Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Italy
Date: 2025-06-04
Institutions: European Commission, Reform and Investment Task Force
Subjects: Italy, budget policy, economic policy, economic recovery, economic reform, employment policy, energy policy, labour market, social policy, stability pact

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   EUROPEAN COMMISSION  Brussels, 4.6.2025  COM(2025) 212 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Italy {SWD(2025) 212 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 
Article 121(2) and Article 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: 

General considerations 

(1) 

Regulation (EU) 2024/1263, which entered into force on 30 April 2024, specifies the 
objectives  of  the  economic  governance  framework,  which  aims  at  promoting  sound 
and  sustainable  public  finances  and  sustainable  and  inclusive  growth  and  resilience 
through reforms and investments, and preventing excessive government deficits. The 
Regulation  stipulates  that  the  Council  and  the  Commission  conduct  multilateral 
surveillance in the context of the European Semester in accordance with the objectives 
and requirements set out in the TFEU. The European Semester includes, in particular, 
the  formulation,  and  the  surveillance  of  the  implementation  of  country-specific 
recommendations.  The  Regulation  also  promotes  national  ownership  of  fiscal  policy 
and  emphasises  its  medium-term  focus,  combined  with  more  effective  and  coherent 
enforcement. Each Member State must submit to  the Council and the Commission  a 
national  medium-term  fiscal-structural  plan,  containing  its  fiscal,  reform  and 
investment  commitments,  over  4  or  5  years,  depending  on  the  length  of the  national 

1 
2 

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. 

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legislative  term.  The  net  expenditure3  path  in  these  plans  has  to  comply  with  the 
Regulation’s  requirements,  including  the  requirements  to  put  or  keep  general 
government debt on a plausibly downward path by the end of the adjustment period, or 
for it to remain at prudent levels below 60% of gross domestic product (GDP), and to 
bring  and/or  maintain  the  general  government  deficit  below  the  3%-of-GDP  Treaty 
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  the 
Regulation, the adjustment period may be extended by up to three years.  
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council4,  which 
established  the  Recovery  and  Resilience  Facility  (the  ‘RRF’),  entered  into  force  on 
19 February 2021.  The  RRF  provides  financial  support  to  Member  States  for 
implementing  reforms  and  investments,  delivering  a  fiscal  impulse  financed  by  the 
Union.  In  line  with  the  priorities  of  the  European  Semester  for  economic  policy 
coordination, the RRF fosters economic and social recovery while driving sustainable 
reforms and investments, in particular promoting the green and digital transitions and 
making  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 Union and support the continued implementation of the 
European Pillar of Social Rights. 
Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council5  (the 
‘REPowerEU  Regulation’),  which  was  adopted  on  27 February 2023,  aims  to  phase 
out the Union’s dependence on Russian fossil-fuel imports. This helps achieve energy 
security  and  diversify  the  Union’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  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 that Regulation, the Commission assessed the relevance, effectiveness, 
efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in  accordance  with  the 
assessment guidelines set  out  in Annex V. On  13  July  2021, the Council adopted its 
Implementing Decision approving the assessment of the recovery and resilience plan 
for Italy6, which was amended under Article 18(2) on 8 December 2023 to update the 
maximum  financial  contribution  for  non-repayable  financial  support,  as  well  as  to 

Net  expenditure  as  defined  in  Article  2,  point  (2),  of  Regulation  (EU)  2024/1263:  ‘net  expenditure’ 
means government expenditure net of (i) interest expenditure; (ii) discretionary revenue measures; (iii) 
expenditure  on  programmes  of  the  Union  fully  matched  by  revenue  from  Union  funds;  (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. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12 February 2021 
establishing 
(OJ  L  57,  18.2.2021,  p.  17,  ELI: 
http://data.europa.eu/eli/reg/2021/241/oj). 
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). 
Council Implementing Decision of 13 July 2021 on the approval of the assessment of the recovery and 
resilience plan for Italy (10160/2021). 

the  Recovery  and  Resilience  Facility 

(2) 

(3) 

(4) 

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include  the  REPowerEU  chapter7.  The  release  of  instalments  is  conditional  on  the 
adoption  of  a  decision  by  the  Commission,  in  accordance  with  Article  24(5),  stating 
that Italy has satisfactorily achieved the relevant milestones and targets set out in the 
Council 
the 
achievement  of  preceding  milestones  and  targets  for  the  same  reform  or  investment 
has not been reversed. 

Implementing  Decision.  Satisfactory  achievement 

requires 

that 

(5) 

(6) 

(7) 

On  21  January  2025  the  Council,  upon  the  recommendation  of  the  Commission, 
adopted a recommendation endorsing the national medium-term fiscal-structural plan 
of  Italy8.  The  plan  was  submitted  in  accordance  with  Article 11  and  Article 36(1), 
point (a), of Regulation (EU) 2024/1263, covers the period from 2025 until 2029 and 
presents a fiscal adjustment spread over seven years.  

On  26 November 2024,  the  Commission  adopted  an  opinion  on  the  2025  draft 
budgetary  plan  of  Italy.  On  the  same  date,  on  the  basis  of  Regulation  (EU)  No 
1176/2011,  the  Commission  adopted  the  2025  Alert  Mechanism  Report,  in  which  it 
identified  Italy  as  one  of  the  Member  States  for  which  an  in-depth  review  would  be 
for  a  Council 
needed.  The  Commission  also  adopted  a 
recommendation on the economic policy of the euro area and a proposal for the 2025 
Joint  Employment  Report,  which  analyses  the  implementation  of  the  Employment 
Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights.  The  Council 
adopted  the  Recommendation  on  the  economic  policy  of  the  euro  area9  on  13  May 
2025 and the Joint Employment Report on 10 March 2025.  

recommendation 

On  29 January 2025,  the  Commission  published  the  Competitiveness  Compass,  a 
strategic framework that aims to boost the EU’s global competitiveness over the next 
five  years.  It  identifies  the  three  transformative  imperatives  of  sustainable  economic 
growth: (i) innovation; (ii) decarbonisation and competitiveness; and (iii) security. To 
close  the  innovation  gap,  the  EU  aims  to  foster  industrial  innovation,  support  the 
growth of start-ups through initiatives like the EU Start-up and Scale-up Strategy, and 
promote the adoption of advanced technologies like artificial intelligence and quantum 
computing.  In  pursuit  of  a  greener  economy,  the  Commission  has  outlined  a 
comprehensive Affordable Energy Action Plan and a Clean Industrial Deal, ensuring 
that  the  shift  to  clean  energy  remains  cost-effective,  competitiveness-friendly, 
particularly  for  energy-intensive  sectors,  and  is  a  driver  for  growth.  To  reduce 
excessive dependencies and increase security, the Union is committed to strengthening 
global  trade  partnerships,  diversifying  supply  chains  and  securing  access  to  critical 
raw materials and clean energy sources. These priorities are underpinned by horizontal 
enablers, namely regulatory simplification, deepening of the single market, financing 
competitiveness and a Savings and Investments Union, promotion of skills and quality 
jobs, and better coordination of EU policies. The Competitiveness Compass is aligned 
with  the  European  Semester,  ensuring  that  Member  States’  economic  policies  are 
consistent with the Commission’s strategic objectives, creating a unified approach to 
economic governance that fosters sustainable growth, innovation and resilience across 
the Union. 

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8 

9 

Council Implementing Decision of 8 December 2023 amending the Implementing Decision of  13 July 
2023 on the approval of the assessment of the recovery and resilience plan for Italy (16051/2023). 
Council Recommendation of 21 January 2025 endorsing the medium-term fiscal-structural plan of Italy, 
OJ C/2025/651, 10.2.2025. 
Council  Recommendation  of  13  May  2025  on  the  economic  policy  of  the  euro  area  (OJ  C, 
C/2025/2782, 22.5.2025, ELI: http://data.europa.eu/eli/C/2025/2782/oj). 

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(8) 

In  2025,  the  European  Semester  for  economic  policy  coordination  continues  to 
develop  alongside  the  implementation  of  the  RRF.  The  full  implementation  of  the 
recovery and resilience plans remains essential for delivering on 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.  These  country-specific  recommendations  remain  equally 
relevant  for  the  assessment  of  amended  recovery  and  resilience  plans  in  accordance 
with Article 21 of Regulation (EU) 2021/241. 

(9) 

the  key  economic  policy 
The  2025  country-specific  recommendations  cover 
challenges that are not sufficiently addressed by measures included in the recovery and 
resilience  plans,  taking  into  account  the  relevant  challenges  identified  in  the  2019-
2024 country-specific recommendations. 

(10)  On  4  June  2025,  the  Commission  published  the  2025  country  report  for  Italy.  It 
assessed Italy’s progress in addressing the relevant country-specific recommendations 
and took stock of Italy’s implementation of the recovery and resilience plan. Based on 
this analysis, the country report identified the most pressing challenges Italy is facing. 
It also assessed Italy’s progress in implementing the European Pillar of Social Rights 
and  in  achieving  the  Union  headline  targets  on  employment,  skills  and  poverty 
reduction,  as  well  as  progress  in  achieving  the  United  Nations  Sustainable 
Development Goals.  

(11)  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  assessment  of 
macroeconomic  vulnerabilities  for  Italy  for  the  purposes  of  that  Regulation  were 
published on 13 May 202510. On 4 June 2025, the Commission concluded that Italy is 
experiencing macroeconomic imbalances. In particular, vulnerabilities related to  high 
government  debt  and  weak  productivity  growth,  which  have  cross-border  relevance, 
remain.  In  2024,  the  government  debt  ratio  stood  above  its  pre-pandemic  level  and 
increased, reversing the downward path observed in the post-2020 period, even though 
the  deficit  lowered,  as  nominal  GDP  slowed  down  markedly  and  debt-increasing 
stock-flow adjustments  became sizeable due to the lagged impact on cash borrowing 
of the tax credits for housing renovations of previous years. Labour market indicators 
have  continued  to  improve.  Italian  banks  have  significantly  strengthened  their  asset 
quality  and  profitability;  their  exposure  to  sovereign  risk  and  the  stock  of  state 
guaranteed loans have receded somewhat  but  remain significant.  Some policies have 
already  addressed  the  identified  vulnerabilities,  yet  a  continued  and  effective 
implementation  of  reforms  and  investments,  notably  those  in  the  RRP  and  the 
medium-term  fiscal-structural  plan,  together  with  a  prudent  fiscal  stance  remain 
crucial. A full implementation of the measures in Italy’s medium-term fiscal-structural 
plan  is  key  to  ensure  the  high  government  debt  ratio  would  not  rise  further  over  the 
medium  term.  Several  policies  have  been  implemented  to  foster  fiscal  sustainability, 
like enhancing the annual spending review, permanently reducing the tax wedge, and 
revising  tax  expenditures.  Reforms  also  led  to  significant  progress  in  the  insolvency 
framework  and  non-performing  loans  market.  RRP  measures  support  productivity 
gains  and  help  further  exploiting  Italy’s  labour  potential,  which  will  facilitate  public 
debt deleveraging. The effective implementation of those measures is essential. 

10 

European Commission (2025), In-Depth Review 2025 – Italy, EUROPEAN ECONOMY, Institutional 
Paper 310. 

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Assessment of the Annual Progress Report 

(12)  On 21 January 2025 the Council recommended the following maximum growth rates 
of net expenditure for Italy: 1.3% in 2025, 1.6% in 2026, 1.9% in 2027, 1.7% in 2028 
and  1.5%  in  2029,  which  correspond  to  the  maximum  cumulative  growth  rates 
calculated by reference to 2023 of -0.7% in 2025, 0.9% in 2026, 2.8% in 2027, 4.6% 
in  2028  and  6.2%  in  2029.  In  2025-2029,  these  maximum  growth  rates  of  net 
expenditure  coincide  with  the  corrective  path  in  accordance  with  Article  3(4)  of 
Regulation 1467/97, as recommended by the Council on 21 January 2025 with a view 
to  bringing  an  end  to  the  situation  of  an  excessive  deficit11.  On  30  April  2025  Italy 
submitted  its  Annual  Progress  Report12,  on  action  taken  in  response  to  the  Council 
recommendation of 21 January 2025 with a view to bringing an end to the situation of 
an  excessive  deficit,  the  implementation  of  the  set  of  reforms  and  investments 
underpinning  the  extension  of  the  adjustment  period  and  the  implementation  of 
reforms and investments responding to the main challenges identified in the European 
Semester country-specific recommendations. The Annual Progress Report also reflects 
Italy’s biannual reporting on the progress made in achieving its recovery and resilience 
plan in accordance with Article 27 of Regulation (EU) 2021/241. 

(13)  Russia’s  war  of  aggression  against  Ukraine  and  its  repercussions  constitute  an 
existential  challenge  for  the  European  Union.  The  Commission  recommended  to 
activate the national  escape clause of the Stability and Growth Pact  in  a coordinated 
manner to support the EU efforts to achieve a rapid and significant increase in defence 
spending and this proposal was welcomed by the European Council of 6 March 2025.  
(14)  Based  on  data  validated  by  Eurostat13,  Italy’s  general  government  deficit  decreased 
from 7.2% of GDP in 2023 to 3.4% in 2024, while the general government debt rose 
from 134.6% of GDP at the end of 2023 to 135.3% at the end of 2024. According to 
the  Commission’s  calculations,  these  developments  correspond  to  a  net  expenditure 
growth rate of -2.2% in 2024. In the 2025 Annual Progress Report, Italy estimates the 
net  expenditure  growth  in  2024  at  -2.1%.  Based on  the  Commission’s  estimates,  the 
fiscal  stance14,  which  includes  both  nationally  and  EU  financed  expenditure,  was 
contractionary, by 3.2% of GDP, in 2024. 

(15)  According to the Annual Progress Report, the macroeconomic scenario underpinning 
the budgetary projections by Italy expects real GDP growth at 0.6% in 2025 and 0.8% 
in  2026,  while  HICP  inflation  is  projected  at  2.1%  in  2025  and  1.9%  in  2026.  The 
Commission  Spring  2025  Forecast  projects  real  GDP  to  grow  by  0.7%  in  2025  and 
0.9% in 2026, and HICP inflation to stand at 1.8% in 2025 and 1.5% in 2026. 

(16) 

In the Annual Progress Report, the general government deficit is expected to decrease 
to  3.3%  of  GDP  in  2025,  while  the  general  government  debt-to-GDP  ratio  is  set  to 

11 

12 

13 
14 

Council Recommendation with a view to bringing an end to the situation of an excessive deficit in Italy, 
C/2025/5035. 
The  2025  Annual  Progress  Reports  are  available  on:  https://economy-finance.ec.europa.eu/economic-
and-fiscal-governance/stability-and-growth-pact/preventive-arm/annual-progress-reports_en 
Eurostat-Euro Indicators, 22.4.2025. 
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 including expenditure financed by non-repayable 
support (grants) from the Recovery and Resilience Facility and other Union funds. 

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increase  to  136.6%  by  the  end  of  2025.  These  developments  correspond  to  net 
expenditure growth of 1.3% in 2025. The Commission Spring 2025 Forecast projects a 
general  government  deficit  of  3.3%  of  GDP  in  2025.  The  decrease  of  the  deficit  in 
2025 mainly reflects an increase in the primary surplus (to 0.6% of GDP, from 0.4% in 
2024)  and  unchanged  interest  expenditure  as  a  share  of  GDP.  In  particular,  the 
increase  in  the  primary  surplus  is  due  to  strong  revenue  growth,  which  continues  to 
benefit from  the positive performance of the labour market,  more than offsetting  the 
permanent  cut  to  the  labour  tax  wedge  and  the  increase  in  capital  expenditure. 
According  to  the  Commission’s  calculations,  these  developments  correspond  to  net 
expenditure growth of 1.2% in 2025. Based on the Commission’s estimates, the fiscal 
stance, which includes both nationally and EU financed expenditure, is projected to be 
broadly neutral in 2025. The general government debt-to-GDP ratio is set to increase 
to 136.7% by the end of 2025. The increase of the debt-to-GDP ratio in 2025 mainly 
reflects sizeable borrowing needs related to the lagged cash impact of the tax credits 
for housing renovations that affected previous years’ deficits. 

(17)  General  government  expenditure  amounting  to  0.6%  of  GDP  is  expected  to  be 
financed  by  non-repayable  support  (“grants”)  from  the  Recovery  and  Resilience 
Facility  in  2025,  compared  to  0.2%  of  GDP  in  2024,  according  to  the  Commission 
Spring 2025 Forecast. Expenditure financed by Recovery and Resilience Facility non-
repayable support enables high-quality investment and productivity-enhancing reforms 
without a direct impact on the general government balance and debt of Italy.  

(18)  General government defence expenditure in  Italy amounted to 1.4% of GDP in 2021 
and 1.2% of GDP in both 2022 and 202315. According to the Commission Spring 2025 
Forecast, expenditure on defence is projected at 1.3% of GDP in both 2024 and 2025. 
This corresponds to a decrease of 0.1 percentage points of GDP compared to 2021. 

(19)  According  to  the  Commission  Spring  2025  Forecast,  net  expenditure  in  Italy  is 
projected to grow by 1.2% in 2025 and to decrease by 1.0% cumulatively in 2024 and 
2025. Based on the Commission Spring 2025 Forecast, the net expenditure growth of 
Italy  in  2025  is  projected  to  be  below  the  recommended  maximum  growth  rate 
established by the corrective path, both annually and when considering 2024 and 2025 
together. Therefore, the excessive deficit procedure for Italy is held in abeyance. 

(20) 

In the Annual Progress Report, the general government deficit is projected to decrease 
to 2.8% of GDP in 2026, while the general government debt-to-GDP ratio is projected 
to increase to 137.6% by the end of 2026. In the Annual Progress Report, the general 
government  deficit  is  projected  to  decrease  to  2.6%  of  GDP  in  2027.  In  turn,  the 
general  government  debt-to-GDP  ratio  is  projected  to  decrease  to  137.4%  in  2027. 
Based on policy measures known at the cut-off date of the forecast, the Commission 
Spring 2025 Forecast projects a general government deficit of 2.9% of GDP in 2026. 
The decrease of the general  government  deficit in 2026 reflects  a further increase in 
the  primary  surplus  (to  1.1%  of  GDP),  mainly  driven  by  a  reduction  of  subsidies  to 
investments,  partly  offset  by  a  marginal  rise  in  interest  expenditure.  These 
developments  correspond  to  net  expenditure  growth  of  1.5%  in  2026.  Based  on  the 
Commission’s  estimates,  the  fiscal  stance,  which  includes  both  nationally  and  EU 
financed  expenditure,  is  projected  to  be  broadly  neutral  in  2026.  The  general 
government debt-to-GDP ratio is projected by the Commission to increase to 138.2% 

15 

Eurostat, government expenditure by classification of functions of government (COFOG). 

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by the end of 2026. The increase of the debt-to-GDP ratio in 2026 mainly reflects the 
lagged cash impact of the tax credits for housing renovations. 

(21)  The  recommendation  endorsing  the  medium-term  plan  of  Italy  specifies  the  set  of 
reforms and investments underpinning the extension of the adjustment period, together 
with  a  timeline  for  their  implementation.  They  include  existing  and  stepped-up 
measures  from  the  recovery  and  resilience  plan  in  the  areas  of  civil  justice,  tax 
compliance  and  tax  evasion,  business  environment,  public  administration,  childcare 
and  efficiency  of  public  spending,  as  well  as  additional  reforms  and  investments 
related  to  the  taxation  system  and  the  rationalisation  of  state-owned  enterprises. 
Taking into account the information provided by Italy in its Annual Progress Report, 
the Commission finds that the reforms and investments underpinning an extension that 
were due by the 30 April have been implemented or are currently under assessment in 
the context of a payment request under the RRF. 

(22) 

(23) 

Key policy challenges 

Italy is one of the 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. Migration could 
counteract the demographic decline, particularly in the short and medium term. In the 
coming  years,  significant  fiscal  pressures  are  expected  to  weigh  on  public  finances, 
including  rising  costs  relating  to  demographic  developments.  More  specifically, 
government spending in Italy is skewed towards social protection (in 2024, 20.3% of 
GDP  and  43.6%  of  primary  expenditure),  which  is  hard  to  sustain  in  the  face  of 
demographic  pressures.  Moreover,  Italy’s  pension  spending  is  among  the  highest  in 
the EU, making it more challenging  to  contain  public expenditure. Although the full 
implementation of the 2011 pension reform will gradually reduce the burden, it is still 
expected to increase in the medium term due to demographic trends and the effect of 
recent  early-retirement  schemes.  A  concerted  effort  is  needed  to  improve  the 
efficiency and effectiveness of public spending, building on the measures planned by 
Italy in its medium-term fiscal-structural plan.  

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.  The labour 
tax wedge remains significantly above the EU average, despite the measures adopted. 
Special regimes and the wide range of tax expenditures, including on value added tax, 
make  the  tax  system  highly  complex  and  erode  the  tax  base,  resulting  in  significant 
revenue  loss.  Shifting  the  current  high  tax  burden  on  labour  to  other,  underused 
sources  of  revenue  that  are  less  detrimental  to  growth  would  help  to  raise  Italy’s 
economic  potential.  Furthermore,  taxes  on  energy  are  not  designed  to  encourage  the 
transition  to  clean  technologies.  Finally,  tax  evasion  remains  high,  though  the 
ambitious  countermeasures  taken  in  recent  years,  including  under  the  recovery  and 
resilience  plan,  are  bearing  fruit.  At  the  same  time,  recent  measures  similar  to  tax 
amnesties risk being counterproductive  in terms  of tax compliance, while the system 
of  prior  agreement  between  the  administration  and  small  businesses  on  their  tax 
liabilities warrants close monitoring. Cadastral values are still not in line with current 
market values, since they have yet to be fully and comprehensively updated.  

(24) 

In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion 
2.2  of  Annex  V  to  that  Regulation,  the  recovery  and  resilience  plan  includes  an 
extensive set  of mutually reinforcing  reforms and investments  to  be implemented by 

EN 

7 

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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, finalising the effective implementation of the recovery and resilience 
plan  is  essential  to  boost  Italy’s  long-term  competitiveness  through  the  green  and 
digital  transitions,  while  ensuring  social  fairness.  To  deliver  on  the  commitments  of 
the recovery and resilience plan by August 2026, it is essential for  Italy to accelerate 
the  implementation  of  reforms  and  investments  by  addressing  relevant  challenges. 
Italy  would  benefit  from  strengthening  administrative  capacity,  in  particular  at  local 
level,  and  detecting  and  addressing  potential  delays  in  a  timely  manner.  The 
systematic involvement of local and regional authorities, social partners, civil society 
and other relevant  stakeholders remains essential  in  order to  ensure broad ownership 
for the successful implementation of the recovery and resilience plan. 

to 

those 

relating 

including 

face  challenges, 

(25)  The implementation  of cohesion  policy programmes, which encompass support from 
the  European  Regional  Development  Fund  (ERDF),  the  Just  Transition  Fund  (JTF) 
and the European Social Fund Plus (ESF+), has accelerated in Italy. It is important to 
continue  efforts  to  ensure  the  swift  implementation  of  these  programmes,  while 
maximising  their  impact  on  the  ground.  Italy  is  already  taking  action  under  its 
cohesion policy programmes to boost competitiveness and growth. At the same time, 
Italy  continues 
to  enhancing 
competitiveness  in  the  context  of  industrial  transition,  accelerating  the  energy 
transition, increasing water resilience, especially  in the southern regions  and housing 
particularly in metropolitan cities and cities with a large tourist and student population. 
In  addition,  the  country  faces  challenges  in  enhancing  its  workforce’s  skills  to  meet 
the  evolving  needs  of  businesses,  including  increasing  participation  in  adult  learning 
and  fostering  the  inclusion  of  underrepresented  groups  in  the  labour  market,  such  as 
women,  young  people,  and  those  with  a  migrant  background.  In  accordance  with 
Article 18 of Regulation (EU) 2021/1060,  Italy is  required  – as  part of the mid-term 
review of the cohesion policy funds – to review each programme taking into account, 
among  other 
the  2024  country-specific 
recommendations.  The  Commission  proposals  adopted  on  1  April  202516  extend  the 
deadline for submitting an assessment – for each programme – of the outcome of the 
mid-term review beyond 31 March 2025. It also provides flexibilities to help speed up 
programme  implementation  and  incentives  for  Member  States  to  allocate  cohesion 
policy resources to five strategic priority areas of the Union, namely competitiveness 
in strategic technologies, defence, housing, water resilience and energy transition. 

the  challenges 

identified 

things, 

in 

(26)  The  Strategic  Technologies  for  Europe  Platform  (STEP)  provides  the  opportunity  to 
invest in a key EU strategic priority by strengthening the EU’s competitiveness. STEP 
is channelled through 11 existing EU funds. Member States can also contribute to the 
InvestEU  Programme  supporting  investments  in  priority  areas.  Italy  could  use  these 
initiatives  to  support  the  development  or  manufacturing  of  critical  technologies, 
including clean and resource-efficient technologies.  

(27)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan and other EU funds, Italy faces several additional challenges related to research 
and  innovation,  energy,  climate  adaptation,  industrial  policy  and  competition,  labour 
market, education and training as well as justice and public administration. 

16 

Proposal for a Regulation of the European Parliament and of the Council  amending Regulations (EU) 
2021/1058  and  (EU)  2021/1056  as  regards  specific  measures  to  address  strategic  challenges  in  the 
context of the mid-term review - COM(2025) 123 final. 

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(28)  Despite  investments  under  the  recovery  and  resilience  plan  and  the  medium-term 
fiscal-structural  plan,  Italy’s  innovation  and  growth  potential  is  hindered  by  limited 
R&D  investment  by  both  the  private  and  the  public  sectors.  In  2023,  business 
expenditure on R&D was just 0.76% of GDP,  well below the EU average of 1.49%. 
Italy’s R&D incentive framework is less comprehensive and generous than those of its 
EU  peers  and  would  benefit  from  a  more  strategic  allocation  of  existing  resources 
towards innovation and public-private collaborations. The recovery and resilience plan 
includes  several  initiatives  to  support  cooperation  between  businesses  and  academia, 
lack  coherent  national  governance. 
which,  however,  remain  fragmented  and 
Innovation  procurement17  can  also  play  an  important  role  in  boosting  demand  for 
innovation.  To  be  effective,  it  would  require  a  national  action  plan  and  binding 
expenditure  targets.  Italy’s  innovation  capacity  is  limited  by  structural  factors,  in 
particular  firm  size.  Small  firms  (with  fewer  than  20  employees)  generate  32.5%  of 
total business turnover (EU average: 22.9%), while large firms (with 250 employees or 
more)  –  which  have  greater  economies  of  scale,  larger  R&D  investments  and  easier 
access to finance – represent only 37.5% (EU average: 51.1%). Promoting the scale-up 
of start-ups and the aggregation of  small  to medium-sized enterprises  (SMEs) would 
help  increase  investment  in  research  and  innovation  and  boost  productivity.  Italy’s 
capital markets should be further developed, with a view to increasing new listings on 
the  main  exchange  market.  This  would  bring  more  consolidation  opportunities  for 
domestic  firms  and  more  access  to  the  above-average  wealth  of  Italian  households. 
Access  to  non-bank  finance  is  limited  for  innovative  businesses,  as  the  domestic 
venture and growth capital market is still underdeveloped, although on a growth path. 
Measures  in  the  recovery  and  resilience  plan  providing  additional  public  support  to 
venture capital and designing a framework to attract institutional investors are a first 
step  to  overcome  such  limitations.  Nonetheless,  the  relatively  less-developed  capital 
markets limit the exit options for private equity and venture capital investors, further 
compounding the lack of funding sources for innovation, which is a key ingredient for 
improved  competitiveness.  Promoting  innovative  firms’  access  to  non-bank  finance 
requires  further  action  to  support  initial  public  offering  (IPO)  listings  and  develop  a 
vibrant  ecosystem  for  venture  and  growth  capital.  This  includes  stimulating  the 
participation  of  domestic  institutional  investors  and  large  corporations  in  both  listed 
and unlisted equity markets. Finally, Italy’s research and university system is vital to 
innovation  but  faces  significant  challenges.  Funding  for  post-secondary  and  higher 
education  is  limited  and  national  competitive  calls  for  projects  have  been  held 
irregularly, failing to provide a clear and predictable environment. The widespread use 
of  short-term,  non-tenure  track  contracts  for  researchers,  combined  with  slow  and 
uncertain career progression, hampers the ability of the public research sector to attract 
and  retain  talent.  In  addition,  limited  incentives  for  universities  and  researchers  to 
commercialise  research  hinder  innovation  outcomes.  Technology  transfer  offices, 
though  improving,  remain  relatively  small  in  scale  and  lack  adequate  human  and 

17 

According to Commission guidance C(2018)3051, ‘innovation procurement’ refers to any procurement 
that  has  one  or  both  of  the  following  aspects:  buying  the  process  of  innovation  –  research  and 
development services – with (partial) outcomes; buying the outcomes of innovation created by others. 
Innovation  procurement  covers  thus  both  R&D  procurements,  public  procurements  of  innovative 
solutions  and  public  procurements  that  purchase  a  combination  of  both  R&D  and  the  resulting 
innovative solutions. 

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(29) 

financial  resources  to  support  the  translation  of  research  outputs  into  new  business 
opportunities. Their synergies with venture capital investors could also be improved. 

Italy would benefit from a national industrial strategy to steer the allocation of public 
resources,  support  strategic  technologies  and  promote  the  development  of  the  South. 
While the adoption of the Green Book and the strategic plan for the Special Economic 
Zone  have  relaunched  the  public  debate  on  industrial  development,  the  adoption  of 
multiple industrial  plans  with  different  governance, the  lack of  coordination,  and the 
existence of more than 2 000 incentive measures do not go in the direction of a clear 
national  growth  strategy.  In  the  existing  framework,  the  identification  of  strategic 
sectors does not take into account new industrial trends and technologies, and the lack 
of  a  territorial  dimension  is  a  limit  to  the  development  strategy  for  key  industrial 
districts.  This  is  particularly  relevant  against  a  background  of  decreasing  national 
industrial  production  and  significant  regional  disparities,  with  the  South  lagging 
behind  in  terms  of  innovation  and  competitiveness.  The  industrial  strategy  would 
benefit from better coordination with infrastructural investment planning, while policy 
measures  to  promote  training  and  active  labour  market  policies  should  be  integrated 
into  the  broader  national  industrial  vision,  including  by  aligning  public  investments 
targeting strategic sectors.  

(30)  Under  the  recovery  and  resilience  plan,  Italy  is  implementing  an  ambitious  public 
administration reform that is expected to modernise the human resource management, 
improve  services  delivery,  and  strengthen  administrative  capacity  at  central  and 
subnational  level.  Key  aspects  of  this  reform  include:  (i)  the  introduction  of  the 
Integrated Plan for Organisational Activity (PIAO), which provides a comprehensive 
picture  of  each  administration’s  staffing  levels,  skills,  and  capacity  needs;  (ii)  a 
centralised  digital  portal  for  recruitment  based  on  standardised  professional  profiles 
(inPA);  and  (iii)  a  national  platform  to  train  and  reskill  public  servants  (Syllabus). 
Building  a  data-driven  approach  to  workforce  planning  based  on  the  integration  of 
these tools would further benefit the  effectiveness of  Italian public administration. It 
would  enable  administrations,  especially  at  local  level,  to  identify  their  specific 
capacity  gaps  and  take  appropriate  action,  whether  through  recruitment  or  targeted 
training.  This  approach  could  help  central  administrations  design  support  measures 
that  are  better  tailored  to  the  needs  of  individual  administrations,  strengthen 
coordination, and make public service delivery more effective. 

(31)  Under  the  recovery  and  resilience  plan,  Italy  is  implementing  a  major  reform  of  the 
justice  system,  which  aims  to  reduce  the  backlog  and  disposition  times  in  civil  and 
criminal proceedings. The creation of trial offices as well as the digitalisation of trials, 
which provide organisational and legal support to judges, has contributed to improving 
court efficiency. However, challenges remain. While the disposition time in civil and 
commercial  cases  in  first  instance  courts  decreased  in  2023,  it  remains  among  the 
longest in  the EU. At the same time, the disposition  time for  administrative cases  at 
first instance increased, reversing the previous downward trend. Institutionalising and 
strengthening trial offices and introducing structural performance-based incentives for 
courts would help to further increase the efficiency of the system.  

(32)  Better framework conditions for competition would enable a more efficient allocation 
of resources and lead to  competitiveness and productivity gains. Greater competition 
and  improved  sectoral  regulation  would  also  benefit  consumers.  Under  the  recovery 
and resilience plan, Italy has made good progress in some important sectors, including 
energy,  transport  and  the  start-up  ecosystem,  as  well  as  by  modernising  national 
merger  control  rules.  The  reform  of  local  public  services  under  the  recovery  and 

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resilience plan has made the award of contracts more competitive, but further effort is 
needed to increase the monitoring of services’ management and ensure the delivery of 
quality  services  to  all  users.  Further  legislative  initiatives  are  also  warranted  for:  (i) 
retail  trade,  in  particular  concerning  the  rules  for  opening  shops  and  running  sales 
promotions;  (ii)  regulated  professions,  particularly  to  remove  non-proportional 
restrictions;  and  (iii)  the  railway  sector,  where  the  award  of  regional  and  intercity 
contracts  needs  to  be  open  to  competition.  Finally,  significant  barriers  persist  in  a 
number  of  other  sectors,  including  healthcare  and  pharmaceuticals,  non-linear 
transport  and  port  services.  In  particular,  competition  should  be  promoted  in:  (i)  the 
procurement  of  pharmaceutical  products  (especially  for  biosimilar  products);  (ii)  the 
accreditation  (accreditamento)  of  private  companies  to  the  public  health  system; 
(iii) the provision  of non-linear transport services at  local  level; (iv) the tendering of 
port concessions; and (v) the monitoring and promotion of financial independence and 
accountability of port authorities.  

Italy  continues  to  face  structural  obstacles  to  accelerating  the  electrification  of  its 
energy system and increasing the share of renewable energy in electricity generation, 
despite its substantial solar and wind potential. A key barrier remains the  complexity 
and fragmentation of permitting procedures, which delays project implementation and 
hampers investor confidence. Additionally, the electricity-to-gas  energy price ratio is 
among the highest in the EU. Reforms supported by the recovery and resilience plan 
have  begun  to  address  administrative  bottlenecks  in  permitting  procedures  for 
renewable  energy,  but  further  simplification  and  consolidation  of  permitting 
legislation is necessary to accelerate deployment. At the same time, integrating higher 
shares  of  variable  renewables  requires  coordinated  investments  in  electricity  grid 
infrastructure,  in  particular  to  increase  system  flexibility  through  non-fossil-fuel 
technologies  such  as  storage  and  demand-response  mechanisms  (e.g.  time-of-use 
tariffs,  dynamic  pricing  schemes,  smart  metering  systems,  and  the  participation  of 
aggregators  and 
in  balancing  markets).  Cross-border 
interconnections also remain underdeveloped in  parts of the network, limiting Italy’s 
ability  to  benefit  from  regional  balancing  and  price  convergence.  Strengthening  grid 
resilience  and  interconnectivity  would  help  achieve  decarbonisation  objectives  by 
delivering  more  renewable  electricity  to  sectors  covered  by  the  Effort  Sharing 
Regulation  –  in  particular  transport  and  buildings,  contributing  to  address  the  gap  to 
the ESR target. It would also help to stabilise energy prices and reduce peaks linked to 
gas generation in a volatile market. 

industrial  consumers 

Italy’s  high  exposure  to  climate  risks,  in  particular  to  hydrogeological  risks,  has  an 
impact  on  the  economy,  in  particular  on  SMEs.  Nevertheless,  the  governance  of 
climate  adaptation  policies  is  fragmented  between  several  authorities  and  bodies,  at 
both  central  and  local  level,  and  the  potential  of  nature-based  solutions  is  not  fully 
exploited.  Moreover,  soil  loss  and  degradation  require  measures  to  improve  soil 
resilience  to  reduce  hydrogeological  risks  and  the  impact  of  droughts.  Furthermore, 
losses due to climate-related events are not balanced by a sufficient insurance cover, 
resulting  in  a wide  climate insurance gap.  Infrastructure deficits for water and waste 
management,  in  particular  in  southern  regions,  have  severe  impacts  on  the 
environment, with considerable costs and lost revenues for the Italian economy.  

(33) 

(34) 

(35)  Labour market segmentation and weaknesses in job quality remain major challenges in 
Italy,  with  a  high  incidence  of  atypical  and  fixed-term  contracts,  particularly  among 
women, young people, and migrants. Structurally low labour productivity growth puts 
a  constraint  on  wage  growth.  Over  the  last  decade,  while  labour  productivity  has 

EN 

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stagnated,  nominal  wages  have  risen  less  than  inflation;  as  a  result,  real  wages  have 
declined. Strengthening collective bargaining could help foster flexible and sustainable 
wage  growth  that  reflects  company  productivity  and  local  conditions.  In  2024,  the 
share of workers who are at risk of poverty was higher than the EU average, including 
for both full-time and part-time workers. Together with low wages, the widespread use 
of  atypical  contracts  also  contributes  to  in-work  poverty  by  reducing  the  number  of 
hours  worked.  The  share  of  fixed-term  employees  decreased  from  16%  in  2023  to 
14.7%  in  2024,  but  remained  among  the  highest  in  the  EU,  and  transitions  from 
temporary to permanent jobs are well below the EU average. Part-time and fixed-term 
workers  face a higher risk of poverty than both  the EU average and  Italy’s  full-time 
permanent workers. More than 50% of part-time and 10% of temporary contracts were 
involuntary, reflecting the potential to  increase  earnings  through stable contracts  and 
greater work intensity. The share of solo self-employed among people in employment 
is also high compared to the EU average. Taken together, low wages and widespread 
non-standard  forms  of  work  discourage  labour  market  participation,  reduce  the 
attractiveness  and  quality  of  jobs  and  drive  many  young  graduates  to  emigrate  in 
search  of  better  career  and  wage  prospects  abroad.  Furthermore,  women’s  labour 
market participation in  Italy remains low. The employment gap between women and 
men is one of the widest in the EU, at 19.4 percentage points, and has shown no signs 
of  improvement  over  the  past  decade.  In  the  South,  the  gap  reaches  28  percentage 
points.  This  also  reflects  important  shortages  in  the  provision  of  care  services  for 
children  and  older  people,  the  latter  being  of  particular  importance  considering  the 
demographic  ageing  trend.  Addressing  these  challenges  would  also  contribute  to 
supporting upward social convergence, in line with the Commission services’ second-
stage country analysis of the Social Convergence Framework18. Continued efforts are 
needed  to  keep  expanding  the  provision  of  affordable  early  childhood  education  and 
care  and  long-term  care  services,  building  on  investments  and  reforms  carried  out 
under the RRF and targeting regions with low coverage to reduce regional disparities. 

(36)  The  recent  reforms  adopted  under  the  RRF  have  the  potential  to  reduce  challenges 
related to undeclared work. However, the scale of the problem, particularly in certain 
sectors,  calls for further  action.  Improving the  timely production of granular data on 
undeclared  work  would  help  better  target  inspections  as  well  as  the  policy  response. 
Moreover,  building  on  the  measures  that  are  being  implemented  under  the  recovery 
and resilience plan, sectors like agriculture and domestic work need to be targeted with 
dedicated  interventions,  for  example  by  strengthening  enforcement  activities  and 
reducing  the  incentives  to  rely  on  irregular  work.  Finally,  closely  monitoring  the 
measures  recently  implemented,  particularly  for  the  most  affected  sectors,  is  key  to 
ensuring their effectiveness and that they structurally tackle this persistent challenge. 

(37)  Further  investment  in,  and  structural  reforms  of,  the  education  and  training  systems 
remain critical to addressing productivity stagnation and skills gaps. The results of the 
2022 OECD PISA survey show a lower than EU average level and continuing decline 
in  basic  skills  performance,  particularly 
in  mathematics  and  science.  The 
underperformance  is  especially  pronounced  among  disadvantaged  students  and  those 
enrolled in  vocational  education and  training (VET)  tracks, which exacerbates social 
inequalities.  To  equip  students  with  adequate  basic  competences,  targeted  measures 
in 
are  necessary.  These 

incentivising  experienced 

to  work 

teachers 

include 

18 

SWD(2025)95  –  Second-stage  country  analysis  on  social  convergence  in  line  with  the  Social 
Convergence Framework (SCF), 2025. 

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disadvantaged schools,  expanding  full-time schooling (tempo pieno), and broadening 
the  reach  of  initiatives  such  as  the  ‘Piano  Estate’  summer  school  programme. 
Additionally,  promoting  innovative  teaching  methods  with  a  focus  on  science, 
technology,  engineering  and mathematics (STEM) subjects  and improving in-service 
teacher training could help raise proficiency in basic skills. The country has the second 
lowest  tertiary  education  attainment  rate  in  the  EU.  Modernising  post-secondary 
curricula  to  integrate  relevant  transversal  skills  and  work-oriented  knowledge  can 
better  prepare  graduates  for  the  fast-changing  labour  market  and  thus  improve  their 
employability. 

(38)  Although  the  overall  job  vacancy  rate  in  Italy  remains  relatively  low  at  around  2%, 
sectors such as construction, healthcare, and ICT face labour shortages. Sustaining the 
implementation  of  successful  measures  promoted  under  the  RRF  in  VET,  including 
higher  technical  institutes,  and  aligning  curricula  with  labour  market  needs, 
particularly  in  transversal,  green  and  digital  skills,  is  crucial  to  addressing  current 
shortages.  Additionally,  expanding  work-based  learning,  with  a  focus  on  short-term 
training  and  micro-credentials  targeting  high-growth  and  high-demand  sectors,  is 
essential to mitigate labour shortages in the short term. 

(39)  Adult  learning  participation  in  Italy  remains  among  the  lowest  in  the  EU  and  is 
declining,  which  hampers  productivity  growth  amid  a  rapidly  ageing  workforce.  To 
address  medium-  to  long-term  skills  needs  and  foster  the  potential  of  training 
programmes  to  contribute  to  national  competitiveness,  it  is  essential  to  structurally 
strengthen  the  adult  learning  system  and  align  training  policies  with  industrial 
priorities,  such  as  the  Transizione  4.0  and  Transizione  5.0  initiatives,  focusing  on 
delivering  training  for  skills  demanded  by  high-growth  sectors.  Based  on  an  impact 
assessment,  successful  RRF  measures, 
the 
employability  guarantee  of  workers  (garanzia  di  occupabilità  dei  lavoratori  -  GOL) 
under active labour market policies, should be expanded beyond 2026 and made more 
predictable  for  labour  market  actors.  Regional  skills  plans  under  the  RRF  should  be 
aligned with national industrial strategies, such as the Libro Bianco, to ensure coherent 
skills development that supports economic priorities. 

the  dual  system  and 

including 

(40) 

(41) 

In view of the close interlinkages between the economies of euro-area Member States 
and  their  collective  contribution  to  the  functioning  of  the  economic  and  monetary 
union,  in  2025,  the  Council  recommended  that  the  euro-area  Member  States  take 
action,  including  through  their  recovery  and  resilience  plans,  to  implement  the  2025 
Recommendation  on  the  economic  policy  of  the  euro  area.  For  Italy,  the 
recommendations  (1),  (2),  (3),  (5)  and  (6)  help  implementing  the  first  euro-area 
recommendation on competitiveness, while the recommendations (1), (4) and (6) help 
implement 
the 
recommendation (1) helps implement  the third euro-area recommendation on macro-
economic and financial stability set out in the 2025 Recommendation. 

recommendation  on 

second  euro-area 

resilience,  and 

the 

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),  (3),  (5)  and  (6).  Policies  referred  to  in 
recommendation  (1)  help  to  address  vulnerabilities  linked  to  high  government  debt. 
Policies  referred  to  in  recommendations  (1),  (3),  (5)  and  (6)  help  to  address 
vulnerabilities  linked  to  weak  productivity  growth,  which  by  extension  supports 
potential  GDP  growth,  and  as  a  result  also  helps  address  recommendation  (1). 
Recommendations  (1),  (3),  (5)  and  (6)  contribute  to  both  addressing  imbalances  and 

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implementing  the  Recommendation  on  the  economic  policy  of  the  euro  area,  in  line 
with recital 40. 

HEREBY RECOMMENDS that Italy take action in 2025 and 2026 to:  

1. 

2. 

3. 

4. 

5. 

6. 

Reinforce overall defence spending and readiness in line with the European Council 
conclusions  of  6  March  2025.  Adhere  to  the  maximum  growth  rates  of  net 
expenditure  recommended  by  the  Council  on  21  January  2025,  with  a  view  to 
bringing an end to the situation of an excessive deficit. Implement the set of reforms 
and  investments  underpinning  the  extended  adjustment  period  as  recommended  by 
the  Council  on  21  January  2025.  In  line  with  fiscal  sustainability  objectives,  make 
the tax system more conducive to growth, by further fighting tax evasion, reducing 
the labour tax wedge and the remaining tax expenditures, including those related to 
value added tax and environmentally harmful subsidies, as well as updating cadastral 
values  as  part  of  a  broader  review  of  housing-related  policies,  while  ensuring 
fairness.  Step  up  efforts  to  improve  the  efficiency  and  effectiveness  of  public 
expenditure.  Mitigate  the  effects  of  ageing  on  potential  growth  and  fiscal 
sustainability,  including  by  limiting  the  use  of  early-retirement  schemes  and  by 
addressing  demographic  challenges,  also  attracting  and  retaining  high  quality 
workforce.  

In  view  of  the  applicable  deadlines  for  the  timely  completion  of  reforms  and 
investments  under  Regulation  (EU)  2021/241,  accelerate  the  implementation  of  the 
recovery  and  resilience  plan,  including  the  REPowerEU  chapter.  Accelerate  the 
implementation of cohesion policy programmes (ERDF, JTF, ESF+), building, where 
appropriate, on the opportunities offered by the mid-term review. Make optimal use 
of EU instruments, including the scope provided by  the InvestEU and the Strategic 
Technologies for Europe Platform, to improve competitiveness. 

Support innovation by further strengthening business-academia linkages, innovation 
procurement, corporate venture capital and opportunities for talents. Boost the role of 
universities in innovation by increasing their focus on commercialisation of research 
results  and  by  improving  the  career  path  of  researchers.  Promote  growth  and 
aggregation  of  SMEs  and  start-ups.  Implement  an  industrial  strategy  including  to 
reduce the territorial divide, by streamlining current policy measures and taking into 
account key infrastructure projects.  

Increase  the  efficiency  of  the  public  administration  and  strengthen  administrative 
capacity, particularly at local level. Further reduce the backlog and disposition time 
of  the  justice  system.  Address  remaining  restrictions  to  competition,  including  in 
local public services, business services and railways.  

Accelerate  electrification  and  intensify  efforts  for  the  deployment  of  renewable 
energy,  including  by  reducing  fragmentation  of  permitting  regulation  and  investing 
in  the  electricity  grid.  Address  climate-related  risks  and  mitigate  their  economic 
impact,  through  more  institutional  coordination,  nature-based  solutions  and  climate 
insurance coverage. Tackle remaining inefficiencies in water and waste management 
by reducing infrastructural gaps. 

Promote job quality and reduce labour market segmentation, also to support adequate 
wages,  and  increase  labour  market  participation,  in  particular  for  underrepresented 
groups,  including  by  further  strengthening  active  labour  market  policies  and 
improving affordable access to quality child- and long-term care, taking into account 
regional disparities. Keep-up the efforts to tackle undeclared work, particularly in the 

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most affected sectors. Continue promoting post-secondary VET and in-work training 
in high-demand sectors to address short-term skills needs, while strengthening adult 
learning  by  expanding  work-based  learning  in  high-growth  sectors.  Improve 
educational  outcomes,  with  a  focus  on  disadvantaged  students,  including  by 
strengthening basic skills. 

Done at Brussels, 

For the Council 
The President 

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