 
of  new  rules  may  generate  technical  barriers  to 
trade, by preventing their preliminary screening by 
the  Commission  and  other  Member  States. 
Moreover,  poor 
resource 
constraints  continue  to  limit  the  effectiveness  of 
market  surveillance  of  goods  and  the  number  of 
non-compliance 
shared  with  other 
Member  States  remains  low,  affecting  the  whole 
single market (European Commission 2019a).  

coordination 

findings 

and 

Justice and corruption 

Despite recent improvements, the low efficiency 
justice  system  remains  a 
of  Italy's  civil 
challenge.  The 
resolve  civil  and 
time 
commercial  litigious  cases  in  Italy  remains  the 
highest in the EU at higher instances (73). Lengthy 
civil  proceedings  can  hinder  entrepreneurial 
activity  and  foreign  direct  investment  (Lorenzani 

to 

(71)  In  2018,  23  municipalities  body  were  dissolved  for  the 
infiltration  of  organised  crime  (mafia),  of  which  11  in 
Calabria,  5  in  Sicily,  4  in  Puglia  and  3  in  Campania.  In 
2017,  21  municipalities  body  were  dissolved  for  the 
infiltration  of  organised  crime  (mafia),  of  which  12  in 
Calabria,  4 in  Campania, 2  in  Puglia,  2 in  Sicily  and 1  in 
Liguria (Yearbook of official statistics of Interior Ministry, 
2019, and 2018; DNA National Report 2019, pp.230ff). 

(72)  Dir. (EU) 2015/1535. 
(73)  Namely,  863  days  in  second  instance  and  1266  days  in 

third instance in 2018. 

technology in public administration 2019-2021(68) 
represents another important development. 

to 

strategy 

capacity 

integrated 

strengthen 
An 
administrative 
is  needed.  The 
government  and  stakeholders(69)  identified  the 
weak  administrative  capacity,  especially  at  local 
level,  as  one  of  the  main  challenge  for  the  PA, 
investment, 
especially  when 
dealing  with 
implementing  public  procurement 
rules  and 
absorbing  EU  funds (70).  Most  Italian  public 
employees have a legal-administrative background 
but lack economic and technical skills. Moreover, 
almost 30 % of public employees said they do not 
have access to supporting material (less than 10 % 
in  all  peer  countries  European 
(European 
Commission  2016).  To  tackle  this  issue,  two 
public  agencies  (“Struttura  per  la  progettazione” 
and  “Investitalia”)  were  set-up  in  early  2019  to 
assist  central  and  local  administrations  with  the 
investment 
planning  and 
projects. Moreover, a number of training initiatives 
have  been  launched  by  various  ministries  and 
public  bodies  based  on  their  different  priorities. 
However,  the  agencies  are  not  operational  yet, 
although  personnel  selection  is  progressing,  while 
trainings are only for a small portion of employees 
and are not centrally coordinated.  

implementation  of 

for 

Italy  has  not  yet  completed  key  reforms  to 
tackle  inefficiencies  in  the  public  procurement 
system.  The  numerous  attempts  to  reform  the 
local 
generated 
system 
uncertainty 
administrations  and 
firms  alike,  while  only 
marginally  countering  fragmentation.  Following 
two  stakeholder  consultations  in  2018  and  2019, 
the  government  will 
single 
regulation. This implies significantly scaling down 
the  role  of  the  anti-corruption’s  guidelines.  The 
government also announced its intention to review 
the code again in 2020. There has been no progress 
in  the  coordination of  public  procurement  policy 
(European  Commission,  2019a).  These 
issues 
prevent  Italy  from  going  further  in  streamlining 
and  rationalising  its  procurement  as  well  as 

reintroduce  a 

(68)  It follows and updates the previous plan for 2017-2019.  
(69)  Several  ministries  (including  the  Ministry  of  Finance, 
Ministry  of  Infrastructure,  Ministry  for  the  South)  and 
stakeholders (Confindustria, Bank of Italy, SVIMEZ)  
(70)  As  of  December  2019,  only  29%  of  European  structural 
funds  (against  an  EU  average  of  39%)  and  2.8%  of  the 
national Development and Cohesion Fund programmed for 
2014-2020 had actually been spent in Italy 

53 

 
                                                           
                                                           
4.4. Competitiveness, reforms and investment 

instances;  reforms 
the  rules  for  real  estate 
expropriation  and  the  division  of  community 
property; and makes further progress in digitalising 
civil proceedings. Moreover, the 2020 draft budget 
allows the hiring of new judges as of 2020, which, 
coupled  with  more  flexibility  in  the  allocation  of 
judges  where  most  needed  through  ‘flexible  task 
forces’, could reduce the backlog  in courts  with a 
high number of pending cases, especially at second 
instance. 

service, 

Italy’s anti-corruption framework is improving 
but  needs  to  be  completed.  Italy  has  recently 
improved  its  anti-corruption  system  by,  among 
other things, adopting a new framework to protect 
whistleblowers,  giving 
the  National  Anti-
corruption Authority (ANAC) a stronger role, and 
passing  an  anti-corruption  law  in  January  2019. 
Influence  peddling  has  been  criminalised  in  line 
with  international  standards  and,  given  the  rising 
contiguity  of  corruption  with  organised  crime 
unveiled  by 
the 
the  prosecution 
applicability  of  investigative  tools  for  the  fight 
against  organised  crime  has  been  extended  to 
corruption  cases.  Nonetheless,  embezzlement  in 
the private sector remains only partly criminalised; 
provisions  against  lobbying  do  not  apply  to 
government and parliament members; and there is 
no  regulation  sanctioning  conflict  of  interest  for 
elected  public  officials.  ANAC  has  continued  its 
efforts  to  prevent  corruption,  also  via  its  2019 
guidelines  to  regulate  conflict  of  interest.  There 
its 
has  been  a  rise 
implementation  in  the  private  sector  remains 
problematic  due  to  the  voluntary  nature  of  a 
compliance  programme. (76)  Finally,  amendments 
to  the  Public  Procurement  Code  may  increase  the 
degree  of  discretion  in  procurement  proceedings, 
by  raising  the  ceiling  for  direct  awards  from 
€40,000  to  €150,000.  It  is  also  worth  noting  that 
the  recent  improvements  in  Italy’s  anti-corruption 
framework  mentioned  above  are  still  only  to  a 
limited  extent  reflected  by  perception  indicators. 
Italy  ranked  62nd  in  the  Worldwide  Governance 
indicator  of  control  of  corruption  and 
2019 
in  Transparency 
received  a  score  of  53% 
International’s  2020  corruption  perception  index, 
both  among  the  worst  in  the  EU  and  with  only  a 
marginal 
improvement  compared  to  the  year 
before. Moreover, in 2018, 91% of firms consider 
corruption  to  be  widespread  in  the  country  (EU 

in  whistleblowing,  but 

(76)  ANAC’s 2019 report on whistleblowing. 

and  Lucidi,  2014).  During  2018,  disposition  time 
decreased  by  4%  at  first  instance  (Ministry  of 
Justice),  3.4%  at  second  instance  and  2.5%  at  the 
(European  Commission, 
Court  of  Cassation 
2020c). In second instance, that was mainly due to 
clearance  rates  above  100%,  despite  a  steady 
increase in appeal rates for civil cases from 19% in 
2014  to  24%  in  2018.  At  the  Court  of  Cassation, 
the  recently  observed  positive  trend  may  soon  be 
reversed by a marked rise in incoming cases in the 
field  of  international  protection  (+450%  in  one 
year)  and  tax  disputes  (+10%  in  one  year),  with 
very high rates of inadmissibility and rejection. (74) 
Concerns  thus  remain  about  the  quality  of  Italy’s 
tax justice system at first and second instance, and 
the  Court  of  Cassation  managed  to  maintain  a 
clearance rate around 100%, mainly by employing 
additional  judges  in  its  tax  section.  Reforms  are 
under  discussion 
further 
specialise  the first and second instance tax courts. 
Concerns also remain regarding the  differences in 
performance  between  courts  and  the  high  number 
of vacancies for administrative staff. Overall, some 
civil  justice  reforms  passed  in  recent  years  and 
organisational  measures  are  starting  to  translate 
into efficiency gains in terms of lower backlog and 
trial  length.  Nevertheless,  in  order  to  reduce  trial 
length  there  is  still  ample  room  to  ensure  a  more 
efficient management of cases and limit unfounded 
appeals, including to the Court of Cassation. 

restructure  and 

to 

A comprehensive draft reform to streamline the 
civil  procedure  is  under  discussion.  Adequate 
enforcement  of  simpler  procedural  rules,  coupled 
with  a  greater  use  of  effective  case  management 
practices,  could  help  to  decisively  speed  up  civil 
trials.  A draft law (75) enabling the government to 
substantially  streamline  the  civil  procedure  was 
approved by the Council of Ministers in December 
2019 and now has to be passed by Parliament. The 
proposal  extends  the  use  of  simplified  procedures 
and  the  range  of  cases  where  a  single  judge  is 
competent  to  adjudicate.  It  also  removes  the 
admissibility filter for appeals, as it failed to attain 
the expected result of reducing litigation in higher 

(74)  As a result, around 19% of all civil appeals to the Supreme 
Court were declared inadmissible in 2019, and around 50% 
of the others were rejected (Court of Cassation, 2020). The 
share  of  tax-related  matters  on  the  pending  cases  at  the 
Supreme  Court  steadily  increased  from  44%  in  2014  to 
56% in 2018. 

(75)  Atto  Senato  n.  1662.  “Delega  al  Governo  per  l’efficienza 
del processo civile e per la revisione della disciplina degli 
strumenti di risoluzione alternativa delle controversie”. 

54 

 
                                                           
                                                           
average:  63%).  In  this  regard,  81%  and  77%  of 
firms  believe  that  it  affects  public  procurement 
managed  by  national  and 
local  authorities 
respectively  (EU  average:  53%  and  54%);  and 
54% still regard it as a hindrance to doing business 
(EU  average:  37%),  which  is  2  percentage  points 
higher than in 2017 (77). 

The  low  efficiency  of  criminal  justice  at  the 
appeal level continues to hinder the prosecution 
of  corruption,  in  the  absence  of  an  urgent 
reform of criminal trials. Italy’s long disposition 
time for criminal cases continues to raise concerns 
at  the  appeal  level  (860  days),  despite  a  decrease 
by  around  6%  over  2017-2018.  Instead,  positive 
results in containing trial length have recently been 
recorded by first instance courts (382 days) and the 
Court of Cassation (156 days) despite higher than 
EU average litigation. A welcome reform stopping 
the  statute  of  limitations  after  a  first-instance 
ruling,  which  is  in  line  with  a  long-standing 
country-specific  recommendation,  entered 
into 
force  in  January  2020.  As  a  result,  measures  to 
increase efficiency will be needed especially at the 
appeal  level, (78)  where  still  around  25%  of  cases 
were  declared 
in  2018.  The 
time-barred 
government  has  been  discussing  for  some  time 
now a much-needed reform of criminal procedure, 
including  a  revision  of  the  notification  system;  a 
broader  use  of  simplified  procedures;  a  limitation 
to  the  possibility  of  appealing  by  requiring  a  new 
power of attorney for lawyers; the introduction of a 
for  direct 
single 
summons;  a  broader  use  of  e-tools  for  filing 
documents; and simplified rules on evidence. Swift 
adoption of these measures, coupled with others to 
tackle  the  large  number  of  cases  at  appeal  courts, 
could  improve  the  efficiency  of  criminal  justice 
and 
fight  against 
corruption.  Instead,  the  possible  introduction  of 
new  cases  of  judges’  disciplinary  liability  should 
be  carefully  monitored  as  regards  their  impact  on 
the functioning of the judiciary. 

the  effectiveness  of 

in  second 

instance 

judge 

the 

(77)  Flash Eurobarometer 482 on “Businesses' attitudes towards 

corruption in the EU” of 9 December 2019.  

(78)  Clearance  rates  have  been  steadily  hovering  around  unity 

in the past 10 years. 

4.4. Competitiveness, reforms and investment 

4.4.3.  SINGLE MARKET INTEGRATION AND 
SECTORAL PERFORMANCE* 

Intra EU trade for goods represents the biggest 
share  of  Italian  imports  and  exports,  but  the 
share of overall intra-EU trade is  shrinking. In 
2018  trade  within  the  single  market  accounted 
respectively  for  56%  of  total  exports  and  59%  of 
total  imports  (€261  and  250  million,  i.e.  32%  of 
GDP  overall).  While  Italy  remains  one  of  the 
Member  States  with  the  highest  intra-EU  trade 
share(79), its relative weight on overall EU exports 
went down from 8.4% to 7.4% and the share of EU 
imports from 8.3% to 7.3%.  

Participation in the single market for goods has 
proven  beneficial  for  Italy  but  challenges  with 
the  enforcement  persist.  Estimates  show  that 
integration in the single market for goods led to an 
average  6.5%  increase  in  intra-EU  trade  for  Italy 
(WIFO 2019). The impact was particularly high in 
the textiles, leather products,  transport equipment, 
food  and  beverages  sectors  and  slightly  negative 
for  rubber,  machinery  or  basic  metal  industries. 
WIFO also estimates there is a significant potential 
for  additional  increases  if  Italy  were  to  fully 
comply  with  the  single  market  legal  framework. 
However,  the  transposition  deficit,  although  still 
moderate,  doubled  from  2018,  and  most  of  the 
the  handling  of 
indicators 
infringements) 
average 
performance.  The 
ineffective  enforcement  of 
single  market  rules  increases  uncertainty  and 
reduces 
incentives  for  foreign  and  domestic 
investment. 

(in  particular 
remain 

below  EU 

Participation in the single market for services is 
much  less  developed.  Italy  has  one  of  the  lowest 
shares  in  the  EU  of  total  import/export  of  service 
over  GDP  (around  6%  in  2018).  Exports  and 
imports  of  services  amounted  respectively  to  €59 
and 69 million in 2018 and have been growing at a 
much slower pace than the EU average. 

Italy  has  relatively  low  integration  in  the  EU 
value chain, despite its potential to increase the 
country’s  productivity.  Looking  at  the  share  of 
regional  value-added,  Italy  ranks  19th  among 
Member States for services, 12th for manufacturing 
and  22nd  for  utilities  (European  Commission 

(79)  The  Member  States'  contribution  (in  value  and  %)  to  the 

intra-EU trade. 

55 

 
                                                           
                                                           
4.4. Competitiveness, reforms and investment 

confirms  this  result  (82).  It  also  identifies  Italy  as 
one of the most restrictive countries in the EU for 
the  retail  sector  (double  the  EU  average).  The 
restrictiveness 
European  Commission’s 
indicator  also  places  Italy  among 
the  most 
restrictive  Member  States,  particularly  for  its 
regulations on the opening of new shops(83).  

retail 

Graph 4.4.3:  OECD Product Market regulation indicator 

evolution 

(1) The methodology changed in 2018 edition 
Source: OECD 

reform 

though 

the  2012 (84) 

Overregulation  affects  market  dynamics  and 
may  weigh  on  the  retail  sector’s  performance. 
Even 
removed 
significant  territorial  and  quantitative  restrictions, 
regional  and  local  regulations  still  impose  strict 
conditions  in  the  authorisation  process  for  the 
opening  of  new  shops.  Restrictions  remain  for 
sales  promotions  and  the  distribution  of  some 
products,  including  non-prescription  drugs.  Even 
for shops' opening hours, fully liberalised in 2012, 
draft  legislation  bringing  back  limits  on  Sunday 
trading is pending in Parliament. These regulations 
might make it difficult for retailers to develop new 
business  models,  adjust  to  changing  consumer’ 

2019i). The finding suggests that Italian firms may 
not  be  fully  exploiting  the  opportunity  offered  by 
the  single  market  to  reorganise  the  production 
process  in  order  to  maximise  productivity.  For 
Italy,  participating in intra-EU value chains tends 
to  translate  into  an  higher  domestic  added  value 
than  participating 
in  extra-EU  ones  (ISTAT 
2019g), confirming the relevance of single market 
integration as a tool to increase productivity. 

Removing  restrictions 
to  competition  and 
easing  regulation  in  the  service  sector  would 
benefit the economy as a whole. Services account 
for  70.9%  of  value  added,  69.9%  of  employment 
and  represent  40%  of  the  manufacturing  value 
chain (ECSIP  2014).  Yet  productivity  growth  is 
very  low  in  most  service  sectors  (Section  4.4.1). 
Increasing competition and easing the entry of new 
firms  would  benefit  consumers  and  boost 
productivity  –  AGCM  2019  and  European 
Commission (80). 
unnecessary 
regulatory  hurdles  weigh  on  business  activity  and 
competitiveness (World Economic Forum 2019).  

Nevertheless, 

in 

The 2015 Competition Law was the last attempt 
to  remove  restrictions,  and  its  implementation 
is  still  ongoing.  Since  the  law’s  adoption  of  the 
law  in  August  2017,  no  more  pro-competition 
efforts  have  been  made.  Implementation  is  still 
ongoing  while  some  backtracking  measures  have 
been  adopted.  Beyond  a  number  of  implementing 
decrees still pending, the phasing out of regulated 
the  energy  sector  has  again  been 
tariffs 
postponed until 2022 (they were supposed to enter 
into 
another 
following 
postponement 
from  mid-2019).  Moreover, 
restrictions  on  prices  were  re-introduced  in  2018 
for  regulated  professions  (equo  compenso)  and 
backtracking  measures  on  the  retail  sector  are 
under  discussion.  The  government  so  far  has  not 
announced  any  new  initiatives  on  competition 
policy. 

force  mid-2020, 

Market  access  restrictions  remain  high  for 
regulated  professions  and  the  retail  sector. 
According  to  the  European  Commission  (81),  the 
level  of  restrictiveness  in  Italy  is  higher  than  the 
EU  average  for  engineers,  architects,  accountants, 
real  estate  agents, 
tourist  guides  and  patent 
attorneys. The 2018 OECD PMR indicator broadly 

(80)  SWD(2019) 444 final 
(81)  COM(2016) 820 final; SWD(2016) 436 final). 

(82)  The  OECD  sector  Product  Market  Regulation  indicators 
measure  regulatory  barriers  to  firm  entry  and  competition 
at the level  of individual sectors, with a focus on network 
industries,  professional  services,  and  retail  distribution. 
Available 
at: 
https://www.oecd.org/economy/reform/indicators-of-
product-market-regulation/.  

(83)  Italy  is  the  most  restrictive  Member  States  for  the 
regulations on the establishment of new shops and second 
most  restrictive  in  the  overall  score,  covering  both  retail 
establishments and the daily operations of retailers. 

(84)  Decree  Law  201/2011,  https://www.normattiva.it/uri-

res/N2Ls?urn:nir:stato:decreto.legge:2011;201 

56 

0.000.501.001.502.002.503.003.504.004.502003200820132018FranceGermanyItalySpainUnited Kingdom 
                                                           
     
                                                           
4.4. Competitiveness, reforms and investment 

legislator extended prior beach concessions for 15 
more years, renewed street trade concessions until 
the end of 2020 and even excluded the street trade 
application  of  Directive 
from 
sector 
2006/123(88).  

the 

4.4.4.  REGIONAL DISPARITIES 

The  regional  divide  between  the  North  and 
South continues to widen. The partial recovery of 
2015-2017 also touched the less developed regions 
but  did  not  reduce  the  high  level  of  regional 
disparities.  In  2018,  growth  was  sluggish  and 
regional disparities between northern and southern 
regions  widened  again.  As  a  result,  southern 
regions  continue  to  substantially  lag  behind,  with 
GDP  per  head  below  75%  of  the  EU  average.  In 
the two poorest regions, Calabria and Sicily, GDP 
per head is below 60% of the EU average.  

in 

the  Centre-North 

Public  investment  decreased  in  the  South. 
spending 
Between  2008  and  2018,  public 
increased 
(+1.4%)  and 
in 
the  South  (-8.6%) 
decreased  significantly 
(SVIMEZ,  2019).  Public  investment  in  Italy  fell 
from  2.9%  of  GDP  in  2007  to  2.1%  of  GDP  in 
2018,  mainly  due  to  a  decrease  of  investments  at 
local  level,  particularly  in  less  developed  regions. 
In  2018,  investment  in  public  works  in  the  South 
(€102 per capita) was less than 40% of the level in 
the Centre-North (€278 per capita) and the share of 
public  investment  dedicated  to  the  South  was 
29.6%  (down  from  39.2%  in  2000)  (SVIMEZ 
2019).  With  reference  to  Italy’s  commitment  for 
national  public  investments  in  the  South  over 
2014-2020  set  in  the  Partnership  Agreement  (89), 
concerns were raised about the country capacity to 
comply  with  the  additionality  requirement  for 
European  Structural  and 
Investment  Funds, 
together  with  recalling  the  decisive  importance  of 
stepping up public investment to meet the needs of 
its less developed regions. 

Recent  measures  are  expected 
to  boost 
investment  in  the  South.  The  2020  budget 
strengthens  the  “34%  investment  clause  for  the 
South”,  which  aims  to  reduce  regional  disparities 
in the allocation of public capital expenditure. The 

(88)  Law 205/2017 and Law 145/2018 
(89)  In  compliance  with  article  15.1.B.ii  of  Regulation 
1303/2013 of the European Parliament and of the Council. 

in  an 

preferences  and  compete 
increasingly 
digitalised  environment  (European  Commission 
2018b).  Backtracking  on  the  liberalisation  could 
have  negative  economic  effects  on  the  sector. 
Between  2006  and  2016,  municipalities  where 
shops  are  allowed  to  stay  open  24/7  registered 
higher  growth 
retail  sector’s 
in 
employment and in the number of shops (Bank of 
Italy,  forthcoming).  Restricting  Sunday  trading 
could  also  make  it  more  difficult  for  offline 
retailers to compete with e-commerce. 

rates 

the 

to 

for 

new 

adopt 

delegated 

Italy  still  lacks  a  comprehensive  regulatory 
approach 
the  collaborative  economy.  
Despite the growth potential, regulatory initiatives 
for 
the  collaborative  economy  have  been 
fragmented  and  non-supportive  for  the  sector’s 
development.  For  collaborative  transport,  within 
the 
the  2015  Annual  Competition  Law, 
government  was 
a 
comprehensive revision of the rules for private hire 
vehicles  (PHVs)  to  promote  competition,  increase 
the quality of the service and let the offer adapt to 
the 
connecting 
technologies/modalities 
passengers  and  drivers.  However,  the  delegation 
expired  and  no  legislative  decrees  were  adopted. 
Furthermore,  recently  adopted 
legislation  has 
ultimately  introduced  restrictions  for  PHVs  (in 
force  since  2008  but  suspended  until  2018)  and 
provides that rules for online intermediaries in the 
area  of  transport  are  to  be  adopted  through  a 
separate  decree(85).  In  the  accommodation  sector, 
some provisions adopted recently(86), including the 
obligation  for  online  platforms  to  collect  taxes  on 
behalf  of  non-professional  stakeholders,  have 
increased legal uncertainty.  

not 

follow 

pro-competition 

The  system  for  granting  limited  authorisations 
does 
and 
transparency  principles.  “Concessions”  to  use 
public areas for providing a wide range of services 
(including  retail  and  tourism)  are  still  not  being 
granted on the basis of open selection procedures. 
This  implies  potential  negative  effects  on  the 
proper  market  evaluation  and  the  quality  of  the 
service.  Also,  existing  concessions  are  being 
repeatedly  extended  by  the  legislator,  contrary  to 
EU  and  national  case  law  (87).  For  example,  the 

(85)  Decree 135/2018, as modified by Law 12/2019.   
(86)  Law Decree No. 50/2017 
(87)  See  C-458/14  –Promoimpresa  srl  and  Others  v  Consorzio 
dei comuni della Sponda Bresciana del Lago di Garda e del 
Lago di Idro and Others. 

57 

 
                                                           
                                                           
4.4. Competitiveness, reforms and investment 

areas, particularly the South. By contrast, of all the 
active  enterprises  in  a  given  region,  the  highest 
share  of  HGEs  is  concentrated  in  the  South, 
particularly Basilicata and Molise (Flachenecker et 
al.,  2020).  'High-Growth'  therefore  appears  as  a 
signal  of  enterprise  resilience  in  such  regions, 
which  are  characterised  by  an  overall  lower 
number of firms. Compared to the North, southern 
HGEs  are  more  active  in  manufacturing-related 
industries  than  in  services  and  human  capital-
intensive  industries.  The  difficulty  of  accessing 
risk capital is a persistent limitation for the scaling-
up of southern firms (Nascia et al., 2020).  

Graph 4.4.4:  Regional Competitiveness Index in Italy, 2019 

(1) The index measures the ability of a region to offer an 
attractive and sustainable environment for firms and 
residents to live and work. 
Source: European Commission 

The South lags behind in R&D and innovation. 
R&D expenditure in percentages of GDP is highest 
in  northern  Italy.  The  best  performing  regions 
(Piedmont, Emilia-Romagna, and the Autonomous 
Province of Trento) spend more than three times as 
much on R&D as the lowest performing, Calabria 
(0.52% of GDP). Italian regions also differ widely 
for  employment  in  high-tech  sectors.  In  2017, 
more  than  1  out  of  2  employers  in  high-tech 
sectors  was  located  in  the  North  of  Italy,  while 
28.4%  were  working  in  the  Centre  of  Italy  and 
only 15.2% in the South.  

for 

that 

since 

January  2019, 

possibility, 
local 
governments to spend their surpluses without prior 
is  producing  positive  effects  in 
authorisation 
budgetary 
municipalities 
surpluses  in  past  years.  Moreover,  in  2019,  there 
was an increase in tenders for public works in the 
South and this might produce an increase in public 
investment  spending  in  the  next  years  (Bank  of 
Italy, 2019b). 

experienced 

The  low  institutional  quality  of  the  southern 
regions  reduces  the  effectiveness  of  public 
spending. The implementation of EU and national 
funds continue to suffer from substantial delays in 
the South, although Italy has reached the financial 
targets  set  under  cohesion  policy  funds  at  the  end 
of  2019.  Investment  in  the  South  is  particularly 
constrained  by  a  fragmentation  of  initiatives,  the 
low  technical  capacity  of  local  administrations, 
overlapping  responsibilities,  weak  monitoring  and 
delayed  project  implementation  and  the  lack  of  a 
result-oriented  approach.  Gaps 
institutional 
quality areas are clear in the management of some 
public  services  (box  4.5.1),  and  in  the  business 
environment.  For  instance,  in  Reggio  Calabria 
building permits  for SMEs are issued in 320 days 
compared  to  100  days  in  Milan  (World  Bank, 
2019). 

in 

in 

Southern regions generally have lower levels of 
productivity  and  are  less  competitive.  Since  the 
economic  crisis,  gaps  in  productivity  between  the 
least  performing  regions  in  Italy  and  the  EU 
average  have  steadily  increased.  In  2017,  labour 
productivity 
the  most  productive  areas 
(Lombardy,  autonomous  province  of  Bolzano  and 
Trento)  was  around  30%  higher  than  in  the  three 
least  productive  regions  (Calabria,  Apulia  and 
Sardinia).  The  lowest  competitiveness  scores  can 
be  found  in  Calabria,  Sicily  and  Sardinia  (Graph 
4.4.3).  The  quality  of  governance  also  affects 
(European  Commission, 
regional  productivity 
2019a).  Bringing 
the 
the 
municipalities in the 25th percentile to the level of 
those  in  the  75th  percentile  could  bring  about  a 
sizeable  impact  on  productivity  (OECD  2019b). 
The  lack  of  adequate  transport  infrastructure  also 
weighs  on 
internationalisation  of 
the 
southern firms (SVIMEZ, 2019).  

efficiency 

lower 

of 

The ability to grow fast distinguishes companies 
enduring  in  Italian  regions.  HGEs  are  mostly 
clustered in Lombardy, differing widely from other 

National  policies 
to  boost  research  and 
innovation tend to benefit the North. Indeed, in 

58 

 
 
4.4. Competitiveness, reforms and investment 

represents  an  important  resource,  as  it  employs 
15.6%  of  the  employees  of  local  industry  and 
services,  compared  to  a  national  average  of  2.1% 
funds  are 
(ISTAT,  2019g).  EU  Cohesion 
supporting this industry (Box 2.1).  

these  regions 
the  potential  for  research  and 
innovation  is  stronger  (Nascia  et  al.,  2020).  In 
2017,  the  hyper-depreciation  was  used  mostly  in 
the  North,  in  particular  in  Lombardy  (34.8%). 
Research  and  innovation  (R&I)  in  the  southern 
regions  are  mainly  supported  by  programmes  co-
financed through EU Structural Funds, but they are 
not able to reverse the gap in R&I. This is mainly 
because  the  enterprise  base  in  the  South  is  weak 
and  its  demand  for  innovation  is  scarce.  No 
significant  measures  have  been  taken  to  address 
this  challenge.  So  far,  the  potential  of  the  smart 
specialisation  strategies  to  foster  innovation  has 
not been fully exploited in the South. 

Regions  with  high  rates  of  unemployment  are 
losing  population  and  high-skilled  people.  An 
increasing  share  of  the  population  in  the  South, 
often  young  and  highly-educated,  is  migrating  to 
the  North  of  Italy  or  abroad,  mainly  to  other 
European countries (section 4.3). As a whole, over 
2  million  people  left  Italy's  southern  regions 
between 2002 and 2017. In 2017 alone, more than 
132,000  people  left  the  South,  including  66,557 
young  people,  33%  of  whom  were  graduates 
(SVIMEZ,  2019).  Incentives  to  keep  and  attract 
people in the South (such as “Resto al Sud”) do not 
seem  to  be  very  effective.  The  loss  of  population 
concerns is a critical issue in rural areas, not only 
in  the  South,  and  is  creating  growing  problems 
with basic services and land management.  

sector  can  be  an  economic 
The  green 
opportunity  for  the  South.  For  instance,  in  the 
South about two thirds of agricultural land is being 
organically farmed. In addition, the South captures 
about  50%  of  the  overall  electricity  production 
from  renewable  sources (SVIMEZ,  2019).  Apulia 
is  Italy’s  leading  region  in  terms  of  installed 
photovoltaic  and  wind  capacity,  accounting  for 
13.2% and 24.5% of Italy’s total production. In the 
wind sector, Sicily with 18.3% and Campania with 
14.2% of the total production, are respectively the 
second  and 
leading  Italian  regions  for 
installed  capacity.  Despite  this,  the  energy  local 
value chain in the South is not well developed, as 
technology  and  most  firms  come  from  other  parts 
of Italy or Europe.   

third 

tourism 

represent  a 
(Sustainable) 
development opportunity for rural areas. Over a 
fifth of the tourist presence in Italy is recorded in 
rural  municipalities.  In  these  territories,  tourism 

could 

59 

 
4.5.  ENVIRONMENTAL SUSTAINABILITY 

Italy  performs  well 
in  a  number  of  key 
environmental  sustainability  parameters.  Italy 
is  making  good  progress  in  most  of  the  indexes 
related  to  Sustainable  Development  Goal  (SDG) 
13  (climate  change).  For  instance,  between  2005 
and  2018, Italy  has  decreased  by  18%  its  average 
greenhouse  gas  (GHG)  emissions,  in  sectors  not 
covered  by  EU  emissions  trading  system  (ETS), 
and its total GHG  emissions  per capita, expressed 
in tons equivalent,  are  significantly below the EU 
average. However, while firms seem to have taken 
more measures to address environmental concerns, 
improving energy efficiency of households will be 
key. Italy is above the EU average  for SDG12 on 
resource productivity (90) (EUR 3.2/kg versus EUR 
2.04 in in 2018) and for investment in the circular 
economy.  

The Italian government is supporting the green 
transition.  Italy  is  quite  advanced  in  integrating 
environmental considerations  in the budget and in 
monitoring  the  progress  towards  environmental 
sustainability (Section 4.1). New initiatives as part 
of  Italy’s  integrated  National  Energy  and  Climate 
Plan  (NECP)  and  the  Italian  Green  Deal  are  a 
positive  step  to  support  the  green  transition  in  a 
structural way. Italy is also revising its 2013 action 
plan  on  green  public  procurement (91).  Other 
measures,  such  as  the  Transizione  4.0  plan  and 
‘Sustainable  Industry’  (92),  can  further  support 
firms  in  green  investment  (Section  4.4.1).  A 
dedicated  fund  will  support  investment  in  the 
public 
including 
green 
guarantees. Moreover, the new additional fund for 
investment of the central administration (around 20 
billion  euros  over 
the  period  2020-2034) 
canpromote  the  green  economy,  particularly  to 
decarbonise  it,  reduce  emissions,  and  promote 
energy efficiency and environmental sustainability. 
The  new 
local 
administrations  can  also  contribute  to  this  end. 
However, better exploiting synergies across sectors 
and policies and promoting a cost-effective use of 
public  resources  is  key.  In  this  regard,  the  highly 
decentralised governance system in Italy remains a 
challenge. 

additional 

economy, 

through 

fund 

the 

for 

(90)  How  efficiently  the  economy  uses  material  resources  to 

produce wealth. 

(91)  Minimum  environmental  criteria  have  been  published  for 

18 product groups. 

(92)  Decreto ministeriale 2 agosto 2019 - Bandi grandi progetti 

R&S a valere sulle risorse FRI.  

of 

planned 

investment 

Italian  firms  are  becoming  ’greener’.  In  2017, 
56%  of  manufacturing  firms  took  some  type  of 
environmental protection measures. However, only 
internalise 
to 
them 
15.7% 
environmental  costs  and  13.4% 
to  continue 
investing  in  the  circular  economy  (ISTAT,  2018). 
Between  2015 
in 
and  2016, 
environmental  protection  by  firms  increased  by 
2.3%,  mainly  thanks  to  SMEs  (where  it  grew  by 
12.9%),  while  among  large  firms  it  decreased 
slightly  (-0.4%)  (ISTAT,  2019f).  In  2017,  the 
share  of  SMEs  offering  green  products  and 
services  was  lower  than  the  EU  average  (16% 
versus 25%) (European Commission, 2019g). Eco-
investment  helps  export  performance,  as  51%  of 
companies  investing  in  eco-innovation  increased 
exports in 2018 against 38%  of those that did  not 
(Symbola and UnionCamera, 2019).  

The  green  transition  can  have  positive  social 
impacts, if adequately supported. Eco-industries 
and  jobs  are  increasing  in  Italy.  In  2017,  they 
represented 2.3% of GDP. The value-added of eco-
industries is the highest in the energy sector (60%), 
followed  by  waste  (around  20%)  and  water 
(around  8%).  Since  2015,  the  highest  growth  rate 
(+28%)  has  been  recorded  for  organic  agriculture 
and  waste  management  (ISTAT,  2019g).  The 
number  of  people  working  in  the  environmental 
goods  and  services  sector  has  been  growing  at  a 
fast  pace  and  stood  at  386,000  people  in  2016. 
While  the  green  transition  is  expected  to  lead  to 
positive net job creation, labour reallocation across 
sectors  will 
likely  be  significant.  Therefore, 
investment  in  upskilling  and  skills  anticipation 
strategies  will  be  crucial  to  equip  workers  with 
new  competencies  (Section  4.3.2).  Measures  to 
promote  energy  efficiency  could  also  improve 
access  to  affordable  energy  (SDG7),  as  the  share 
of the population unable to keep homes adequately 
warm remains very high (14.1% in 2018). 

in 

limited 

The  Just  Transition  Fund  can 
support 
industrial  transitions  away  from  coal.  Coal-
related  activities  are  very 
Italy. 
However,  they  are  a  significant  source  of  GHG 
emission  and  are  concentrated  in  a  few  areas. 
Sardinia has the only coal resources exploited (by 
Carbonsulcis 
poor 
socioeconomic  context.  In  Apulia,  there  is  a  steel 
mill (ILVA) employing 10,000 employees (double 
if  considering  ancillary  firms).  In  the  same  area, 
there is also one of the biggest coal power plants in 

located 

SpA), 

in 

a 

60 

 
 
                                                           
4.5. Environmental sustainability 

including  for  wind  power,  which  is  not  promoted 
by the existing policy framework. 

The building sector has a central role in fulling 
the  2030  energy  efficiency  target.  While  the 
share  of  SMEs  adopting  energy  efficiency 
measures in 2017 is slightly higher in Italy than in 
the  EU  as  a  whole  (91%  versus  89%)  (European 
Commission,  2019y),  the  residential  sector  is 
responsible for more than one third of total energy 
consumption.  Indeed,  most  of  the  14.5  million 
Italian  buildings  (ISTAT,  2015)  were  built  before 
criteria  for  energy  savings  and  corresponding 
legislation  were  adopted.  However,  existing  and 
planned  measures  do  not  seem  sufficient  to 
achieve the objectives proposed in the draft Italian 
draft NECP. For instance, the new tax incentive to 
renovate facades is not linked to energy efficiency. 

Graph 4.5.1:  Green-house gas emissions by sector, 2017 

Italy. This area is economically strongly dependent 
on  coal  power  plants  and  iron/steel  production, 
which  are  significant  sources  of  GHG  emissions. 
Measures could support SMEs and reskilling, in an 
integrated local strategy including decontamination 
and urban regeneration.  

is  key 

promoting 

sustainable 

Improving  energy  efficiency  in  the  building 
sector, 
transport, 
circular economy in lagging regions and climate 
risk  prevention 
for  Italy’s  green 
transition.  Investments  in  energy  efficiency  in 
(residential)  real  estate  are  needed  to  achieve 
climate  change  targets.  Investment  in  sustainable 
transport can contribute to reduce GHG emissions 
and  improve  air  quality.  The  development  of  the 
circular  economy  varies  widely  across  regions, 
with  some  paying  fines  for  infringements  of  EU 
regulations. Finally, Italy could reduce emergency 
expenditure  for  natural  disasters  by  strengthening 
risk prevention.  

Energy efficiency  

Italy is on track to achieve its 2020 climate and 
energy  targets.  In  2018,  Italy  has  fully  met  its 
12% interim target of reduction of GHG emissions 
(in sectors not covered by the EU ETS). By 2020, 
Italy is expected to overachieve its 13% target by 7 
percentage points. However, progress has recently 
slowed  down,  in  particular  regarding  the  2020 
renewable  target,  due  to  the  economic  situation 
and the overall reduction of support schemes.   

Further  efforts  are  needed  to  achieve  the  2030 
targets.  Existing  policies  are  expected  to  reduce 
GHG  emission  by  only  27%  against  the  binding 
target of 33%. Additional policy measures already 
planned  could  help  further  decrease  emissions  by 
up to 36% by 2030. Italy has also decided to raise 
the  share  of  renewable  energy  to  30%  of  the 
national gross final consumption of energy in 2030 
and  reduce  energy  consumption  by  9.3  Mtoe/year 
until 2030. In its draft NECP (93), Italy is aiming to 
phase  out  coal  for  electricity  generation  by  2025 
and  full  decarbonisation  for  2050.  Given  the 
reduction 
the  cost  of  renewable  energy 
technologies,  administrative  costs  will  play  a  key 
role. In addition, there is an untapped potential for 
repowering of existing renewable energy projects, 

in 

(93)  The  Commission  will  assess,  in  the  course  of  2020,  the 

final NECP submitted by Italy in December 2019.  

Source: Eurostat 

Private,  public  and  EU  funds  can  all  help  to 
support  the  investment  needed  to  achieve  the 
2030  EU  energy  and  climate  targets.  For  2014-
2020,  more  than  €230  million  in  cohesion  funds 
for Italy have been planned for renewables projects 
(45%  of  which  in  solar),  more  than  €1.37  billion 
for energy efficiency projects (including almost €1 
billion  to  renovate  public  buildings)  and  almost 
€400  million  to  finance  smart  electricity  and  gas 
distribution,  storage  and  transmission  systems 
projects  (including  smart  grids  and  ICT  systems). 
The Italian government estimates that an additional 
€186  billion  investment  in  the  national  energy 
system is needed between 2017 and 2030 (94). New 

(94)  In particular, the changes planned in the Italian energy mix 
in  the  next  decade  need  to  be  accompanied  by  measures 
which  compensate  for 
the  conventional  (load-based) 
capacity that is phased out and which provide flexibility to 
the system.  

61 

Energy supply25%Energy use in manufacturing12%Industrial processes and7%Transport23%Other energy use 19%Agriculture7%Waste management4%International aviation3% 
                                                           
  
                                                           
4.5. Environmental sustainability 

alpine  connections  (to  eliminate  bottlenecks  such 
as  in  the  Brenner  Base  Tunnel).  The  Turin-Lyon 
high-speed  line  is  expected  to  boost  rail  freight 
volumes.  Results  will  depend  on  Italy’s  ability  to 
complete key TEN-T projects in time.  

Ports  can  play  a  key  role  in  making  Italy  a 
sustainable  logistics  hub.  This  requires  linking 
them 
to  rail  connections  and  digital  cargo 
clearance.  However,  the  growth  of  Italian  ports 
remains  sluggish,  with  only  the  port  of  Genoa 
demonstrating  resilience  after  the  collapse  of  the 
Morandi  bridge.  EU  funds  are  supporting  port 
infrastructure  and 
links 
(€642.4  million).  €60  million  are  available  to 
digitalise and speed up cargo clearance procedures 
and  deliver  a  one-stop  shop.  Italy  has  also 
earmarked  €180  million  for  ports  and  dry  ports. 
However,  fast  implementation  is  needed  to  meet 
the  deadlines  of  the  2014-2020  programming 
period. 

intermodal 

last-mile 

There  is  a  potential  for  developing  sustainable 
urban  mobility.  Italy  has  started  adopting  urban 
sustainable  mobility  plans  (PUMS)  (99).  Their 
approval  by  October  2020  is  a  pre-requisite  for 
accessing national  funds and  loans. By the end of 
2019,  35  PUMS  were  approved  (with  only  two 
metropolitan  cities  —  Bologna  and  Genoa),  35 
were  finalised  but  not  yet  approved  and  88  were 
under  preparation.  Recent  measures  on  company 
cars (Section 4.1.3) could help reducing congestion 
and air pollution. The ‘Clima’ law-decree (100) is a 
positive  example  of  instruments  promoting  air 
quality.  The  national  strategy  plan  for  sustainable 
mobility  adopted  in  2019  allocates  €3.7  billion  to 
the renewal of the local public bus fleet. 

Circular economy 

Italy  performs  relatively  well  in  the  circular 
economy,  but  outcomes  vary  across  regions.  In 
2016, Italy was one of the EU’s top performers in 
the 
for 
economy, 
circular 
implementation 
(Circular  Economy  Network, 
2019),  with  a  secondary  circular-material  use-rate 
(SDG12)  of  17.1%.  Gross  value  added  and  jobs 
related to circular economy sectors (1.1% of GDP 

including 

investment  will 
this  effort.  In 

investment  needs  can  be  partly  covered  by  EU 
funds  such  as  the  European  Energy  Efficiency 
contribute 
Fund.  Private 
this  respect, 
to 
considerably 
measures  to  support  sustainable  finance  (Section 
4.2)  will  be  important.  The  EIB  is  providing 
firms (95).  The  central 
financial  support 
in 
government 
is 
promoting energy efficiency (96).  

supporting  municipalities 

to 

Sustainable transport  

Three  infringements  are  open  for  air  pollution 
against  Italy.  It  is  estimated  that  3.3%  of  the 
Italian population (2.0 million inhabitants) lives in 
areas where EU air quality standards are exceeded. 
Particularly  severe  concerns  are  raised  about 
significant  negative  health 
fine 
particulate  matter levels (97) but the health burden 
(in terms of  years of life lost) for other indicators 
(O3,  NO2)  is  also  above  the  EU  average.  Air 
pollution also affects soils, vegetation surfaces and 
waters,  with  the  Po  Valley  having  some  of  the 
highest exceedances in 2016.  

impacts  of 

Decarbonising  transport  is  key  to  reducing 
greenhouse gas emissions. It is estimated that the 
cost of transport externalities amounted to 6.8% of 
Italy’s  GDP  in  2016  (98).  In  2017,  transport 
accounted  for  23%  of  these  emissions  (Graph 
4.5.1), due to road traffic (over 80 % of trips made 
by  private  car)  and  inefficient  combustion.  Italy 
has  one  of  the  oldest  vehicle  fleets  in  Western 
Europe,  with  the  most  polluting  vehicles  (with 
EURO  0-EURO  3  standard)  making  up  around 
45% of the total fleet and 59% in public transport 
in 2018 (Transport and Environment, 2019). Of the 
less  polluting  buses  (EURO  5-6),  73%  are  in  the 
Centre-North.  The  policy  landscape  is  slowly 
evolving.  For  example,  Italy  has  recently  set  a 
target of 6 million electric cars by 2030. 

Increasing  rail  freight  can  help  decarbonise 
transport. The modal share of rail freight (12.8%) 
is below the EU average (16.5%), half of which is 
international. To improve it, Italy intends to invest 
in the technical adaptation of its railway  network, 
in rail links to all core seaports and in cross-border 

(95)  See for instance the InnovFin Energy Demo Projects. 
(96)  Decreto direttoriale 14 maggio 2019. 
(97)  9.1  years  of  life  lost  per  1.000  inhabitants  in  2016  (EEA 

(99)  Ministerial  Decree  for  ‘‘Identification  of  the  guidelines 
pursuant to article 3, paragraph 7, of the legislative decree 
16 December 2016, n. 257’’. 

Air Quality in Europe - 2019 Report). 

(98)  Handbook on the external costs of transport, 2019, p.128. 

(100) Decreto-legge 14 ottobre 2019, n. 111. 

62 

 
                                                           
                                                           
4.5. Environmental sustainability 

distribution  network  and  only  52%  was  finally 
supplied to users.  

Climate adaptation and risk prevention 

Italy  is  heavily  affected  by  climate-related 
events.  According  to  the  European  Environment 
Agency  (105),  Italy  is  the  second  most  affected 
country  in  the  EU  by  hydrogeological  disasters, 
extreme  weather,  droughts  and  forest  fires,  with 
around  €65  billion  of  economic  losses  and  over 
20,600 
fatalities  between  1980  and  2017. 
However, only 5% of losses  were insured (one of 
the  lowest  levels  in  the  EU),  meaning  that  either 
the  State,  as  an  insurer  of  last  instance,  or  the 
victims had to absorb those losses.  

strategy.  A 

Further efforts are needed for a comprehensive 
prompt 
climate 
adaptation 
finalisation  and  adoption  of 
the  National 
Adaptation  Plan  is  needed,  in  light  of  Italy’s 
vulnerability  to  natural  disasters.  The  assessment 
of  climate  risks  needs  to  be  taken  into  account 
when developing policies. It is therefore important 
to consider climate change drivers in the National 
Disaster  Risk  Assessment. 
Italy’s  National 
Strategy for Disaster Risk Reduction, due in 2020, 
can  be  an  opportunity  for  strengthening  this 
integration. 

Investment in prevention can reduce emergency 
expenditures,  notably  for  hydrogeological  and 
seismic risks. In 2018, there were 19 incidents of 
flooding.  The  population  exposed  to  this  risk  is 
higher  in  the  Centre  (10.9%)  and  North  (15.6%) 
than  in  the  South  (3.2%)  with  the  exception  of 
landslides  (ISTAT,  2019i).  In  2019,  the  Italian 
government agreed (106) to allocate €315 million to 
this aim, in addition to increasing flexibility in the 
use  of  the  national  cohesion  and  development 
fund.  Furthermore, 
the 
European  Regional  Development  Fund  and 
national  funds  to  address  hydrogeological  risks, 
with up to €700 million per year available in 2019-
2021.  The  Parliament  is  currently  deliberating  a 
law  on  soil  consumption.  Strong  engagement  in 
climate change  mitigation  will help Italy reaching 
SDG 13 – Climate Action. 

the  regions  can  use 

(105) https://www.eea.europa.eu/data-and-

maps/indicators/direct-losses-from-weather-disasters-
3/assessment-2 
(106) ‘ProteggiItalia’ plan. 

and  2.06%  of  total  jobs)  were  slightly  above  the 
EU  average  (1%  and  1.69%,  respectively).  The 
Ministries  of  Environment  and  of  Economic 
Development  have  developed  a  monitoring 
framework for the circular economy. EU funds are 
also  supporting  a  project  (under  the  CReIAMO 
project)  on  models  and  instruments  for  achieving 
the  circular economy (101). Supporting the circular 
economy  can  be  an  opportunity  to  relaunch  the 
development  of  the  southern  regions  (Section 
4.4.4).  

The  recycling  rate  in  Italy  is  above  the  EU 
average  but  varies  widely  across  regions.  The 
recycling  rate  of  municipal  waste  (SDG11)  is 
above the EU average (49.8% in 2018 versus 47%) 
and  considerably  improving  (it  was  38.4%  in 
2012).  Nevertheless,  there  are  two  infringements 
of EU waste legislation open against Italy, for non-
compliant  landfills  and  past  inadequate  waste 
management  in  Campania,  for  which  fines  are 
being  paid (102)  (box  4.5.1).  The  government  is 
planning  to  update  its  national  waste  prevention 
strategy.  The  2020  budget  law  includes  a  tax  for 
single-use plastics.  

is  underperforming 

in  wastewater 
Italy 
treatment  and 
in  the  efficiency  of  water 
distribution.  Despite  recent  improvements,  only 
59.6% of the population  was connected to at least 
secondary wastewater treatment in 2015. However, 
913  agglomerations  have  been  found  to  be  in 
treatment 
the  collection  and/or 
breach  of 
requirements  of  the  EU  Urban  Waste  Water 
Treatment  Directive,  and  a  fine  is  being  paid  for 
one of the four open infringements (see box) (103). 
Average 
in 
groundwater (104)  have  increased  between  2010 
and 2015, but are still below the EU average (10.4 
NO3/L  versus  18.3).  Moreover,  the  efficiency  of 
the  drinking  water  distribution  network 
is 
worsening,  as  the  share  of  water  introduced  into 
the network that reaches end-users has fallen from 
62.6% in 2012 to 58.6% in 2015 (ISTAT, 2019h). 
Only 87% of the water withdrawn for drinking use 
the  municipal  water 
was 

concentrations 

introduced 

nitrates 

into 

of 

(101) Supported  by  the  ERDF-ESF  National  OP  Governance  e 

Capacità Istituzionale 2014-2020. 

(102) As  of  31.01.2020,  fines  paid  are  for:  non-complaint 
landfills €224 million; Campania waste €195 million.  
(103) As of 31.01.2020, Italy had paid a fine of €77 million. 
(104) In  2015,  Lombardy  and  Piedmont  received  derogations 
from the EU Nitrates Directive until the end of 2019. 

63 

 
                                                           
                                                           
4.5. Environmental sustainability 

Box 4.5.1: Policies related to water and waste management in Calabria, Campania and 
Sicily 

Analyses of regional performance of the Sustainable Development Goals and the Equitable and Sustainable 
Well-being Indicators (BES) show large differences between the North & Centre and South of Italy in terms 
of environmental performance. There is also heterogeneity within the South in terms of specific issues, policy 
response  and  performance.  Waste  and  water  management  remain  the  main  environmental  problems  in 
Calabria  and  Sicily,  while  in  Campania  it  is  soil  consumption  and  illegal  building  (ISTAT  2019h,  2019i; 
ASVIS, 2019). 

Table 1 shows that disposal in landfills and separate collection varies widely within the three regions under 
examination.  Campania  presents  a  similar  separate  collection  rate  to  the  national  average,  and  one  of  the 
lowest  landfilling  rates  in  the  country.  Calabria,  and  especially  Sicily,  have  instead  low  separate  collection 
and high disposal in landfills. These regions account for more than half of the 45 non-compliant landfills: 16 
of them are in Calabria, 5 in Sicily and 4 in Campania. 

Regarding water management, the share of water introduced into the network that reaches end users has fallen 
in  all  three  regions  between  2012-2015.  The  amount  of  water  leaked  in  2015  reached  41.1%  in  Calabria, 
46.7% in Campania and 50% in Sicily (Italian average in 2015 41.4%); nevertheless, it should be noted that 
these  are  not  worst  levels  in  Italy  (ISTAT,  2019i).  Of  the  913  agglomerations  covered  by  infringement 
procedures for urban wastewater treatment 245 are in Sicily, 174 in Calabria, and 116 in Campania.  

One reason for the “implementation gap” in providing adequate environmental infrastructure in Italy and in 
particular in the South is the complex governance structure in place. Responsibility for environmental policy 
and  legislation  is  split  between  the  central  government  and  other  levels  (including  regions  and 
municipalities).  This  leads  to  fragmentation  of  responsibilities,  weak  coordination  and  lack  of  synergies, 
heightening  corruption  risk  (OECD  2019c,  p.50  citing  ANAC).  It  is  coupled  with  the  inability  of  small 
municipalities to spend public funds allocated by the European Regional Development Fund and the national 
Cohesion  and  Development  Fund.  In  Calabria,  Campania  and  Sicily  there  is  evidence  of  involvement  of 
organized crime (Section 4.4.2) in waste trafficking from other parts of Italy and Europe (DNA report, 2019). 
Environmental projects are also often too small to exploit economies of scale and municipalities do not have 
the capacity or technical knowhow to design and deliver them. As a result, tendering procedures are slow or 
cancelled. Furthermore, service contracts are awarded in an inconsistent manner across regions and in ways 
that often contravene laws. The scale of this “implementation gap” in Southern Italy acts as a barrier to attract 
private investment. Resources available for infrastructure through tariffs for water are also lower in the South 
at €131 per inhabitant, compared to the national average of €166 per inhabitant 2016-19 (ARERA, 2018). 

The inability to properly manage waste and wastewater leads to harmful substances being released into the 
soil, groundwater and surface water, having an impact on the environment and on health.  Currently Italy is 
subject to financial penalties for non-compliant landfills, past inadequate waste management in Campania and 
for urban wastewater treatment. These penalties have almost reached a sum of €500 million since 2015. The 

64 

Table 1: Waste production and management in selected regions (2018)  Municipal waste generated – kg/inhabitant/year Municipal Waste in compliant landfills (%) Separate collection of municipal waste (%) Incineration (%) Landfill tax (EUR/tonne) Calabria 403.4 52.4% 45.2% 5% 25.40 Campania 448.6 2.8%* 52.7% 28% 25.40 Sicily 457.9 69.1% 29.5% 0% 12.36 Italy 499.7 21.5% 58.1% 18% - * Regione Campania informed the Commission that around 11.3% of the remaining waste is exported outside of the region to be incinerated or disposed in landfills and the other 5.4% is “other” waste (metals etc). Source: ISPRA & MATTM 2019   
 
 
   
4.5. Environmental sustainability 

fact that Italy had years to address these problems since they were reported by the Commission, but failed to 
do so before fines applied, further raises questions about the governance and accountability of the authorities 
responsible for these matters. The main solution has been to appoint emergency commissioners for water and 
waste, suspending the functioning of the ordinary administration. However, this has had limited success, as 
persistent  breaches  remain,  especially  for  urban  wastewater.  The  government  replaced  the  emergency 
commissioners with sole commissioners in 2019 (fiscal decree law) but it is too early to see their impact. 

According  to  a  study  funded  by  the  European  Commission  (Eunomia  &  COWI,  2019),  the  capital 
investments required to reach EU recycling targets are estimated at €4,679 million for the period 2021-35 for 
Italy as a whole. In this regard, landfill tax rates are set at regional level in Italy and are lower compared to 
other EU countries. If rates were set higher this could increase revenues to invest and potentially reduce the 
amount of waste in landfilling, as long as illegal landfilling is addressed too. 

Investment  needs  to  comply  with  urban  wastewater  treatment  requirements  have  been  estimated  by  the 
OECD (OECD, 2020) at €34,215 million until 2030 for Italy as a whole. The EIB has provided € 200 million 
under the Juncker Plan to reduce leakage and improve water quality  from the  Acquedotto Pugliese running 
between Campania and Puglia. There is also a National Intervention Plan in the water sector, the first step 
(Piano Stralcio) of which was approved in September 2019. 

In  conclusion,  the  lack  of  adequate  environmental  infrastructure  for  waste  management  and  wastewater 
treatment in Calabria, Campania and Sicily highlights deeper governance issues with how policy is managed 
and  raises  several  concerns.  This  includes  environmental  damages  caused;  health  and  hygiene  risks;  and 
revenues lost due to fines paid to the European Court of Justice. It also hints to opportunities lost in terms of 
green jobs and revenues (e.g. circular economy). 

65 

 
 
 
  
 
 
 
ANNEX A: OVERVIEW TABLE 

2019 country-specific recommendations (CSRs)  

Summary assessment 

Italy has made Some Progress in addressing CSR 1  

CSR  1:  Ensure  a  nominal  reduction  of  net  primary 
government 
in  2020, 
expenditure  of  0.1% 
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.  

Ensure  a  nominal 
reduction  of  net  primary 
in  2020, 
expenditure  of  0.1% 
government 
corresponding  to  an  annual  structural  adjustment  of 
0.6%  of  GDP.  Use  windfall  gains  to  accelerate  the 
reduction of the general government debt ratio.  

The compliance assessment with the Stability and 
Growth Pact will be included in Spring when final 
data for 2019 will be available.  

Shift  taxation  away  from  labour,  including  by 
reducing tax expenditure and reforming the outdated 
cadastral values.  

Limited Progress The 2020 budget includes a  fund 
to reduce the tax wedge on labour by around 0.2% of 
GDP in 2020 and 0.3% of GDP from 2021. The 2020 
budget  also  includes  several  provisions  limiting  tax 
expenditures  on  personal  income  taxes,  with  a 
limited  budgetary  impact.  No  steps  were  taken  to 
reduce  the  large  tax  expenditures  in  value-added 
taxes,  nor  to  reform  the  outdated  cadastral  values. 
Overall,  some  progress  was  made  in  reducing  taxes 
on  labour,  but  no  progress  in  shifting  taxes  to  other 
revenue  sources  (only  limited  progress  in  reducing 
in  updating 
tax  expenditures  and  no  progress 
cadastral  values).  On  average,  limited  progress  has 
been made.  

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.  

income 

including 

declarations, 

Substantial  Progress  The  2020  budget  includes 
several  measures  to  fight  tax  evasion  related  to 
omitted 
by 
encouraging  electronic  payments:  (i)  a  new  fund 
(0.2% of GDP from 2021) to reward consumers that 
pay  via  electronic  means;  (ii)  lower  limits  to  cash 
payments;  (iii)  a  new  special  lottery  for  consumers 
paying  with  electronic  means;  (iv)  the  possibility  to 
deduct expenditures from personal income taxes only 
traceable  means.  Additional  new 
if  paid  with 
measures against tax evasion include disincentives to 
the  undue  compensation  of  tax  credits,  the  shift  of 

66 

 
 
 
A. Overview Table 

from 
liabilities 
the  main  contractor  of 

the 
VAT  and  social  security 
subcontractor  onto 
tax 
liabilities and several measures against excise duties 
and VAT fraud in the fuel sector. These measures are 
relevant  and  in  line  with  the  2019  CSR.  However, 
the  size  of  the  challenge  represented  by  tax  evasion 
in  Italy  warrants  a  thorough  implementation  and  a 
continuous and increasingly ambitious reform effort. 
For an efficient use of resources, it is also important 
that  the  financial  incentives  for  consumers  paying 
electronically  are 
the  sectors  most 
targeted  to 
exposed to tax evasion.  

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.  

No  Progress  The  2019  budget  introduced  several 
provisions  which  partially  reversed  past  pension 
reform  by  broadening  possibilities 
for  early 
including  by  creating  a  new  early 
retirement, 
retirement scheme ("quota 100") and suspending the 
indexation  to  life  expectancy  of  the  minimum 
contribution  requirement  needed  to  retire  under  the 
existing  early  retirement  scheme.  The  2020  budget 
law 
the  new  pension  measures 
implemented in 2019 and even extended to 2020 the 
temporary  early  retirement  schemes  for  women  and 
for  employees  recently  dismissed  or  performing 
heavy  works  ("APE  sociale"),  further  increasing 
pension expenditure.  

confirmed 

Italy has made Limited Progress in addressing CSR 
2  

CSR  2:  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.  

Step up efforts to tackle undeclared work.  

Limited  Progress  The  national  labour  inspectorate 
launched  a  recruitment  competition,  together  with 
other  services,  to  hire  more  labour  inspectors.  The 
total number of firms inspected has declined in 2018.  

Ensure  that  active  labour  market  and  social  policies 
are  effectively  integrated  and  reach  out  notably  to 
young people and vulnerable groups.  

Some Progress 3000 "navigators" have been hired to 
reinforce  public  employment  centres.  However, 
active labour market policies (ALMP) remain barely 
integrated and coordinated with other related policies 
(e.g.  social  services,  adult 
learning,  vocational 
training).  The  coordination  role  for  the  national 
agency  (ANPAL)  is  still  weaker  than  originally 
the 
intended. 

The  main 

challenges 

for 

67 

 
A. Overview Table 

implementation  of  the  reform  remain  improving  the 
coordination, 
the 
standardisation of services provided.  

the  exchange  of  data  and 

Support  women’s  participation  in  the  labour  market 
through a comprehensive strategy, including through 
access to quality childcare and long-term care.  

Limited Progress The different family-related social 
policy  measures  are  often  not  coordinated  and  a 
comprehensive strategy, including access to services 
is  missing.  The 
and  provision  of  benefits, 
government  The  government  took  some  action  to 
facilitate  access 
through  financial 
to  childcare 
support  to  families,  but  has  no  plans  to  increase  the 
supply  of  childcare.  Available  pre-school  places 
covered on average only 24% of children under three 
years  of  age  in  the  school  year  2016/17,  with  big 
regional variations.  

educational  outcomes, 

Improve 
adequate  and 
upskilling, including by strengthening digital skills.  

investment,  and 

through 
foster 

targeted 

also 

Limited  Progress  No  significant  measures  have 
been adopted to address the CSR beyond hiring new 
teachers  (with  an  extremely  small  effort  on  digital-
expert teachers hiring).  

Italy has made Some Progress in addressing CSR 3  

into 

taking 

CSR  3:  Focus  investment-related  economic  policy 
on  research  and  innovation,  and  the  quality  of 
infrastructure, 
regional 
account 
the  effectiveness  of  public 
disparities.  Improve 
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.  

investment-related  economic  policy  on 
the  quality  of 
regional 

innovation,  and 
taking 

account 

into 

Focus 
research  and 
infrastructure, 
disparities.  

increased  and 

Some Progress Public investment remains subdued, 
but  the  strengthening  of  the  budgetary  autonomy  of 
local  governments  is  showing  positive  signs.  Other 
measures  to  unlock  public  investment  were  adopted 
in 2019 ("Sblocca cantieri" decree). Moreover, funds 
for public investment at central and local level have 
been 
the  new  fund  for  green 
investment created, although  administrative  capacity 
to  plan  and  implement  investment  projects  remains 
weak.  Transizione  4.0  plan  (extending  measures  of 
the Impresa 4.0 plan) support private investment and 
better  focuses  on  innovation  and  green  investment, 
while 
the  number  of 
enlarging 
beneficiaries  firms.  However,  R&D  expenditure 
remains  low  and  unequal  across  Italian  regions. 
There  is  still  scope  for  further  streamlining  and 
stabilisation  of  the  most  efficient  incentives.  The 
is  not  yet 
Fund  for  Innovation  was  set  but 
operational.  Public  investment  in  Southern  regions 
remains low and their weak eco-systems makes them 

aiming 

at 

68 

 
A. Overview Table 

benefit  less  from  national  measures.  The  planned 
strengthening  of  the  34%  investment  clause  could 
help reducing regional disparities.  

investing 

Improve  the  effectiveness  of  public  administration, 
including  by 
the  skills  of  public 
in 
employees,  by  accelerating  digitalisation,  and  by 
increasing  the  efficiency  and  quality  of  local  public 
services.  

to 

Progress 

Some 
simplification 
Efforts 
administrative  procedures  go  on,  although  overall 
burden  remains  high.  Two  agencies  were  set-up  in 
2019 to strengthen administrative  capacity of public 
administration  capacity  to  plan  and  manage  public 
investment  but  are  not  yet  operational.  The  reform 
intended 
in  public 
procurement remains unachieved. Some progress has 
been  recorded  in  increasing  the  effectiveness  and 
digitisation  level  of  the  PA  (Decreto  Concretezza, 
draft  law  on  public  employment,  creation  of  the 
ministry  for  innovation  and  digitisation,  IO  app 
launch,  etc).  However  no  progress  has  been 
registered on the local public services side.  

inefficiencies 

to  address 

Address  restrictions  to  competition,  particularly  in 
the retail sector and in business services, also through 
a new annual competition law.  

No  Progress  No  progress  has  been  registered  on 
competition  policies.  No  new  initiatives  have  been 
announced  and  few  backtracking  measures  are  still 
being discussed.  

CSR  4:  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.  

Italy has made Limited Progress in addressing CSR 
4  

Reduce  the  length  of  civil  trials  at  all  instances  by 
rules, 
enforcing 
including those under consideration by the legislator.  

streamlining  procedural 

and 

Limited Progress Despite recent improvements, the 
low efficiency of Italy's civil justice system remains 
a  source  of  concern.  The  time  to  resolve  civil  and 
commercial  litigious  cases  in  Italy  remains  the 
highest  in  the  EU  at  higher  instances.  A  draft  law 
enabling  the  government  to  substantially  streamline 
the civil procedure has been adopted by the Council 
of  Ministers  in  December  2019  and  has  now  to  be 
passed by the national parliament.  

the  effectiveness  of 

the  fight  against 
Improve 
corruption  by  reforming  procedural  rules  to  reduce 
the length of criminal trials.  

Limited Progress  As regards the length of criminal 
trials, Italy’s long disposition time for criminal cases 
continues to raise concerns in particular at the appeal 
level. Positive results in containing trial length have 
recently  been  recorded  by  first  instance  courts  and 
the  Court  of  Cassation.  The  recent  reform  stopping 
the statute of limitations after a first-instance ruling, 
in 
long-standing  country-specific 
recommendation, entered into force as of 2020. The 
government  has  been  discussing  a  much  needed 
reform  of  the  criminal  procedure.  Swift  adoption  of 

line  with  a 

69 

 
A. Overview Table 

these  measures,  coupled  with  others  to  tackle  the 
large  number  of  pending  cases  at  appeal  courts, 
could  improve  the  efficiency  of  the  criminal  justice 
system  and  the  effectiveness  of  the  fight  against 
corruption.  However,  in  the  absence  of  an  urgent 
reform  of  criminal  trials,  the  low  efficiency  of 
criminal  justice  at  the  appeal  level  continues  to 
hinder the prosecution of corruption.  

CSR  5:  Foster  bank  balance  sheet  restructuring,  in 
particular  for  small  and  medium-sized  banks,  by 
improving  efficiency  and  asset  quality,  continuing 
the 
loans,  and 
diversifying  funding.  Improve  non-bank  financing 
for smaller and innovative firms.  

reduction  of  non-performing 

Italy has made Some Progress in addressing CSR 5  

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

recent 

prices.  Despite 

repair 
Some  Progress  Banks’  balance  sheet 
including  non-performing  loans  disposals  through 
outright  sales  and  securitisations  with  Guarantee  on 
Securitization  of  Bank  Non  Performing  Loans 
(GACS)  has  substantially  progressed.  The  GACS 
was  prolonged  in  May  2019  for  another  period  of 
two  years.  Currently,  the  relatively  low  yields  on 
Italian  government  bonds  are  expected  to  support 
banks in Italy to shore up their capital positions and 
to improve access to wholesale funding. At the same 
time,  Italian  banks  continued  to  rebalance  their 
domestic government bond portfolios to the held-to-
collect  category,  in  order  to  shield  their  capital 
positions  from  the  volatility  of  domestic  sovereign 
bond 
improvements, 
profitability  remains  challenging  for  Italian  banks 
amid the current low interest rate environment. Some 
of  the  banks  are  still  exhibiting  high  cost-to-income 
ratios.  The  reform  of  the  large  cooperative  banks  is 
not yet fully implemented, unlike the reform of small 
mutual  banks  which  was  essentially  concluded. 
Moreover,  the  Government  finalised  in  early  2019 
the  reform  of  the  insolvency  framework.  However, 
Italian  banks  are  still  substantially  exposed  to  their 
sovereign,  implying  the  risk  of  adverse  feedback 
loops. A rebound in sovereign yields could put banks 
under  pressure  and  renew  strain  on  funding  costs. 
Despite  the  achieved  progress  as  regards  banks’ 
balance sheet de-risking, the stock of NPL at system 
level remains comparatively high vis-à-vis euro area 
peers.  Moreover,  some  of  the  second  tier  banks  are 
still  suffering  under  NPL-levels  that  are  markedly 
above the average.  

Improve  non-bank 

financing 

for  smaller  and Some  Progress  While  firms’  financing  remains 
predominantly  bank-based,  measures  aimed  at 

70 

 
innovative firms.  

A. Overview Table 

increasing access of firms to capital markets adopted 
in  previous  years  have  had  some  positive  impact. 
The  use  of  initial  public  offerings  on  the  AIM 
showed signs of recovery in  2018, partly as a  result 
of  government  initiatives  like  the  introduction  of 
Special  Purpose  Acquisition  Companies  (SPACs). 
The relevance of  the  mini-bond  market  for SMEs is 
its  relative  small  size. 
also  growing,  despite 
However, measures to improve the weak recourse to 
venture capital have not yet been implemented. New 
measures adopted in 2019 (extention of the scope of 
crowdfunding 
by  SMEs, 
issued 
so-called  Società di 
reintroduction 
Investimento Semplice) are expected to help address 
the undercapitalisation of the corporate sector.  

to 
bonds 
of  ACE, 

Europe 2020 (national targets and progress)  

Employment rate target set in the NRP: 67-69 %.  

The  employment  rate  has  increased  to  63.6%  in 
Q32019,  still  lower  than  the  national  target  and 
substantially below the EU average (73.8 %). 

R&D target set in the NRP: 1.53 % of GDP  

Italy  has  achieved  limited  progress  in  the  last  years, 
and it is not on track to meet its target. In 2018 R&D 
intensity corresponds to 1.39% of GDP.  

National  greenhouse  gas  (GHG)  emissions  target:  
-13  %  in  2020  compared  with  2005  (in  sectors  not 
included in the EU emissions trading scheme) 

Italy  is  on  track  to  meet  its  2020  greenhouse  gas 
(GHG) emission target. 

2020 renewable energy target: 17 %  

According  to  the  projections  submitted  in  2019,  by 
2020 Italy  will have reduced its emissions by 20 %, 
therefore  overachieving  its  target  by  7  percentage 
points. 

Already  in  2018,  according  to  preliminary  data, 
emissions  were reduced by 18 % as compared to an 
interim target of 12 % (i.e. with a 6 percentage points 
margin). 

With  a  renewable  energy  share  of  17,78%  in  2018, 
Italy remains above its 2020 renewable energy target. 
However  compared 
to  last  year,  the  share  of 
renewables  decreased  for  the  first  time  since  2004.  
Only  the  share  of  renewables  in  transport  slightly 
increased  over 
this  period.  Further  efforts  are 
therefore  needed  across  all  sectors  in  view  of 

71 

 
 
 
 
A. Overview Table 

ensuring  a  steady  growth  of  renewables  and  the 
achievement of the 2020 and 2030 objectives.  

Energy efficiency, 2020 energy consumption targets:  

Italy's  2020  energy  efficiency  target  is  158  Mtoe 
expressed in primary energy consumption (124 Mtoe 
expressed in final energy consumption) 

The target was set at a level that would allow energy 
consumption  to  grow  in  the  coming  years.  After  the 
growth of both primary and final energy consumption 
in  the  period  2013-2014,  energy  consumption  in  the 
country decreased between 2015 and 2016. In the last 
year, primary energy consumption registered again a 
small decrease, moving from 148,94 Mtoe in 2017 to 
147.5  Mtoe 
final  energy 
in  2018.  However, 
consumption  increased  slightly  from  115.2  Mtoe  in 
2017 to 116.5 Mtoe in 2018. In light of the possible 
economic recovery in Italy and of the recent upward 
trend in final energy consumption, further efforts are 
needed  both  to  remain  within  the  levels  set  for  the 
2020 energy efficiency target and in view of the new 
2030 objectives. 

Early school/training leaving target: 16 %.  

The  early  school  leaving  rate  in  2018  was  14.5%, 
below  Italy’s  Europe2020  target,  but  above  the  EU 
average of 10.6% 

Tertiary  education  target:  26-27  %  of  population 
aged 30-34.  

At 26.9% in 2018, the share of 30-34 year-olds with 
tertiary  educational  attainment  was  in  line  with  the 
national target,  but was the second-lowest in the EU 
(EU average: 39.9%). 

Target  for  reducing  the  number  of  people  at  risk  of 
poverty or social exclusion, expressed as an absolute 
number of people: -2.2 million (base year 2010: 15.1 
million).  

With an increase of  more than 1.3  million people at 
risk  of  poverty  or  social  exclusion  (AROPE) 
compared  to  2008,  Italy  has  not  met  this  target.  In 
2018,  the  AROPE  rate  declined  to  27.3  %,  down 
from  28.9  %  in  2017.  However,  it  remains  well 
above both pre-crisis levels (25.5 % in 2008) and the 
EU average (21.9 %).  

72 

 
ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

73 

General government debt projections under baseline, alternative scenarios and sensitivity tests2018201920202021202220232024202520262027202820292030Gross debt ratio134.8136.2136.8137.4138.1138.3138.1137.8137.7137.9138.4139.2140.2Changes in the ratio (-1+2+3)0.71.40.60.60.70.2-0.2-0.3-0.10.20.60.81.0of which(1) Primary balance (1.1+1.2+1.3)1.51.30.90.40.00.0-0.1-0.1-0.2-0.3-0.5-0.6-0.8(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)1.31.30.80.10.00.0-0.1-0.1-0.2-0.3-0.5-0.6-0.8(1.1.1) Structural primary balance (bef. CoA)1.31.30.80.10.10.10.10.10.10.10.10.10.1(1.1.2) Cost of ageing0.20.20.30.40.50.60.80.91.2(1.1.3) Others (taxes and property incomes)0.00.10.10.10.10.10.20.20.2(1.2) Cyclical component0.1-0.1-0.10.10.10.00.00.00.00.00.00.00.0(1.3) One-off and other temporary measures0.10.10.20.20.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)1.52.61.50.70.80.2-0.3-0.4-0.3-0.20.10.20.1(2.1) Interest expenditure3.73.53.33.13.13.03.03.03.03.03.13.13.1(2.2) Growth effect-1.0-0.1-0.6-1.0-0.4-0.6-0.6-0.7-0.6-0.5-0.3-0.2-0.3(2.3) Inflation effect-1.2-0.8-1.2-1.4-1.9-2.3-2.7-2.7-2.7-2.7-2.7-2.7-2.7(3) Stock-flow adjustments0.70.10.10.30.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Debt Sustainability Monitor (DSM) 2019. c. For the long term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps of GDP. The DSA results are used to further qualify the long term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). IT - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangerates in some countries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[2]Thechartspresentaseriesofsensitivitytestsaroundthebaselinescenario,aswellasalternativepolicyscenarios,inparticular:thehistoricalstructuralprimarybalance(SPB)scenario(wheretheSPBissetatitshistoricalaverage),theStabilityandGrowthPact(SGP)scenario(wherefiscalpolicyisassumedtoevolveinlinewiththemainprovisionsoftheSGP),ahigherinterestratescenario(+1pp.comparedtothebaseline),alowerGDPgrowthscenario(-0.5pp.comparedtothebaseline)andanegativeshockontheSPB(calibratedonthebasisoftheforecastedchange).Anadversecombinedscenarioandenhancedsensitivitytests(ontheinterestrateandgrowth)arealsoincluded,aswellasstochasticprojections. Detailed information on the design of these projections can be found in the FSR 2018 and the DSM 2019.[3] The second table presents the overall fiscal risk classification over the short, medium and long term. a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. b. For the medium term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment required (cumulated over the 5 years following the forecast horizon and sustained after that) to bring the debt-to-GDP ratio to 60 % by 2034. The critical values used are 0 and 2.5 pps of GDP. The DSA classification is based on the results of five deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt stabilisation, and the size of uncertainties. 11011512012513013514014515015516020172018201920202021202220232024202520262027202820292030Debt as % of GDP -ITBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario11012013014015016020172018201920202021202220232024(% of GDP)Stochastic debt projections 2020-2024 -ITp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline11011512012513013514014515015516020172018201920202021202220232024202520262027202820292030Debt as % of GDP -ITBaselineHistorical SPB scenarioSGP scenario11011512012513013514014515015516020172018201920202021202220232024202520262027202820292030Debt as % of GDP -ITBaselineHigher interest rate scenarioNegative shock on the SPBLower GDP growth scenarioBaselineHistorical SPBLower GDP growthHigher interest rateNegative shock on SPBStochastic projectionsRisk categoryHIGHHIGHHIGHHIGHHIGHHIGHDebt level (2030)140.2128.9148.0148.9145.8Debt peak year20302022203020302030Percentile rank55.0%31.0%Probability debt higher60.4%Dif. between percentiles25.2HIGHLong termMEDIUM(S2 = 2.1)S1S2Short termLOW(S0 = 0.3)DSAHIGHDebt sustainability analysis (detail)Medium termHIGHHIGH(S1 = 8.8) 
 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial Market Indicators 

(1) Latest data Q3 2019. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 2019. 
(3) Quarterly values are annualized. 
* Measured in basis points. 

Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

74 

201420152016201720182019Total assets of the banking sector (% of GDP)(1)247.1236.8231.5214.0207.8216.2Share of assets of the five largest banks (% of total assets)41.041.043.043.445.6-Foreign ownership of banking system (% of total assets)(2)8.37.88.68.08.27.0Financial soundness indicators:(2)              - non-performing loans (% of total loans)16.516.515.011.28.48.1              - capital adequacy ratio (%)14.214.813.916.816.116.6              - return on equity (%)(3)-2.83.1-7.77.15.88.3Bank loans to the private sector (year-on-year % change)(1)-0.8-0.6-0.2-1.6-2.0-1.0Lending for house purchase (year-on-year % change)(1)-0.90.41.72.11.71.8Loan-to-deposit ratio(2)109.2105.8101.2102.197.194.9Central bank liquidity as % of liabilities(1)6.25.16.58.48.17.6Private debt (% of GDP)118.9115.1111.7108.8107.0-Gross external debt (% of GDP)(2) - public50.551.548.046.240.944.5    - private30.529.327.024.927.126.4Long-term interest rate spread versus Bund (basis points)*172.9121.8139.8179.4221.3225.1Credit default swap spreads for sovereign securities (5-year)*101.692.2107.886.887.188.8 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Headline social scoreboard indicators 

Notes:       
(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).       
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.       
(3) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2019.       
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
(5) Average of first three quarters of 2019 for the employment rate, unemployment rate and gender employment gap.       
Source: Eurostat 

75 

201420152016201720182019 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)15.014.713.814.014.5:Gender employment gap (pps)19.420.020.119.819.819.4Income inequality, measured as quintile share ratio (S80/S20)5.85.86.35.96.1:At-risk-of-poverty or social exclusion rate(1) (AROPE)28.328.730.028.927.3:Young people neither in employment nor in education and training (% of population aged 15-24)22.121.419.920.119.2:Dynamic labour markets and fair working conditionsEmployment rate (20-64 years)59.960.561.662.363.063.5Unemployment rate(2) (15-74 years)12.711.911.711.210.610.1Long-term unemployment rate (as % of active population)7.76.96.76.56.25.8Gross disposable income of households in real terms per capita(3) (Index 2008=100) 88.689.690.791.692.1:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)205972076221070:::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)-0.700.050.66:::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction(4)21.521.721.419.421.6:Children aged less than 3 years in formal childcare22.927.334.428.625.7:Self-reported unmet need for medical care7.07.25.51.82.4:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):43.044.0::: 
 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and education indicators 

Notes:       
* Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores.       
(5) Average of first three quarters of 2019. Data for youth unemployment rate is seasonally adjusted.       
Source: Eurostat, OECD 

76 

Labour market indicators201420152016201720182019 5Activity rate (15-64)63.964.064.965.465.665.7Employment in current job by durationFrom 0 to 11 months9.310.010.310.510.6:From 12 to 23 months5.66.17.07.07.1:From 24 to 59 months13.312.412.412.613.8:60 months or over71.871.570.369.868.5:Employment growth* (% change from previous year)0.10.71.41.20.90.5Employment rate of women(% of female population aged 20-64)50.350.651.652.553.153.8Employment rate of men (% of male population aged 20-64)69.770.671.772.372.973.2Employment rate of older workers* (% of population aged 55-64)46.248.250.352.253.754.2Part-time employment* (% of total employment, aged 15-64)18.118.318.518.518.418.6Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)13.614.114.015.517.117.0Transition rate from temporary to permanent employment(3-year average)19.119.820.116.314.8:Youth unemployment rate (% active population aged 15-24)42.740.337.834.732.230.2Gender gap in part-time employment24.424.524.624.324.524.6Gender pay gap(2) (in undadjusted form)6.15.55.35.0::Education and training indicators201420152016201720182019Adult participation in learning(% of people aged 25-64 participating in education and  training)8.17.38.37.98.1:Underachievement in education(3):23.3::::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)23.925.326.226.927.8:Variation in performance explained by students' socio-economic status(4):9.6:::: 
 
 
 
 
C. Standard Tables 

Table C.4: 

Social inclusion and health indicators 

Notes:       
* Non-scoreboard indicator       
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.        
(2) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone.       
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation.       
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.       
(5) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59.       
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard. 
Source: Eurostat, OECD 

77 

201320142015201620172018Expenditure on social protection benefits* (% of GDP)Sickness/healthcare6.76.76.66.56.5:Disability1.71.71.71.71.6:Old age and survivors16.916.716.816.416.2:Family/children1.21.61.71.81.8:Unemployment1.81.71.71.71.6:Housing0.00.00.00.00.0:Social exclusion n.e.c.0.20.20.20.30.3:Total28.528.728.828.328.0:of which: means-tested benefits1.62.02.22.32.3:General government expenditure by function (% of GDP)Social protection21.021.221.321.020.9:Health7.27.27.06.96.8:Education4.14.03.93.83.8:Out-of-pocket expenditure on healthcare21.822.123.122.923.5:Children at risk of poverty or social exclusion (% of people aged 0-17)*32.032.133.533.232.130.6At-risk-of-poverty  rate(1) (% of total population)19.319.419.920.620.320.3In-work at-risk-of-poverty rate (% of persons employed)11.011.011.511.712.212.2Severe material deprivation rate(2)  (% of total population)12.311.611.512.110.18.5Severe housing deprivation rate(3), by tenure statusOwner, with mortgage or loan9.18.49.76.55.25.1Tenant, rent at market price16.219.118.614.811.110.7Proportion of people living in low work intensity households(4) (% of people aged 0-59)11.312.111.712.811.811.3Poverty thresholds, expressed in national currency at constant prices*821281188147834485048540Healthy life yearsFemales7.17.37.510.19.8:Males7.77.87.810.49.4:Aggregate replacement ratio for pensions(5)0.60.60.70.70.70.7Connectivity dimension of the Digital Economy and Society Index (DESI)(6):35.640.243.553.8:GINI coefficient before taxes and transfers*51.651.751.352.551.8:GINI coefficient after taxes and transfers*32.832.432.433.132.7: 
 
 
 
 
C. Standard Tables 

Table C.5: 

Product market performance and policy indicators 

Notes:     
*While the indicator values from 2003 to 2013 are comparable, the methodology has considerably changed in 2018. As a 
result, past vintages cannot be compared with the 2018 PMR indicators.   
1 Value added in constant prices divided by the number of persons employed.       
2 Compensation of employees in current prices divided by value added in constant prices.       
3 The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology.        
4 Average of the answer to question Q7B_a.- "[Bank loan]: If you applied and tried to negotiate for this type of financing over 
the past 6 months, what was the outcome?". Answers were codified as follows: zero if received everything, one if received 
75% and above, two if received below 75%, three if refused or rejected and treated as missing values if the application is still 
pending or don't know.       
5 Percentage of population aged 15-64 having completed tertiary education.       
6 Percentage of population aged 20-24 having attained at least upper secondary education.       
7 Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
Please be aware that the indicator values from 2003 to 2013 are comparable, however the methodology changed 
considerably in 2018 and therefore past vintages cannot be compared with the 2018 PMR indicators.       
8 Simple average of the indicators of regulation for lawyers, accountants, architects and engineers.       
9 Aggregate OECD indicators of regulation in energy, transport and communications. 
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation 
indicators); SAFE (for outcome of SMEs' applications for bank loans). 

78 

Performance indicators201320142015201620172018Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry0,841,092,052,273,270,60Labour productivity growth in construction0,63-3,87-1,290,990,682,66Labour productivity growth in market services0,110,410,00-0,58-0,15-0,51Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry1,481,111,02-1,10-0,771,66ULC growth in construction-2,392,904,530,692,130,60ULC growth in market services0,670,122,092,131,783,21Business environment201320142015201620172018Time needed to enforce contracts3 (days)118511851120112011201120Time needed to start a business3 (days)12,511,511,011,011,011,0Outcome of applications by SMEs for bank loans40,951,060,580,510,330,38Research and innovation201320142015201620172018R&D intensity1,301,341,341,371,371,39General government expenditure on education as % of GDP4,104,003,903,803,80:Employed people with tertiary education and/or people employed in S&T as % of total employment333334343535Population having completed tertiary education5141516161717Young people with upper secondary education6788080818281Trade balance of high technology products as % of GDP-0,43-0,41-0,56-0,49-0,44-0,48Product and service markets and competition2003200820132018*OECD product market regulation (PMR)7, overall1,801,491,261,32OECD PMR7, retail3,854,063,152,79OECD PMR7, professional services83,553,022,102,44OECD PMR7, network industries92,972,452,011,06 
 
 
 
 
C. Standard Tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices) 
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR) 
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR) 
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR) 
          Waste intensity: waste (in kg) divided by GDP (in EUR) 
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP.  
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP. 
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change). 
Real unit energy cost: real energy costs as % of total value added for the economy. 
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 
EUR). 
Real unit energy costs for manufacturing industry excluding refining: real costs as % of value added for manufacturing sectors. 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP. 
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000 -100 000 GJ; figures 
excl. VAT. 
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste. 
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP. 
Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions. 
(excl. land use, land use change and forestry) as reported by Member States to the European Environment Agency. 
Transport energy intensity: final energy consumption of transport activity including international aviation (kgoe) divided by 
gross value added in transportation and storage sector (in 2010 EUR). 
Transport carbon intensity: GHG emissions in transportation and storage sector divided by gross value added in transportation 
and storage sector (in 2010 EUR). 
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels. 
Aggregated supplier concentration index: Herfindahl index covering oil, gas and coal. Smaller values indicate larger 
diversification and hence lower risk. 
Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels. Smaller values indicate larger diversification. 
* European Commission and European Environment Agency - 2018 provisional data. 
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators). 

79 

Green growth performance201320142015201620172018MacroeconomicEnergy intensity kgoe / €0.100.100.100.100.100.09Carbon intensity kg / €0.290.280.280.270.27-Resource intensity (reciprocal of resource productivity)kg / €0.320.310.320.310.310.31Waste intensity kg / €-0.10-0.10--Energy balance of trade % GDP-3.3-2.6-2.0-1.5-1.9-2.3Weighting of energy in HICP%10.029.119.969.558.809.22Difference between energy price change and inflation %0.1-3.7-2.8-4.71.43.7Real unit of energy cost% of value added14.012.613.113.8--Ratio of environmental taxes to labour taxesratio0.110.110.090.090.08-Environmental taxes% GDP3.43.63.43.53.33.3Sectoral Industry energy intensity kgoe / € 0.080.080.080.080.070.07Real unit energy cost for manufacturing industry excl. refining% of value added17.516.017.319.0--Share of energy-intensive industries in the economy% GDP7.817.747.647.857.987.96Electricity prices for medium-sized industrial users€ / kWh0.170.170.160.150.150.14Gas prices for medium-sized industrial users€ / kWh0.040.040.030.030.030.03Public R&D for energy % GDP0.020.020.020.020.020.02Public R&D for environmental protection% GDP0.010.020.010.010.010.01Municipal waste recycling rate%39.441.644.345.947.849.8Share of GHG emissions covered by ETS*%37.636.536.436.436.534.8Transport energy intensitykgoe / €0.530.560.560.540.510.53Transport carbon intensitykg / €0.540.540.550.530.560.55Security of energy supplyEnergy import dependency%76.775.877.077.777.0-Aggregated supplier concentration indexHHI16.013.314.916.119.1-Diversification of energy mixHHI29.328.629.430.230.630.2 
 
 
 
ANNEX D: INVESTMENT GUIDANCE ON JUST TRANSITION FUND 

2021-2027 FOR ITALY 

Building  on  the  Commission  proposal,  this  Annex  presents  the  preliminary  Commission’s    views  on 
priority  investment  areas  and  framework  conditions  for  effective  delivery  for  the  2021-2027  Just 
Transition Fund  investments in Italy (107). These priority investment areas are  derived  from the broader 
analysis  of  territories  facing  serious  socio-economic  challenges  stemming  from  the  transition  process 
towards  a  climate-neutral  economy  of  the  Union  by  2050  in  Italy,  assessed  in  the  report.  This  Annex 
provides  the  basis  for  a  dialogue  between  Italy  and  the  Commission  services  as  well  as  the  relevant 
guidance  for  the  Member  States  in  preparing  their  territorial  just  transition  plans,  which  will  form  the 
basis for programming the Just Transition Fund. The Just Transition Fund investments complement those 
under  Cohesion  Policy  funding  for  which  guidance  in  the  form  of  Annex  D  was  given  in  the  2019 
Country Report for Italy (108). 

Italy is the EU’s fourth largest producer of greenhouse gas (GHG) emissions, and its energy sector is the 
largest contributor to the total GHG emissions with a share of 56% in 2017. Italy’s main sources of GHG 
emissions  are  coal  power  plants  and  iron/steel  production  (109).  Two  areas  deserve  specific  attention, 
Taranto and Sulcis Iglesiente (Carbonia-Iglesias, in the South-West of Sardinia). 

In the functional urban area of Taranto (province of Taranto), which hosts one of Europe’s largest steel 
mills and one of the three biggest coal-fired power plants in Italy, large industrial pollution stems from 
GHG, but also from other pollutants and particle matters. This area is economically heavily dependent on 
the  steel  mill,  which  employs  ca.  10 000  employees,  with  a  further  ca.  10 000  estimated  to  work  in 
ancillary companies. These jobs are at risk. The area’s heavy dependence on fossil fuels poses a massive 
decarbonisation  challenge  and  calls  for  major  efforts  in  supporting  an  integrated  transition  strategy  to 
accompany Taranto’s long-term shift towards economic alternatives and further development of the steel 
cluster.  Based  on  this  preliminary  assessment,  it  appears  warranted  that  the  Just  Transition  Fund 
concentrates its intervention on that area. 

In order to tackle these challenges, priority investment needs have been identified to make the economies 
of  this  area  more  modern  and  competitive.  Key  actions  of  the  Just  Transition  Fund  could  target  in 
particular: 

 

 

 

investment  in  the  deployment  of  technology  and  infrastructures  for  affordable  clean  energy, 
energy efficiency and renewable energy, including in industrial sites  that emit  high GHG  with 
the aim to reduce emissions; (110) 

investment  in  regeneration  and  decontamination  of  sites,  land  restauration  and  repurposing 
projects; 

investment in the creation of new firms , including through business incubators and consulting 
services, considering Smart Specialisation Strategies (111); 

(107) This Annex is to be considered in conjunction with the EC proposal for a Regulation of the European Parliament and of the 
Council  on  the  Just  Transition  Fund  2021-2027  (COM(2020)22  and  the  EC  proposal  for  a  Regulation  of  the  European 
Parliament and of the Council laying down common provisions on the European Regional Development Fund, the European 
Social Fund Plus, the Cohesion Fund, and the European Maritime and Fisheries Fund and financial rules for those and for the 
Asylum and Migration Fund, the Internal Security Fund and the Border Management and Visa Instrument (COM(2020)23) 

(108) SWD(2019) 1011 final 
(109) DG REGIO, 2016 
(110) In the area, the industrial sites, performing activities listed in Annex I to Directive 2003/87/EC, employ a substantial number of 
workers and their activity is at risk due to their high greenhouse gas emissions; support to investments to reduce the emissions 
could  be  considered,  provided  that  they  achieve  a  substantial  reduction  of  emissions  (going  substantially  below  the  relevant 
benchmarks used for free allocation under Directive 2003/87/EC). The Taranto area is expected to suffer from substantial job 
losses, which might not be entirely offset by the creation and development of SMEs; support to productive investments in large 
enterprises  could therefore  be  considered  and  on  the  condition  that the  investments  are  compatible  with  the  European  Green 
Deal. 

80 

 
 
                                                           
D. Investment Guidance on Just Transition Fund 2021-2027 for Italy 

 

 

 

 

productive investments in SMEs; 

upskilling and reskilling of workers; 

job-search assistance to jobseekers, 

active inclusions of jobseekers. 

In  Sulcis  Iglesiente  (province  of  Carbonia-Iglesias),  Italy’s  last  coal  mine  of  Monte  Sinni  should 
gradually phase out coal production by 2025. It employs 350 staff and its production has been  steadily 
declining.  The  area  is  already  characterised  by  a  high  percentage  of  older  inhabitants,  few  young 
graduates,  high youth unemployment rate (35.7%), low per capita income and an overall low quality of 
life112. This poses transition challenges and triggers related investment needs. Based on this preliminary 
assessment, it appears warranted that the Just Transition Fund also intervenes in this area. 

Key actions of the Just Transition Fund could target in particular : 

 

 

 

 

 

 

investment  in  regeneration  and  decontamination  of  sites,  land  restoration  and  repurposing 
projects; 

investment  in  enhancing  the  circular  economy,  including  through  waste  prevention,  reduction, 
resource efficiency, reuse repair and recycling; 

productive  investments  in  SMEs,  including  start-ups,  leading  to  economic  diversification  and 
reconversion; 

upskilling and reskilling of workers; 

job-search assistance to jobseekers; 

active inclusions of jobseekers. 

(111)  The  smart  specialisation  strategies  [as  defined  in  Article  2(3)  of  Regulation  EU  1303/2013  (CPR)]  provide  an  important 
framework to set priorities for innovation in support of economic transformation. 

(112) “Area di crisi industriale complessa - Polo Industriale Portovesme a relativo indotto”, Sardinia region, 2016. 

81 

 
 
 
                                                                                                                                                                          
ANNEX E: PROGRESS TOWARDS THE SUSTAINABLE 

DEVELOPMENT GOALS (SDGs) 

Assessment of Italy’s short-term progress towards the SDGs (113) 

Table E.1 shows the data for Italy and the EU-28 for the indicators included in the EU SDG indicator set 
used  by  Eurostat  for  monitoring  progress  towards  the  SDGs  in  an  EU  context (114).  As  the  short-term 
trend at EU-level is assessed over a 5-year period, both the value at the beginning of the period and the 
latest available value is presented. The indicators are regularly updated on the  SDI dedicated section of 
the Eurostat website. 

Table E.1: 

Indicators measuring Italy’s progress towards the SDGs 

(Continued on the next page) 

(113) Data  extracted  on  9  February  2020 

from 

the  Eurostat  database 

(official  EU  SDG 

indicator 

set; 

see 

https://ec.europa.eu/eurostat/web/sdi/main-tables).  

(114) The EU SDG indicator set is aligned as far as appropriate with the UN list of global indicators, noting that the UN indicators are 
selected for global level reporting and are therefore not always relevant in an EU context. The EU SDG indicators have strong 
links with EU policy initiatives. 

82 

 
 
 
                                                           
 
  
 
References 

Table (continued) 

(Continued on the next page) 

83 

 
 
 
 
 
   
 
References 

Table (continued) 

(Continued on the next page) 

84 

 
 
 
 
 
   
 
References 

Table (continued) 

(Continued on the next page) 

85 

 
 
 
 
 
   
 
References 

Table (continued) 

Source: Eurostat 

86 

 
 
 
 
   
 
References 

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