Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Italy
Date: 2024-06-19
Institutions: European Commission, Secretariat-General
Subjects: Italy, budget policy, competitiveness, economic policy, economic recovery, economic reform, employment policy, fiscal policy, social policy, stability pact

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   EUROPEAN COMMISSION  Brussels, 19.6.2024  COM(2024) 612 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Italy {SWD(2024) 612 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic, social, employment, structural and budgetary policies of Italy 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council 
of  29  April  2024  on  the  effective  coordination  of  economic  policies  and  on  multilateral 
budgetary surveillance and repealing Council Regulation (EC) No 1466/971, and in particular 
Article 3(3) thereof, 

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

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council3,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021. The Recovery and Resilience Facility provides financial support to the Member 
States  for  the  implementation  of  reforms  and  investment,  entailing  a  fiscal  impulse 
financed by the EU. In line with the European Semester priorities, it helps achieve the 
economic  and  social  recovery  and  implement  sustainable  reforms  and  investment,  in 
particular  to  promote  the  green  and  digital  transitions  and  make  the  Member  States’ 
economies  more  resilient.  It  also  helps  strengthen  public  finances  and  boost  growth 
and job creation in the medium and long term, improve territorial cohesion within the 
EU and support the continued implementation of the European Pillar of Social Rights.  

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OJ L 2024/1263, 30.4.2024. ELI: http://data.europa.eu/eli/reg/2024/1263/oj 
OJ L 306, 23.11.2011, p. 25. ELI: http://data.europa.eu/eli/reg/2011/1176/oj 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
(OJ  L  57,  18.2.2021,  p.  17).  ELI: 
establishing 
http://data.europa.eu/eli/reg/2021/241/oj 

the  Recovery  and  Resilience  Facility 

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(2) 

(3) 

(4) 

(5) 

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The  REPowerEU  Regulation4,  adopted  on  27  February  2023,  aims  to  phase  out  the 
EU’s  dependency  on  Russian  fossil  fuel  imports.  This  would  help  achieve  energy 
security  and  diversify  the  EU’s  energy  supply,  while  increasing  the  uptake  of 
renewables,  energy  storage  capacities  and  energy  efficiency.  Italy  added  a  new 
REPowerEU chapter to its national recovery and resilience plan in order to finance key 
reforms and investments that will help achieve the REPowerEU objectives. 

On  16  March  2023,  the  Commission  issued  a  Communication  on  the  ‘Long-term 
competitiveness of the EU: looking beyond 2030’5, in order to inform policy decisions 
and  create  the  framework  conditions  for  increasing  growth.  The  Communication 
frames competitiveness along nine mutually reinforcing drivers. Among these drivers, 
access to private capital, research and innovation, education and skills, and the single 
market  emerge  as  paramount  policy  priorities  for  reform  and  investment  to  address 
current productivity challenges as well as to build up the long-term competitiveness of 
the EU and its Member States.  On 14 February  2024, the Commission  followed this 
Communication  with  the  Annual  Single  Market  and  Competitiveness  Report6.  The 
report  details  the  competitive  strengths  and  challenges  of  Europe's  Single  Market, 
tracking yearly developments according to the nine competitiveness drivers identified.      

On 21 November 2023, the Commission adopted the 2024 Annual Sustainable Growth 
Survey7, marking the start of the 2024 cycle of the European Semester for economic 
policy  coordination.  The  European  Council  endorsed  the  priorities  of  the  survey 
around  the  four  dimensions  of  competitive  sustainability  on  22  March  2024.  On  21 
November 2023, on the basis of Regulation (EU) No 1176/2011, the Commission also 
adopted  the  2024  Alert  Mechanism  Report,  in  which  it  identified  Italy  as  one  of  the 
Member States that may be affected or may be at risk of being affected by imbalances, 
and for which an in-depth review would be needed. On the same date, the Commission 
adopted  an  opinion  on  the  2024  draft  budgetary  plan  of  Italy.  The  Commission  also 
adopted a recommendation for a Council recommendation on the economic policy of 
the euro area, which the Council adopted on 12 April 2024, as well as the proposal for 
the 2024 Joint Employment Report analysing the implementation of the Employment 
Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights,  which  the 
Council adopted on 11 March 2024.  

On  30  April  2024,  the  EU’s  new  economic  governance  framework  came  into  force. 
The  framework  includes  the  new  Regulation  of  the  European  Parliament  and  of  the 
Council  (EU)  2024/1263  on  the  effective  coordination  of  economic  policies  and 
multilateral  budgetary  surveillance  and  repealing  Council  Regulation  (EC)  No 
1466/97.  It  also  includes  the  amended  Regulation  (EC)  No  1467/97  on  the 
implementation  of  the  excessive  deficit  procedure  and  the  amended  Directive 
2011/85/EU  on  the  budgetary  frameworks  of  Member  States8.  The  objectives  of  the 

Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27  February  2023 
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans 
and  amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive 
2003/87/EC (OJ L 63, 28.2.2023, p. 1). ELI: http://data.europa.eu/eli/reg/2023/435/oj 
COM(2023) 168 final. 
COM(2024) 77 final. 
COM(2023) 901 final. 
Council  Regulation  (EU)  2024/1264  of  29  April  2024  amending  Regulation  (EC)  No  1467/97  on 
speeding  up  and  clarifying  the  implementation  of  the  excessive  deficit  procedure  (OJ  L,  2024/1264, 
30.4.2024,  ELI: http://data.europa.eu/eli/reg/2024/1264/oj)  and  Council  Directive  (EU)  2024/1265  of 

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new  framework  are  public  debt  sustainability  and  sustainable  and  inclusive  growth 
through gradual  fiscal consolidation  as well as  reforms  and investments.  It  promotes 
national  ownership  and  has  a  greater  medium-term  focus,  combined  with  more 
effective and coherent enforcement. Each Member State should submit to the Council 
and  to  the  Commission  a  national  medium-term  fiscal-structural  plan.  National 
medium-term  fiscal-structural  plans  contain  the  fiscal,  reform  and  investment 
commitments  of  a  Member  State,  covering  a  planning  horizon  of  4  years  or  5  years 
depending on the regular length of the national legislature. The net expenditure9 path 
in  the  national  medium-term  fiscal-structural  plans  should  comply  with  the 
requirements of Regulation (EU) 2024/1263, including the requirements to put or keep 
general government debt on a plausibly downward path by the end of the adjustment 
period  at  the  latest,  or  for  it  to  remain  at  prudent  levels  below  60%  of  GDP,  and  to 
bring and/or maintain the government deficit below the 3% GDP reference value over 
the  medium  term.  Where  a  Member  State  commits  to  a  relevant  set  of  reforms  and 
investments in accordance with the criteria set out in Regulation (EU)  2024/1263, the 
adjustment period may be extended by 3 years at most. For the purpose of supporting 
the  preparation  of  those  plans,  on  [21  June]  2024  the  Commission  is  set  to  provide 
Member States with  guidance on the content  of  the plans and the subsequent  annual 
progress  reports  that  they  will  need  to  submit  and,  in  accordance  with  Article  5  of 
Regulation  (EU)  2024/1263,  will  transmit  to  them  technical  guidance  on  the  fiscal 
adjustments  (reference  trajectories  and  technical  information,  where  applicable). 
Member  States  should  submit  their  medium-term  fiscal-structural  plans  by  20 
September  2024,  unless  the  Member  State  and  the  Commission  agree  to  extend  the 
deadline by a reasonable period of time. Member States should ensure the involvement 
of their national parliaments, and the consultation of independent fiscal institutions, of 
social partners and other national stakeholders, as appropriate. 

In 2024, the European Semester for economic policy coordination continues to evolve 
in  line  with  the  implementation  of  the  Recovery  and  Resilience  Facility.  The  full 
implementation  of  the  recovery  and  resilience  plans  remains  essential  for  delivering 
the policy priorities under the European Semester, as the plans help effectively address 
all  or  a  significant  subset  of  challenges  identified  in  the  relevant  country-specific 
recommendations  issued  in  recent  years.  The  2019,  2020,  2022  and  2023  country-
specific  recommendations  remain  equally  relevant  also  for  recovery  and  resilience 
plans  revised,  updated  or  amended  in  accordance  with  Articles  14,  18  and  21  of 
Regulation (EU) 2021/241.  

On  30  April  2021,  Italy  submitted  its  national  recovery  and  resilience  plan  to  the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 
to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the  relevance, 
effectiveness,  efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in 
accordance with the assessment guidelines of Annex V to that Regulation. On 13 July 
2021,  the  Council  adopted  its  Decision  on  the  approval  of  the  assessment  of  the 

29  April  2024  amending  Directive  2011/85/EU  on  requirements  for  budgetary  frameworks  of  the 
Member States (OJ L, 2024/1265, 30.4.2024, ELI: http://data.europa.eu/eli/dir/2024/1265/oj). 
Net expenditure as defined in Article 2 of Council Regulation (EU) 2024/1263 of 29 April 2024  (OJ L 
2024/1263,  30.4.2024.  ELI:  http://data.europa.eu/eli/reg/2024/1263/oj).  Net  expenditure  means 
government  expenditure  net  of  (i)  interest  expenditure,  (ii)  discretionary  revenue  measures,  (iii) 
expenditure  on  programmes  of  the  Union  fully  matched  by  Union  funds  revenue,  (iv)  national 
expenditure  on  co-financing  of  programmes  funded  by  the  Union,  (v)  cyclical  elements  of 
unemployment benefit expenditure, and (vi) one-offs and other temporary measures. 

(6) 

(7) 

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(8) 

(9) 

recovery  and  resilience  plan  for  Italy10,  which  was  amended  on  8  December  2023 
following Article 18(2) of Regulation (EU) 2021/241 to update the maximum financial 
contribution for non-repayable financial support, as well as to include the REPowerEU 
chapter11. The release of instalments is conditional on a decision by the Commission, 
taken  in  accordance  with  Article  24(5)  of  Regulation  (EU)  2021/241,  that  Italy  has 
satisfactorily  achieved  the  relevant  milestones  and  targets  set  out  in  the  Council 
Implementing Decision. Satisfactory achievement presupposes that the achievement of 
preceding milestones and targets has not been reversed. 

On 30 April 2024, Italy submitted its 2024 National Reform Programme and its 2024 
Stability  Programme,  in  line  with  Article  4(1)  of  Regulation  (EC)  No  1466/97.  In 
accordance with  Article  27 of Regulation  (EU) 2021/241,  the  2024 National  Reform 
Programme also reflects Italy’s biannual reporting on the progress made in achieving 
its recovery and resilience plan.  
The  Commission  published  the  2024  country  report  for  Italy12  on  19  June  2024.  It 
assessed Italy’s progress in addressing the relevant country-specific recommendations 
adopted  by  the  Council  between  2019  and  2023  and  took  stock  of  Italy’s 
implementation of the recovery and resilience plan. Based on this analysis, the country 
report identified gaps with  respect  to  those challenges  that are not  addressed or only 
partially addressed by the recovery and resilience plan, as well as new and emerging 
challenges.  It  also  assessed  Italy’s  progress  on  implementing  the  European  Pillar  of 
Social  Rights  and  on  achieving  the  EU  headline  targets  on  employment,  skills  and 
poverty reduction, as well as progress in achieving the UN’s Sustainable Development 
Goals.  

(10)  The  Commission  carried  out  an  in-depth  review  under  Article  5  of  Regulation  (EU) 
No  1176/2011  for  Italy.  The  main  findings  of  the  Commission’s  staff  assessment  of 
macroeconomic  vulnerabilities  for  Italy  for  the  purposes  of  that  Regulation  were 
published in April 202413. On 19 June 2024, the Commission concluded that  Italy is 
experiencing  macroeconomic  imbalances  after  being  identified  with  excessive 
imbalances in 2023. In particular, Vulnerabilities related to high government debt and 
weak productivity growth in a context of labour market fragilities and some residual 
weaknesses in the financial sector, which have cross-border relevance, remain. Italy’s 
public  debt-to-GDP  ratio  markedly  declined  since  its  peak  during  the  COVID-19 
pandemic crisis, principally due to strong nominal GDP growth. However, the public 
debt  ratio  is  still  high,  at  over  137%  of  GDP  in  2023,  and  the  downward  trend  is 
projected  to  reverse  this  year  and  next.  This  reversal  is  attributed  to  a  large  debt-
increasing  stock-flow  adjustment,  still  sizeable,  though  decreasing,  government 
deficits, as well as lower nominal GDP growth. Productivity growth has overall and on 
average been positive but limited, which confirms the need of reforms and investment 
to  overcome  structural  shortcomings  and 
to 
productivity growth. Labour market conditions have improved in recent years and did 
not translate into wage pressures. Labour participation rates have risen to record levels 

to  foster  favourable  conditions 

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Council Implementing Decision of 13 July 2021 on the approval of the assessment of the recovery and 
resilience  plan  for  Italy  (ST  10160/21  INIT;  ST  10160/21  ADD  1;  ST  10160/21  ADD  1  REV  1;  ST 
10160/21 ADD 1 REV 2; ST 10160/21 ADD 1 REV 2 COR 1). 
Council Implementing Decision of 8 December 2023 amending the Implementing Decision of 13 July 
2021  on  the  approval  of  the assessment  of  the  recovery  and  resilience  plan  for  Italy  (ST  16051  2023 
INIT). 
SWD(2024) 612 final. 
SWD(2024) 104 final. 

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though these are still comparatively low. The financial sector has further strengthened 
with improvements in bank asset quality and profitability, while Italian banks are still 
considerably  exposed  to  the  sovereign  and  to  state-guaranteed  loans  in  their  balance 
sheets.  Policy  action  has  been  favourable  to  tackle  the  vulnerabilities,  including 
through the RRP implementation, which inter alia promote productivity and potential 
GDP growth to help reduce the public debt ratio over the longer term. Keeping up the 
pace of RRP implementation remains essential and additional policy efforts would be 
beneficial.  More  action  is  clearly  needed  to  reduce  the  high  public  debt  ratio.  The 
reformed Stability and Growth Pact, including the application of the Excessive Deficit 
Procedure,  offers  a  suitable  and  strong  surveillance  mechanism  to  address  the  fiscal 
sustainability risks, and to complement surveillance under the MIP. 

(11)  Based  on  data  validated  by  Eurostat14,  Italy’s  general  government  deficit  decreased 
from 8.6% of GDP in 2022 to 7.4% in 2023, while the general government debt fell 
from 140.5% of GDP at the end of 2022 to 137.3% at the end of 2023. As announced 
in the fiscal policy guidance for 202415, the Commission is taking the first step for the 
opening of deficit-based excessive deficit procedures on the basis of the outturn data 
for  2023,  in  line  with  existing  legal  provisions.  On  19  June  2024,  the  Commission 
adopted  a  report  under  Article  126(3)  of  the  TFEU16.  That  report  assessed  the 
budgetary  situation  of  Italy,  as  its  general  government  deficit  in  2023  exceeded  the 
reference  value  of  3%  of  GDP.  The  report  concluded  that  in  the  light  of  this 
assessment,  and  after  considering  the  opinion  of  the  Economic  and  Financial 
Committee  as  established  under  article  126(4)  TFEU,  the  Commission  intends  to 
propose in July to open excessive deficit procedure, by recommending to the Council 
to  adopt  a  Decision  under  Article  126(6)  establishing  the  existence  of  an  excessive 
deficit for Italy. 

(12)  On 12 July 2022, the Council recommended17 that Italy ensure in 2023 a prudent fiscal 
policy,  in  particular  by  limiting  the  growth  of  nationally  financed  primary  current 
expenditure  below  medium-term  potential  output  growth18,  taking  into  account 
continued temporary and targeted support to households and firms most vulnerable to 
energy  price  hikes  and  to  people  fleeing  Ukraine.  At  the  same  time,  Italy  was 
recommended to stand ready to adjust current spending to the evolving situation. Italy 
was  also  recommended  to  expand  public  investment  for  the  green  and  digital 
transitions,  and  for  energy  security  taking  into  account  the  REPowerEU  initiative, 
including  by  making  use  of  the  Recovery  and  Resilience  Facility  and  other  Union 
funds. In 2023, according to the Commission estimates, the fiscal stance19 was slightly 

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Eurostat-Euro Indicators, 22.4.2024. 
COM(2023) 141 final. 
Report  from  the  Commission,  prepared  in  accordance  with  Article  126(3)  of  the  Treaty  on  the 
Functioning of the European Union, 19.6.2024, COM(2024)598 final. 
Council Recommendation of 12 July 2022 on the National Reform Programme of Italy and delivering a 
Council opinion on the 2022 Stability Programme of Italy OJ C 334, 1.9.2022, p. 96.  
Based on the Commission  Spring 2024 Forecast, the medium-term potential output growth of  Italy in 
2023 is estimated at 5.9% in nominal terms, based on the 10-year average real potential growth rate and 
the 2023 GDP deflator. 
The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of 
the  general  government.  It  aims  to  assess  the  economic  impulse  stemming  from  fiscal  policies,  both 
those  that  are  nationally  financed  and  those  that  are  financed  by  the  EU  budget.  The  fiscal  stance  is 
measured as the difference between (i) the medium-term potential growth and (ii) the change in primary 
expenditure  net  of  discretionary  revenue  measures  (and  excluding  temporary  emergency  measures 

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expansionary, by 0.3% of GDP, in a context of high inflation. The growth in nationally 
financed primary current expenditure (net of discretionary revenue measures) in 2023 
provided a contractionary contribution to the fiscal stance of 1.0% of GDP and was in 
line with  the Council recommendation.  The  contractionary contribution  of nationally 
financed primary current expenditure was due to  the reduced costs of the  emergency 
support  measures  (targeted  and  untargeted)  to  households  and  firms  in  response  to 
energy price hikes (by 1.4 percentage points of GDP). Pensions and cuts to the labour 
tax  wedge  were  the  main  drivers  of  growth  in  nationally  financed  primary  current 
expenditure  (net  of  discretionary  revenue  measures).  Expenditure  financed  by 
Recovery  and  Resilience  Facility  grants  and  other  EU  funds  amounted  to  0.8%  of 
GDP  in  2023.  Nationally  financed  investment  amounted  to  2.9%  of  GDP  in  2023, 
representing an increase of 0.3 percentage points as compared to 2022. Italy financed 
additional  investment  through  the  Recovery  and  Resilience  Facility  and  other  EU 
funds.  It  financed  public  investment  for  the  green  and  digital  transitions,  and  for 
energy  security,  such  as  the  strengthening  of  smart  grids,  the  construction  of  the 
“Tyrrhenian link”, the development of rapid mass transport systems, the production of 
hydrogen  in  brownfield  sites,  fast  internet  connections  and  the  digitisation  of  the 
public administration, which are partly funded by the Recovery and Resilience Facility 
and other EU funds. 

(13)  The key projections in the 2024 Stability Programme can be summarised as follows. 
The  macroeconomic  scenario  underpinning  the  budgetary  projections  foresees  real 
GDP  growth  at  1.0%  in  2024  and  1.2%  in  2025,  while  it  projects  HICP  inflation  at 
1.2% in 2024 and 1.8% in 2025. The general government deficit, under the unchanged 
legislation scenario, is projected to decrease to 4.3% of GDP in 2024 and to 3.7% of 
GDP in 2025, while the general government debt-to-GDP ratio is set to increase by 0.5 
pp, to 137.8% by the end of 2024 and, subsequently, increase to 138.9% by the end of 
2025. After 2025, the general government deficit is projected to decrease to 3.0% of 
GDP  in  2026,  and  2.2%  in  2027.  Therefore,  the  general  government  deficit  is 
projected to not exceed the 3% of GDP deficit reference value from 2026. In turn, after 
2025,  the  general  government  debt-to-GDP  ratio  is  projected  to  further  increase  to 
139.8% in 2026, and to decrease marginally to 139.6% in 2027. 

(14)  The  Commission  Spring  2024  Forecast  projects  real  GDP  to  grow  by  0.9%  in  2024 
and 1.1% in 2025, and HICP inflation to stand at 1.6% in 2024 and 1.9% in 2025. 

(15)  The Commission Spring 2024 Forecast projects a government deficit of 4.4% of GDP 
in 2024, while the general government debt-to-GDP ratio is set to increase to 138.6% 
by the end of 2024. The projected decrease of the deficit in 2024 mainly reflects the 
complete phase-out of energy support measures and the much lower budgetary cost of 
tax  credits  for  housing  renovation  (¼%  of  GDP  from  around  3½%  in  2023),  due  to 
changes in legislation which also led to the statistical classification of new tax credits 
as “non-payable” (while earlier tax credits were classified as “payable”). The increase 
of  the  debt-to-GDP  ratio  in  2024  reflects  the  strong  increase  in  the  stock-flow 
adjustment due to the delayed impact of 2021-2023 tax credits for housing renovation 
on the cash flow. Based on the Commission’s estimates, the fiscal stance is projected 
to be contractionary at 3.1% of GDP in 2024. 

related to the COVID-19 crisis) and including expenditure financed by non-repayable support (grants) 
from the Recovery and Resilience Facility and other Union funds.  

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(16)  Expenditure amounting to 0.6% of GDP is expected to be financed by non-repayable 
support  (“grants”)  from  the  Recovery  and  Resilience  Facility  in  2024,  compared  to 
0.8%  of  GDP  in  2023,  according  to  the  Commission  Spring  2024  Forecast. 
Expenditure  financed  by  Recovery  and  Resilience  Facility  grants  will  enable  high-
quality investment and productivity-enhancing reforms without a direct impact on the 
general government balance and debt of Italy. Expenditure amounting to 1.3% of GDP 
is expected to be backed by loans from the Recovery and Resilience Facility in 2024, 
compared  to  0.3%  of  GDP  in  2023,  according  to  the  Commission  Spring  2024 
Forecast. 

(17)  On 14 July 2023, the Council recommended20 that Italy ensure a prudent fiscal policy, 
in  particular  by  limiting  the  nominal  increase  in  net  nationally  financed  primary 
expenditure21 in 2024 to not more than 1.3%. When executing their 2023 budgets and 
preparing  their  Draft  Budgetary  Plans  for  2024,  Member  States  were  invited  to  take 
into account that the Commission would propose to the Council the opening of deficit-
based  excessive  deficit  procedures  based  on  the  outturn  data  for  2023.  According  to 
the  Commission  Spring  2024  Forecast,  Italy’s  net  nationally  financed  primary 
expenditure  is  projected  to  decrease  by  2.8%  in  202422,  which  is  below  the 
recommended  maximum  growth  rate.  This  lower  spending  over  the  recommended 
maximum growth  rate  in  net  nationally financed  primary  expenditure  corresponds  to 
2.0% of GDP in 2024. However, net expenditure in 2023 was higher than expected at 
the time of the recommendation (by 2.9% of GDP). Therefore, as the recommendation 
for 2024 was formulated as a growth rate, the assessment of compliance also needs to 
take  into  account  the  base  effect  from  2023.  Had  net  expenditure  in  2023  been  the 
same as expected at the time of the recommendation, the resulting growth rate of net 
expenditure in 2024 would have been above the recommended growth rate by 0.9% of 
GDP. Therefore, net nationally financed primary expenditure is assessed as at risk of 
being not fully in line with the recommendation. 

(18)  Moreover,  the  Council  recommended  that  Italy  take  action  to  wind  down  the 
emergency energy support measures in  force, using the related savings to  reduce the 
government  deficit,  as  soon  as  possible  in  2023  and  2024.  The  Council  further 
specified  that,  should  renewed  energy  price  increases  necessitate  new  or  continued 
support measures, Italy should ensure that these were targeted at protecting vulnerable 
households and firms, fiscally affordable, and preserve incentives for energy savings. 

20 

21 

22 

Council  Recommendation  of  14  July  2023  on  the  2023  National  Reform  Programme  of  Italy  and 
delivering a Council opinion on the 2023 Stability Programme of Italy, OJ C 312, 1.9.2023, p. 105. 
Net primary expenditure is defined as nationally financed expenditure net of  (i) discretionary revenue 
measures, (ii) interest expenditure, (iii) cyclical unemployment expenditure, and (iv) and one-offs and 
other temporary measures. 
This takes into account 0.04% of GDP one-off measures in 2024, relating to various withholding taxes 
and  revenues  related  to  taxpayers  voluntarily  regularising  their  past  tax  position  (so-called  “tregua 
fiscale”) with reduced sanctions and fines compensated by interventions related to the floods which hit 
Italy in May 2023 (as well as 0.3% of GDP in 2023, relating to various withholding taxes and revenues 
related  to  taxpayers  voluntarily  regularising  their  past  tax  position  (so-called  “tregua  fiscale”)  with 
reduced  sanctions  and  fines  only  partly  compensated  by  interventions  related  to  the  floods  which  hit 
Italy in May 2023). On 14 July 2023, the Council also referred to the devastating floods that hit Italy in 
May 2023 and agreed that the cost of direct emergency support related to those floods would be taken 
into account in subsequent assessments of compliance and would, in principle, be considered as one-off 
and temporary measures. 

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According  to  the  Commission  Spring  2024  Forecast,  the  net  budgetary  cost23  of 
energy support measures is estimated at 1.0% of GDP in 2023 and projected at 0.0% 
in  2024.  If  the  related  savings  were  used  to  reduce  the  government  deficit,  as 
recommended  by  the  Council,  these  projections  would  imply  a  fiscal  adjustment  of 
1.0% of GDP in 2024, whereas net nationally financed primary expenditure24 provides 
a  contractionary  contribution  to  the  fiscal  stance  of  2.7%  of  GDP  in  that  year. 
However,  the  latter  is  driven  by  the  contractionary  contribution  of  other  capital 
expenditure  of  3.2%  of  GDP,  which  is  mainly  related  to  the  above-mentioned  sharp 
reduction  of  subsidies  related  to  tax  credits  for  housing  renovation  in  2024.  At  the 
same time, the contribution of net nationally financed current primary expenditure to 
the  fiscal  stance,  which  is  affected  by  the  phase-out  of  current  energy  support 
measures, is projected to be expansionary by 0.4% of GDP, pointing to the full use of 
the  0.8%  of  GDP  savings  from  those  current  energy  support  measures  for 
expansionary  policies  increasing  net  current  spending  in  2024,  including  labour  tax 
wedge cuts. The emergency energy support measures are projected to be wound down 
as soon as possible in 2023 and 2024. This is in line with what was recommended by 
the Council. However, the related savings are not projected to be fully used to reduce 
the  government  deficit.  This  risks  being  not  in  line  with  what  was  recommended  by 
the Council.  

In  addition,  the  Council  also  recommended  that  Italy  preserve  nationally  financed 
public  investment  and  ensure  the  effective  absorption  of  Recovery  and  Resilience 
Facility  grants  and  other  EU  funds,  in  particular  to  foster  the  green  and  digital 
transitions.  According  to  the  Commission  Spring  2024  Forecast,  nationally  financed 
public investment is projected at 2.8% of GDP in 2024 from 2.9% of GDP in 202325. 
This is in line with the Council recommendation. In turn, public expenditure financed 
from  revenues  from  EU  funds,  including  Recovery  and  Resilience  Facility  grants,  is 
expected to decrease to 0.8% of GDP in 2024 (from 1.2% of GDP in 2023), mainly in 
relation to ReactEU. 

(19) 

(20)  Based on policy measures known at the cut-off date of the forecast and on a no-policy-
change  assumption,  the  Commission  Spring  2024  Forecast  projects,  a  government 
deficit of 4.7% of GDP in 2025. The increase of the deficit in 2025 mainly reflects the 
expected prolongation of the labour tax wedge cuts  and a further increase in  interest 
expenditure.  The  general  government  debt-to-GDP  ratio  is  set  to  further  increase  to 
141.7% by the end of 2025. The projected increase of the debt-to-GDP ratio in 2025 
mainly reflects a less favourable interest-growth-rate differential and a debt-increasing 
stock-flow  adjustment  related  to  the  delayed  cash  impact  of  government-supported 
housing renovation. 

(21) 

Italy’s  tax  revenues  in  relation  to  GDP  are  relatively  high  in  comparison  to  peer 
Member  States,  with  the  main  contribution  coming  from  labour  taxation.  Following 
parliamentary approval of an enabling law that provides for a broad mandate to reform 

23 

24 

25 

The figure represents the level of the annual budgetary cost of those measures, including revenue and 
expenditure and, where applicable, net of the revenue from taxes on windfall profits of energy suppliers. 
This contribution is measured as the change in general government primary expenditure, net of  (i) the 
incremental  budgetary  impact  of  discretionary  revenue  measures,  (ii)  one-offs,  (iii)  cyclical 
unemployment  expenditure  and  (iv)  expenditure  financed by  non-repayable  support  (grants)  from  the 
Recovery  and  Resilience  Facility  and  other  EU  funds,  relative  to  the  medium-term  (10-year)  average 
potential nominal GDP growth rate, expressed as a ratio to nominal GDP. 
When  rounding  at  the  first  decimal,  the  difference  of  nationally  financed  public  investment  between 
2024 and 2023 is 0.0. 

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the tax system, the government adopted several implementing decrees. However, the 
measures adopted so far do not address the key challenges of the taxation system, and 
the cuts to the labour tax wedge, legislated only until 2024 and financed via temporary 
provisions,  are  quite  limited  in  scope.  In  addition,  the  extension  of  flat-rate  tax 
regimes, including for the self-employed, worsen the horizontal equity and efficiency 
of the tax system by reducing redistribution, favouring specific taxpayers’ categories 
and disincentivising business growth. Furthermore, while several important measures 
on tax administration and simplification are being implemented as part of the recovery 
and  resilience  plan,  such  as  pre-filled  VAT  declarations,  other  recent  measures  risk 
producing  adverse  effects  on  tax  compliance.  These  include  the  5-year  term  for 
collecting tax bills, the reduction of sanctions related to the evasion of taxes and social 
security  contributions,  and  the  renewal  of  measures  similar  to  tax  amnesties.  The 
effect  on tax compliance of the system  of prior agreement between the taxpayer and 
the  administration  on  tax  liabilities  for  small  businesses  also  warrants  close 
monitoring.  Overall,  a  more  structural  and  growth-friendly  reform  of  the  tax  system 
would  require  a  budgetary  neutral  shift  of  the  tax  burden  from  productive  factors  to 
other sources less detrimental to growth. In this regard, no details are yet known on the 
planned streamlining of value-added tax, while the update of cadastral values, which 
are  largely  outdated  and  divergent  from  market  values,  was  not  included  in  the 
enabling law for the tax reform. In addition, significant revenue losses are observed in 
relation to public concessions, including beaches. Furthermore, despite relatively high 
revenues from  environmental taxes, Italy’s tax system could better  support the green 
transition,  in  particular  by  aligning  taxation  to  the  level  of  CO2  emissions  of  energy 
sources and vehicles, including for company cars. 

In accordance with Article 19(3), point (b), and Annex V, criterion 2.2 of Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 
reinforcing reforms and investments to be implemented by 2026. These are expected 
to  help  effectively  address  all  or  a  significant  subset  of  challenges  identified  in  the 
relevant  country-specific  recommendations.  Within  this  tight  timeframe,  proceeding 
swiftly  with  the  effective  implementation  of  the  plan,  including  the  REPowerEU 
chapter, is essential to boost Italy’s long-term competitiveness through the green and 
digital transition, while ensuring social fairness. To deliver on the commitments of the 
plan by August 2026, it is essential for Italy to continue the implementation of reforms 
and  to  accelerate  investments  by  addressing  emerging  delays  while  ensuring  strong 
administrative capacity. Investments in particular are highly concentrated towards the 
end of implementation of the recovery and resilience plan and merit special attention. 
The  systematic  involvement  of  local  and  regional  authorities,  social  partners,  civil 
society  and  other  relevant  stakeholders  remains  essential  to  ensure  broad  ownership 
for the successful implementation of the recovery and resilience plan.  

(22) 

(23)  As  part  of  the  mid-term  review  of  the  cohesion  policy  funds,  in  accordance  with 
Article  18  of  Regulation  2021/1060,  Italy  is  required  to  review  each  programme  by 
March 2025, taking into account, among other things, the challenges identified in the 
2024  country-specific  recommendations,  as  well  as  its  national  energy  and  climate 
plan.  This  review  forms  the  basis  for  the  definitive  allocation  of  the  EU  funding 
included in each programme. While Italy has made progress in implementing cohesion 
policy  and  the  European  Pillar  of  Social  Rights,  challenges  remain  and  regional 
disparities  persist  between 
the 
the  centre-north  and 
implementation  of  cohesion  policy  programmes,  coupled  with  the  strengthening  of 
administrative capacity, at national and particularly at subnational level, is crucial. The 
priorities  agreed  in  the  programmes  remain  relevant.  Beyond  the  administrative 

the  south.  Accelerating 

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capacity  measures,  it  is  particularly  important  to  see  fast  implementation  of 
investments in research, innovation and competitiveness, notably in the less developed 
regions,  in  tandem  with  infrastructure  development  plans  and  regional  smart 
specialisation  strategies.  Italy  should  continue  raising  the  quality  of  essential  public 
services in the  south,  in  particular water and waste services, including  by promoting 
single  operators  at  regional  level.  It  continues  to  be  important  to  promote  upskilling 
and  reskilling,  including  for  the  green  transition,  by  increasing  tertiary  education 
attainment and the share of adults enrolled in training. Reducing the number of young 
people not in education, employment or training by improving the educational system 
and better targeting active labour market policies remains a priority, particularly in the 
south. Furthermore, it is necessary to continue supporting the employment of women 
by  increasing  the  supply  of  affordable  and  quality  early  childcare.  Italy  could  also 
make  use  of  the Strategic Technologies for Europe Platform initiative to  support the 
transformation  of  industrial  ecosystems,  in  particular  in  the  south.  Effective 
intervention  could  entail  integrated  industrial  policies  that  support  the  development 
and application of strategic technologies, especially in the areas of digital innovation, 
clean  energy  and  resource  efficiency,  in  particular  in  the  sectors  that  already  have  a 
strong  presence  in  the  south,  such  as  the  automotive  and  aeronautics  industries.  The 
strategic plan for the new single Special Economic Zone for the South could become a 
coherent framework to boost business innovation and productivity by targeting critical 
projects and strengthening integration across value chains. 

(24)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan and other EU funds, Italy faces several additional challenges related to taxation, 
demography, including its implications for fiscal sustainability, industrial strategy and 
competition policy. 

(25) 

Italy is one of the EU Member States with the oldest population, the lowest birth rate 
and a higher-than-average age of women giving birth to their first child. The migration 
balance  remains  positive,  but  no  longer  offsets  the  low  birth  rate.  As  a  result,  the 
working  age  population  continues  to  shrink,  limiting  potential  growth.  Unfavourable 
demographic developments are set to increase pension expenditure as a share of GDP 
up  to  2040,  further  exacerbated  by  early  retirement  schemes  introduced  in  recent 
years.  In  the  longer  term,  pension  expenditure  is  expected  to  progressively  decline, 
also thanks to the 2011 pension reform provided it is implemented in full, including by 
limiting  early  retirement  schemes.  A  stronger  and  more  inclusive  labour  market  for 
women  and  young  people,  together  with  higher  job  quality,  including  in  terms  of 
lower levels of in-work poverty and better access to social protection for non-standard 
workers,  can  help  mitigate  the  demographic  challenge.  To  this  end,  family-related 
policies, including measures to promote work-life balance, equal opportunities as well 
as  accessible  and  high-quality  care  services,  could  also  play  an  important  role. 
Furthermore,  migration  could  be  also  used  to  counteract  the  demographic  decline, 
particularly in the short and medium term. Although measures taken in 2024 increase 
the  number  of  non-EU  nationals  admitted  to  Italy  and  simplify  the  recognition  of 
foreign  educational  titles,  a  comprehensive  strategy  to  attract  and  retain  high-skilled 
workers  and  students  remains  key  to  fighting  the  brain  drain  and  counteracting 
demographic  trends.  In  this  context,  all  these  measures  would  also  contribute  to 

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supporting upward social convergence, in line with the Commission services’ second-
stage analysis based on the features of the Social Convergence Framework26. 

(26)  The  economy  of  the  south  contributed  to  the  post-COVID  recovery.  Nonetheless, 
southern regions remain characterised by economic activities with lower added value 
than in the regions of the centre-north. Furthermore, the south’s exports are expected 
to  be  affected  in  particular  by  decarbonisation  efforts.  Several  policy  measures  are 
supporting economic activities in the south, in particular tax incentives. In 2023, Italy 
created  a  single  Special  Economic  Zone  for  the  south,  transferring  the  responsibility 
for  the  previous  zones  under  a  single  body  within  the  Presidency  of  the  Council  of 
Ministers.  The  strategic  plan  for  this  zone  is  still  to  be  approved.  The  Recovery  and 
Resilience  Facility  and  other  EU  funds  contribute  to  investments  and  reforms  in 
southern  regions.  An  industrial  and  development  strategy  for  the  south  is  needed  to 
better target existing policy measures and improve the value added of EU and national 
investments.  In  this  respect,  the  south  has  considerable  potential  in  a  number  of 
sectors,  such  as  logistics  in  the  Mediterranean  and  renewable  energy  value  chains. 
Furthermore, strengthening science-business linkages to turn scientific knowledge into 
practical  solutions  is  key  to  industrial  revitalisation  and  to  positioning  the  south  in 
global  value  chains.  To  this  end,  further  institutionalising  the  role  of  technology 
transfer  offices,  especially  in  the  south,  for  example  by  strengthening  administrative 
capacity,  will  be  instrumental.  The  identification  and  selection  of  these  strategic 
sectors in a development strategy is a relevant factor in increasing the competitiveness 
of southern regions, with a positive impact at national level. Targeting existing policy 
measures and focusing planned investment on these sectors can further increase their 
economic impact.  

(27) 

Improvements  to  the  business  environment  would  facilitate  entrepreneurship,  and 
better framework conditions for competition would favour a more efficient allocation 
of resources and lead to  competitiveness and productivity gains. Greater competition 
and  improved  sectoral  regulation  would  also  benefit  consumers  and  improve 
government  finances, helping  address  Italy’s vulnerabilities of  high  government  debt 
and  weak  productivity  growth  as  mentioned  in  recital  (10).  The  2022  annual 
competition law, adopted in December 2023, will need to be properly implemented. In 
line  with  Italian  legislation,  the  Italian  recovery  and  resilience  plan  envisages  the 
adoption  of  a  competition  law  on  an  annual  basis.  However,  it  does  not  specify  all 
sectors  to  be  covered  by  the  annual  competition  laws.  A  legislative  initiative  is 
particularly  warranted  for  retail  trade,  notably  concerning  the  regulation  on  opening 
shops and running sales promotions, for regulated professions, particularly to ease the 
conditions for accessing them, as well as for railways, where the award of contracts for 
regional transport and intercity services needs to be competitive. Moreover, according 
to  the  Italian  competition  authority,  significant  barriers  to  competition  persist  in  a 
number  of  other  sectors,  such  as  postal  services,  pharmaceuticals,  chambers  of 
commerce and private hire vehicle services. 

In view of the close interlinkages between the economies of euro area Member States 
and of their collective contribution to the functioning of the Economic and Monetary 
Union,  in  2024  the  Council  recommended  that  the  euro  area  Member  States  take 
action,  including  through  their  recovery  and  resilience  plans,  to  implement  the 
recommendation on the economic policy of the euro area. For Italy, recommendations 

26 

SWD(2024)132 final. 

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(28) 

(1),  (2),  (3)  and  (4)  help  implement  the  first,  second,  third  and  fourth  euro  area 
recommendations. 

In  light  of  the  Commission’s  in-depth  review  and  its  conclusion  on  the  existence  of 
imbalances,  recommendations under Article 6 of Regulation  (EU) No 1176/2011  are 
reflected  in  recommendations  (1),  (2),  (3)  and  (4)  below.  Policies  referred  to  in 
recommendation  (1)  help  to  address  vulnerabilities  linked  to  high  government  debt. 
Policies referred to in recommendations (2), (3) and (4) help to address vulnerabilities 
linked  to  weak  productivity  growth,  which  by  extension  supports  potential  GDP 
(1). 
growth,  and  as  a 
Recommendations  (1),  (2),  (3)  and  (4)  contribute  to  both  addressing  imbalances  and 
implementing the recommendation for the euro area, in line with recital 27. 

result  also  contribute 

recommendation 

to  address 

HEREBY RECOMMENDS that Italy take action in 2024 and 2025 to:  

1. 

2. 

3. 

Submit  the  medium-term  fiscal-structural  plan  in  a  timely  manner.  In  line  with  the 
requirements  of  the  reformed  Stability  and  Growth  Pact,  limit  the  growth  in  net 
expenditure27 in 2025 to a rate consistent with putting the general government debt 
on a plausibly downward trajectory over the medium term and reducing the general 
government  deficit  towards  the  3%  of  GDP  Treaty  reference  value.  Make  the  tax 
system more supportive to growth, with a focus on reducing the tax wedge on labour 
and  in  line  with  fiscal  sustainability  objectives,  including  by  reducing  tax 
expenditures and updating cadastral values, while ensuring fairness and progressivity 
and supporting the green transition.  

Strengthen administrative capacity to manage EU funds, accelerate investments and 
maintain momentum in the implementation of reforms. Address emerging delays to 
allow  for  continued,  swift  and  effective  implementation  of  the  recovery  and 
resilience  plan,  including  the  REPowerEU  chapter,  ensuring  completion  of  reforms 
and investments by August 2026. Accelerate the implementation of cohesion policy 
programmes. In the context of their mid-term review continue focusing on the agreed 
priorities, while considering the opportunities provided by the Strategic Technologies 
for Europe Platform initiative to improve competitiveness.     

In  order  to  mitigate  the  effects  on  potential  growth,  tackle  negative  demographic 
trends  including  by attracting and  retaining  high-skilled workers and by  addressing 
labour market challenges, in particular with regards to women, young people and in-
work poverty, notably of workers with non-standard contracts. 

27 

According  to  Article  2(2)  of  Regulation  (EU)  2024/1263,  ‘net  expenditure’  means  government 
expenditure net of interest expenditure, discretionary revenue measures, expenditure on programmes of 
the  Union  fully  matched  by  revenue  from  Union  funds,  national  expenditure  on  co-financing  of 
programmes funded by the Union, cyclical elements of unemployment benefit expenditure, and one-offs 
and other temporary measures. 

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4. 

Define  an  industrial  and  development  strategy  to  reduce  the  territorial  divide  by 
streamlining  current  policy  measures  and  by  taking  into  account  key  infrastructure 
projects  as  well  as  strategic  value  chains.  Address  restrictions  to  competition,  in 
particular in the retail sector, regulated professions and railways.  

Done at Brussels, 

For the Council 
The President 

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