Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Italy
Date: 2026-06-03
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, 3.6.2026  COM(2026) 212 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Italy {SWD(2026) 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  1466/97  (1),  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 
imbalances (2), 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) 

1 

2 

Regulation  (EU)  2024/1263  specifies  the  objectives  of  the  economic  governance 
framework,  which  aims  at  promoting  sound  and  sustainable  public  finances, 
sustainable  and  inclusive  growth  and  resilience  through  reforms  and  investments,  as 
well  as  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 
Treaty  on  the  Functioning  of  the  European  Union  (TFEU).  The  European  Semester 
includes, in particular, the formulation, and the surveillance of the implementation, of 
country-specific recommendations. 

Regulation 

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 
30.4.2024, 
1466/97 
ELI: http://data.europa.eu/eli/reg/2024/1263/oj). 
Regulation (EU) No 1176/2011 of the European Parliament and of the  Council of 16 November 2011 
imbalances  (OJ  L  306,  23.11.2011 
on 
ELI: http://data.europa.eu/eli/reg/2011/1176/oj). 

the  prevention  and  correction  of  macroeconomic 

2024/1263, 

(EC) 

(OJ 

No 

L, 

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(2) 

(3) 

(4) 

(5) 

On  16 July 2025,  the  Commission  adopted  its  proposal  for  a  regulation  establishing 
the European Fund for economic, social and territorial cohesion, agriculture and rural, 
fisheries and maritime, prosperity and security for the period 2028-2034 and amending 
Regulation (EU) 2023/955 and Regulation (EU, Euratom) 2024/2509 (3). The proposal 
aims to increase the effectiveness of Union funding by reducing the fragmentation of 
the  financial  architecture  and  to  support  Member  States  in  the  coordination  of  their 
economic policy in line with Article 175 of the TFEU.  

On  25 November 2025,  the  Commission  adopted  an  opinion  on  the  2026  draft 
budgetary  plan  of  Italy.  On  the  same  date,  on  the  basis  of  Regulation  (EU) 
No 1176/2011, the Commission adopted the 2026 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,  a  recommendation  for  a 
Council recommendation on human capital in the European Union, and a proposal for 
the  2026  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 area (4) 
on  21 April 2026  and  the  Joint  Employment  Report,  and  the  Recommendation  on 
human capital on 9 March 2026.  

recommendation 

On  29 January 2025,  the  Commission  published  the  Competitiveness  Compass,  a 
strategic  framework  that  aims  to  boost  the  Union’s  global  competitiveness  over  the 
next  five  years.  It  identifies  the  three  transformational  imperatives  of  innovation, 
decarbonisation  and  competitiveness,  and  security  as  critical  pillars  for  sustainable 
economic  growth.  The  European  Semester  is  aligned  with  the  Competitiveness 
Compass,  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. 

In  2026,  the  European  Semester  for  economic  policy  coordination  continues  to 
develop  alongside  the  final  stage  of  the  Recovery  and  Resilience  Facility  (RRF) 
implementation (5). Recovery and resilience plans (RRPs), along with cohesion policy 
funding, have been essential for delivering on the policy priorities under the European 
Semester, as the plans were required to effectively address all or a significant subset of 
challenges identified in the relevant country-specific recommendations issued in recent 
cycles, and programmes funded by the European cohesion policy were required to take 
country-specific recommendations into account. As the RRF approaches the end of its 
lifetime,  it  remains  essential  to  sustain  the  reforms  and  investments  supported  and 
implemented  under  the  RRF,  in  particular  those  that  contribute  to  addressing 
challenges identified in the country-specific recommendations. 

3 

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5 

Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  establishing  the  European 
Fund  for  economic,  social  and  territorial  cohesion,  agriculture  and  rural,  fisheries  and  maritime, 
prosperity  and  security  for  the  period  2028-2034  and  amending  Regulation  (EU)  2023/955  and 
Regulation (EU, Euratom) 2024/2509 - COM(2025) 565 final. The proposed Regulation is currently the 
subject of negotiations with the co-legislators. 
OJ C, C/2026/2434, 28.4.2026, ELI: http://data.europa.eu/eli/C/2026/2434/oj. 
Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 
establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17, 
ELI: http://data.europa.eu/eli/reg/2021/241/oj). 

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(6) 

(7) 

(8) 

On  3 June 2026,  the  Commission  published  the  2026  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 RRP. On the basis of that 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. 

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 on 20 May 2026 (6). On 3 June 2026, the Commission concluded that  Italy 
is  experiencing  macroeconomic  imbalances.  In  particular,  Italy  faces  vulnerabilities 
related  to  high  government  debt  and  weak  productivity  growth,  which  have  cross-
border  relevance,  persist,  and  continued  and  effective  implementation  of  growth-
enhancing  reforms  and  investments,  together  with  a  prudent  fiscal  stance,  remains 
crucial to  reduce those vulnerabilities. Government  debt  as a share of GDP fell after 
the pandemic but increased in 2024 and again in 2025, on account of the slowdown in 
nominal GDP growth, the lagged impact of the tax credits for housing renovations of 
earlier years, and the still sizeable government deficits. The  government debt ratio is 
expected to continue increasing in 2026 and 2027. Productivity has declined recently 
and  is  forecast  to  stagnate,  limiting  potential  GDP  growth  and  hence  hampering 
reductions  in  the  government  debt  ratio.  Banks  have  significantly  strengthened  their 
asset  quality  and  profitability  and  reduced  their  non-performing  loans,  but  the  high 
sovereign-banks nexus is still a concern, as banks’ holdings of domestic government 
debt  as  a  share  of  their  assets  is  high,  especially  for  less  significant  institutions  and 
cooperative  banks.  The  labour  market  has  continued  to  improve,  but  the  labour 
potential does not seem to be fully exploited. Measures have been taken to address the 
long-standing  vulnerabilities  but,  despite  the  recent  extensive  reform  action, 
significant  productivity  gains  have  yet  to  materialise.  Looking  ahead,  continued  and 
effective implementation of growth-enhancing reforms and investments, together with 
a prudent fiscal stance, remains crucial to improve productivity growth and reduce the 
government debt-to-GDP ratio. 

On  21 January 2025,  the  Council,  upon  the  assessment  and  recommendation  of  the 
Commission, adopted a Recommendation endorsing the national medium-term fiscal-
structural  plan  of  Italy (7).  The  plan  covers  the  period  from  2025  until  2029  and 
presents  a  fiscal  adjustment  spread  over  seven  years.  The  Council  recommended  the 
following  maximum  growth  rates  of  net  expenditure:  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 the base year of 2023 of  -0.7% in 
2025,  0.9%  in  2026,  2.8%  in  2027,  4.6%  in  2028  and  6.2%  in  2029.  For  the  years 
2025-2026,  these  maximum  growth  rates  of  net  expenditure  coincide  with  the 
corrective  path,  as  recommended  by  the  Council  under  Article  126(7)  TFEU  on 
21 January 2025,  with  a  view  to  bringing  an  end  to  the  situation  of  an  excessive 

6 
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SWD(2026) 139 final. 
Council Recommendation of 21 January 2025 endorsing the medium-term fiscal-structural plan of Italy 
(OJ C, C/2025/651, 10.2.2025., ELI: http://data.europa.eu/eli/C/2025/651/oj).  

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(9) 

deficit (8).  Based  on 
3 June 2026 (9), the excessive deficit procedure for Italy is held in abeyance.  

the  Commission’s  assessment  on  effective  action  of 

Russia’s  war  of  aggression  against  Ukraine  and  its  repercussions  constitute  an 
existential  challenge  for  the  European  Union.  The  Commission  has  invited  Member 
States  to  request  the  activation  of  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 (10)  and  this  proposal  was  welcomed  by  the 
European Council of 6 March 2025. Member States may still request the activation of 
the national escape clause at any time until 2028, if they fulfil the criteria set in Article 
26 of Regulation (EU) 2024/1263.  

(10)  On 30 April 2026, Italy submitted its 2026 Annual Progress Report (11) on adherence 
to the recommended maximum growth rates of net expenditure, 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 implementing its recovery and resilience plan in accordance with Article 27 of 
Regulation  (EU)  2021/241.  The  report  on  action  taken  under  the  excessive  deficit 
procedure is integrated in the Annual Progress Report. 

(11)  Real  GDP  growth  in  2025  was  0.5%  and  HICP  inflation  stood  at  1.7%.  The 
Commission  Spring  2026  Forecast  projects  real  GDP  to  grow  by  0.5%  in  2026  and 
0.6% in 2027, and HICP inflation to stand at 3.2% in 2026 and 1.8% in 2027.  
(12)  Based on data provided by Eurostat (12), Italy’s general government deficit decreased 
from 3.4% of GDP in 2024 to 3.1% of GDP in 2025. Based on policy measures known 
by  the  cut-off  date  of  the  forecast,  the  Commission  Spring  2026  Forecast  projects  a 
deficit  of  2.9%  of  GDP  in  both  2026  and  2027.  The  decrease  of  the  deficit  in  2026 
mainly  reflects  lower  spending  on  housing  renovation  tax  credits,  while  other 
expenditure  items,  including  public  investment,  are  expected  to  continue  increasing, 
together with tax revenues. 

(13)  Based  on  the  Commission’s  estimates,  the  fiscal  stance (13),  which  includes  both 
nationally  and  EU  financed  expenditure,  was  contractionary,  by  0.3%  of  GDP,  in 

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9 

10 

11 

12 
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Council Recommendation with a view to bringing an end to the situation of an excessive deficit in Italy, 
adopted on  21 January 2025.  All  documents  related  to  the excessive  deficit  procedure  of  Italy  can  be 
found at: Italy - Economy and Finance - European Commission. 
Communication from the Commission to the European Parliament, the Council, the European Central 
Bank,  the  European  Economic  and  Social  Committee,  the  Committee  of  Regions  and  the  European 
Investment Bank, 2026 European Semester – Spring Package, COM(2026)200 final  
Communication  from  the  Commission,  ‘Accommodating  increased  defence  expenditure  within  the 
Stability and Growth Pact’, Brussels, 19.3.2025, C(2025) 2000 final. 
The  2026  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, 22.04.2026. 
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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2025.  It  is  projected  to  be  contractionary,  by  0.3%  of  GDP  in  2026  and  by  0.5%  of 
GDP in 2027. 

(14)  Based  on  data  provided  by  Eurostat (14),  Italy’s  general  government  debt  increased 
from 134.7% of GDP at the end of 2024 to 137.1% of GDP at the end of 2025. The 
increase in the debt 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. Based on policy measures known at the cut-off date of the forecast, the 
Commission  Spring  2026  Forecast  projects  the  debt-to-GDP  ratio  to  increase  to 
138.5% by the end of 2026 and to further increase to 139.2% by the end of 2027. The 
increase in 2026 and 2027 mainly reflects the lagged cash impact of the tax credits for 
housing  renovations,  while  the  debt-reducing  impact  of  primary  surpluses  remains 
limited.  

(15)  Based  on  the  Commission  Spring  2026  Forecast,  total  general  government  defence 
expenditure in Italy amounted to 1.3% of GDP in 2025 and it is projected at 1.2% of 
GDP in 2026. 

(16)  The  Union  continues  to  face  risks  of  energy  supply  disruptions  and  elevated  price 
volatility,  exacerbated  by  geopolitical  tensions  which  affect  global  oil  and  gas 
markets.  Experience  from  the  2022-2023  energy  crisis  has  shown  that  broad  and 
untargeted  measures  entail  large  fiscal  costs  and  are  socially  and  economically 
inefficient.  Since  the  outbreak  of  the  war  in  the  Middle  East  in  February 2026,  Italy 
has  adopted  fiscal  policy  measures  to  mitigate  the  impact  of  high  energy  prices  on 
households  and  firms (15).  These  include  an  untargeted  reduction  in  excise  duties  on 
fuels  with  expiry  date  on  22 May 2026  and  a  tax  credit  targeted  at  road  transport, 
fishing and agricultural enterprises with expiry date on 31 May 2026. According to the 
Commission  Spring  2026  Forecast,  the  fiscal  cost  of  these  measures  is  projected  to 
amount to approximately 0.1% of GDP in 2026. According to Commission estimates, 
if  these  measures  were  to  remain  in  force  until  end-2026,  their  fiscal  cost  would 
amount to 0.3% of GDP in 2026. 

(17)  Based  on  the  Commission’s  calculations,  net  expenditure  in  Italy  grew  by  1.5%  in 
2025 and fell by 0.6% cumulatively over 2024 and 2025. The net expenditure growth 
in  2025  is  above  the  recommended  maximum  growth  rate,  corresponding  to  a 
deviation of 0.1% of GDP in annual terms. When considering 2024 and 2025 together, 
the cumulative growth  rate of net  expenditure is  marginally  above the recommended 
maximum  growth  rate,  corresponding  to  a  deviation  of  less  than  0.1%  of  GDP  in 
cumulative terms. 

(18)  Based on the Commission’s calculations, net expenditure in Italy is projected to grow 
by 1.4% in 2026, and 0.8% cumulatively over 2024, 2025 and 2026. The projected net 
expenditure growth in 2026 is below the recommended maximum growth rate. When 
considering 2024, 2025 and 2026 together, the projected cumulative growth rate of net 
expenditure is also below the recommended maximum growth rate. 

(19)  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. Taking into account the information provided 
by Italy in its Annual Progress Report, the Commission finds that the implementation 

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Eurostat-Euro Indicators, 22.04.2026. 
This reflects the situation at the cut-off date of the Commission’s Spring 2026 Forecast (4 May 2026). 

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of  the  key  steps  of  these  reforms  and  investments  that  were  due  by  30 April 2026 
seems to be broadly on track. With regard to the key step due by Q4-2025 related to 
the  increase  in  public  spending  on  research  and  development  (R&D),  measured  by 
R&D  expenditure  in  GERD  terms  as  a  share  of  GDP,  the  latest  available  Eurostat 
statistics  refer  to  2024.  Nevertheless,  preliminary  estimates  provided  by  the  Italian 
authorities indicate that R&D expenditure in GERD terms is expected to have reached 
0.59% of GDP in 2025, suggesting that the target appears to be on track to be met. The 
Commission  considers  that,  overall,  Italy  has  complied  with  its  commitments  in  a 
satisfactory manner (16). 

(20)  Despite  the  structural  measures  implemented  in  recent  years,  Italy’s  tax  system 
continues to largely rely on labour taxation, which provides the largest contribution to 
the above-EU-average tax-to-GDP ratio. The tax wedge is above the EU average for 
single persons earning the average wage  and below it for  earners of low wages,  and 
both  values  mildly  increased  in  2025.  Special  regimes  for  self-employed  and  the 
growing  use  of  temporary  flat  personal  income  taxation  make  the  tax  system  highly 
complex, weaken progressivity and erode the tax base, resulting in significant revenue 
loss.  Furthermore,  despite  a  significant  reduction,  environmentally  harmful  subsidies 
remain  high,  and  tax  expenditures,  including  on  VAT,  are  widely  used.  Overall, 
further  shifting  the  tax  burden  from  labour  to  other  underused  sources  of  revenue, 
which  are  less  detrimental  to  growth,  would  help  to  raise  economic  potential. 
Moreover, redesigning vehicle taxation to accurately reflect CO2 emissions, especially 
in  heavily  congested  cities,  could  assist 
in  financing  sustainable  mobility 
infrastructure, reducing the high reliance on road transport. Despite the recent reform, 
there is further scope for reducing tax benefits for endothermic company cars. Finally, 
tax  evasion  remains  high,  particularly  in  VAT  and  among  self-employed  workers, 
despite the ambitious countermeasures taken in recent years, including under the RRP. 
At  the  same  time,  recent  measures  similar  to  tax  amnesties  risk  being  counter-
productive in terms of tax compliance. 

(21)  Cadastral  values  have  not  been  systematically  brought  closer  to  market  values  yet. 
Still,  Italy  has  committed  in  its  Medium-Term  Fiscal-Structural  Plan  (MTFSP)  to 
updating  cadastral  values  for  properties  not  yet  included  in  the  register  and  for 
buildings that have benefitted from public schemes for energy efficiency and/or house 
renovation  interventions.  Main  residencies  are  exempted  from  recurrent  property 
taxation, for almost all property classes. This results in low revenues from property at 
local level, including in cities facing a housing affordability challenge. In around one-
tenth of Italian provinces, rental costs represent more than one third of average wages, 
despite the existence of regulated rent. The share of social housing is low in Italy, with 
a limited public housing stock and very long waiting lists. Italy is also characterised by 
a  high  share  of  unoccupied  dwellings  and  high  presence  of  short-term  rentals. 
Responsibilities  are  divided  between  national  and  subnational  administration,  while 
there is no comprehensive national coordination framework. Lack of structural funding 
further  limited  the  effectiveness  of  housing  policy.  The  government  has  recently 
adopted the Piano Casa, while its assessment  and implementation  it is  still in  a very 
early stage. 

16 

Communication from the Commission to the European Parliament, the Council, the European Central 
Bank,  the  European  Economic  and  Social  Committee,  the  Committee  of  Regions  and  the  European 
Investment Bank, 2026 European Semester – Spring Package, COM(2026)200 final. 

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(22) 

(23) 

In  the  coming  years,  significant  fiscal  pressure  is  expected  to  weigh  on  public 
finances, including rising costs relating to demographic developments. In particular, a 
significant  share  of  public  resources  is  absorbed  by  old-age  pensions  and  debt-
servicing  costs,  limiting  fiscal  space  for  other  priorities.  Public  investment  has  risen 
significantly  compared  with  pre-pandemic  levels,  also  supported  by  the  RRF.  At  the 
same time,  expenditure  on some growth-enhancing policy areas, including education 
and health, has declined compared to 2019 as a share of total spending.  A new legal 
framework  requires  ministries  to  undertake  detailed  evaluation  of  spending  policies 
under  the  new  “Spending  Analysis  and  Evaluation  Plans”,  in  line  with  the  MTFSP 
commitments.  In  order  to  improve  the  efficiency  and  quality  of  public  spending  in 
Italy,  it  will  be  crucial  to  thoroughly  implement  the  new  assessment  framework  and 
follow up with ambitious policy actions. 

Italy is  one of the Member States with the oldest population, the lowest  fertility rate 
and a higher-than-average age of women giving  birth to  their first  child. Brain  drain 
persists  with  many  young,  highly  qualified  residents  seeking  better  opportunities 
abroad,  while  Italy  struggles  to  attract  and  retain  talent.  The  shrinking  working-age 
population is worsened by persistently low labour market participation among women 
and young people. While well-managed legal migration could mitigate the short-term 
effects  of  demographic  decline,  a  more  holistic,  structural  approach  should  move 
beyond financial incentives to create a supportive environment for parenting via stable 
jobs,  labour  policies  and  the  adoption  of  broader  measures  to  boost  workforce 
participation  among  women  and  young  people,  while  attracting  and  retaining  high-
quality  talent.  Age-related  expenditure  is  projected  to  increase,  weighing  on  public 
finances.  Despite  the  2011  pension  reform,  pension  expenditure  is  still  expected  to 
increase in the medium term due to demographic trends, including an increasing old-
age  dependency  ratio,  and  the  effect  of  early-retirement  schemes  introduced  and 
renewed  in  previous  years.  The  2026  budget  law  has  introduced  measures  to  foster 
participation  in  supplementary pension schemes  that can also  contribute to  improved 
pension adequacy, acting as a  complement to  public pensions. However, to  date, the 
participation remains limited (38.3% of the labour force), with only 29% of members 
under 40 and minimal participation of self-employed. At the same time, the automatic 
link  between  retirement  age  and  life  expectancy  has  not  been  fully  reinstated,  while 
the three-months increase freeze still holds for certain categories of workers. Measures 
to ensure the sustainability of the pension system  can be complemented by measures 
to  facilitate  staying  in  the  workforce  into  later  stages,  including  through  flexible 
working arrangements and age-specific management policies. 

(24)  The systematic, meaningful and timely 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 Union’s  funding 
instruments, as well as in the context of the European Semester. 

(25)  The implementation  of cohesion  policy programmes,  which encompass support from 
the European Regional Development Fund (ERDF) and the Just Transition Fund (JTF) 
in Italy, remains below EU average, both in terms of project selection and payments. It 
is  important  to  accelerate  efforts  to  ensure  the  swift  delivery  of  investments,  while 
maximising  their  impact  on  the  ground.  Italy  continues  to  face  challenges  in 
implementation,  due  to  weak  administrative  capacities,  the  slow  implementation  of 
infrastructure  projects,  and  fragmented  governance  between  central  and  regional 
levels. These have  issues hinder progress  in  employment, skills  and social  inclusion, 
while also delaying investments under the Strategic Technologies for Europe Platform 

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(26) 

(27) 

or  in  affordable  and  sustainable  housing.  In  addition,  Italy  needs  to  accelerate 
implementation of the JTF as resources are due for disbursement by the end of 2026. It 
is  essential  to  ensure  that  the  new  investments  identified  by  Italy  in  its  mid-term 
review  of  the  cohesion  policy  funds,  notably  those  linked  to  the  five  priorities 
identified  in  the  Mid-Term  Review  Regulation (17),  are  deployed  rapidly  and 
effectively. 

Italy  faces  several  challenges  related  to  research  and  innovation,  firms’  growth  and 
non-bank finance, industrial strategy, public administration, justice and competition. It 
also faces challenges related to the climate adaptation, the energy and waste and water 
sectors as well as the labour market, skills, education, and health. 

Italy’s  productivity  and  growth  potential  is  hindered  by  limited  public  and  private 
R&D  investment.  Compared  to  its  EU  peers,  Italy’s  public  support  for  innovation  is 
less  comprehensive  and  generous,  and  it  would  benefit  from  a  more  strategic 
allocation  of  resources  and  public-private  collaborations,  in  line  with  the  MTFSP 
commitments.  The  RRP  and  EU  cohesion  policy  funds  include  several  initiatives  to 
support  cooperation  between  businesses  and  academia,  which  continue  to  be 
fragmented and lack coherent national governance. Innovation procurement, which is 
currently  limited  to  the  defence  and  green  sector,  could  play  a  significant  role  in 
developing markets for start-ups while making public expenditure more efficient. The 
university system has limited resources, with Italy showing one of the lowest figures 
for  university  expenditure  among  OECD  countries.  Moreover,  universities  and 
researchers  continue  to  have  limited  incentives  to  perform  research  valorisation  and 
technology transfer activities. Research careers are slow and unpredictable. A reform 
adopted in 2025 has increased the number of short-term, non-tenure track contractual 
tools for researchers, with the risk of further affecting the career path  for researchers. 
Therefore,  there  is  a  need  to  improving  long-term  recruitment  planning  while  taking 
actions to speed up the career path of researchers. Technology transfer offices, though 
improving,  remain  relatively  small  in  scale  and  lack  adequate  human  and  financial 
resources 
into  new  business 
investors  should  also  be 
opportunities,  and  synergies  with  venture  capital 
strengthened. 

translation  of  research  outputs 

to  support 

the 

(28) 

Italy’s  weak  productivity  growth  reflects  structural  constraints  linked  to  a  relatively 
limited share of value added generated by large firms and the predominance of micro 
and  small  enterprises,  often 
family-managed,  which  underuse  professional 
management  practices,  hindering  innovation  and  productivity.  Tax  policies,  such  as 
the simplified lump-sum tax regime for micro-firms and the favourable tax treatment 
of inherited businesses (requiring five-year control retention) discourage consolidation 
and growth. Italy would therefore benefit from promoting the scale-up of start-ups and 
the aggregation of small to medium-sized enterprises (SMEs), by removing regulatory 
and  tax  barriers,  promoting  external  professional  managers,  the  upskilling  of 
managers,  strengthening  innovation  and  access  to  capital  markets.  Italy’s  high 
domestic  savings,  a  key  economic  strength,  could  play  a  greater  role  in  financing 
growth and innovation, helping companies to scale, if better mobilised. Italy’s capital 
markets  should  be  further  developed  and  their  depth  and  liquidity  increased  by 
supporting  demand,  encouraging  new  equity  listings,  and  promoting  corporate  bond 

17 

Regulation  (EU)  2025/1914  of  the  European  Parliament  and  of  the  Council  of  18 September 2025 
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. 

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8 

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issuances. Existing guarantee schemes and incentives could be refocused to prioritise 
and  support  demand  for  capital  market  instruments.  Access  to  non-bank  finance 
remains particularly limited for innovative businesses, as the capital market, especially 
domestic venture capital, despite being on a growth path, is still underdeveloped. This 
is notably due to the limited presence of institutional and corporate investors and the 
few  exit  opportunities.  Further  public  efforts  should  be  concentrated  on  early-stage 
and  riskier  market  segments,  as  well  as  on  attracting  and  leveraging  institutional 
investors  through  the  use  of  financial  instruments  and  fund-of-fund  structures  with 
appropriate  de-risking  elements.  Increasing  the  ability  of  domestic  institutional 
investors, such as pension funds and especially insurers, to invest in asset classes with 
a longer investment horizon could improve access to non-bank finance. 

(29)  Stagnant  productivity  continues  to  characterise  Italy,  also  reflecting  strong  gaps 
between Northern and Southern regions.  In the  South,  smaller average firm size  and 
concentration in traditional sectors weigh on productivity, while infrastructural deficits 
limit  competitiveness.  Italy  would  benefit  from  an  innovation-driven  industrial 
strategy  to  steer  resources  towards  high  value-added  sectors  and  technologies  and 
promote  the  development  of  the  South,  particularly  by  earmarking  resources  for  the 
less developed regions and targeting strategic sectors. While the White Book “Made in 
Italy  2030”  represents  a  first  step  towards  the  definition  of  an  industrial  strategy,  it 
does not provide clear policy actions and a governance structure for industrial policy. 
Its  18  identified  strategic  sectors,  many  of  which  low  value-added,  without  a  clear 
strategic  prioritisation  and  a  territorial  scope,  risk  making  the  public  effort  non-
selective  and  ineffective.  In  line  with  the  target  of  the  MTFSP,  additional  effort  is 
needed to rationalise and stabilise the more than 2700 national and regional incentives 
and to earmark ad hoc resources for the  South. The industrial strategy would benefit 
from  better  coordination  with  infrastructural  and  research  investment  planning, 
together with the use of locally targeted policy mixes (e.g. incentives, spatial planning 
and 
industrial  growth  and  structural 
to  promote 
transformation,  especially  in  the  South.  Finally,  sustained  effort  will  be  necessary  to 
address  Italy’s  persistent  infrastructural  gap  between  the  North  and  the  South, 
particularly by finalising the large-scale projects initiated under the RRP and cohesion 
policy, with a focus on access to industrial zones and improving last-mile connectivity. 
Road  and  port  infrastructure  and  multimodal  logistic  nodes  also  demand  attention, 
together with the adoption of a multi-annual and multimodal Transport Strategy. 

infrastructure  development) 

(30)  There is ample room to improve the effectiveness of Italian public administration and 
further simplify, as 41% of Italian firms report to be dissatisfied (vs 24% EU average). 
While  some  progress  has  been  made,  including  thanks  to  the  RRP,  it  would  be 
important  to  ensure  the  interoperability  and  take-up  of  all  platforms (18)  to  improve 
human  resources  management,  training  and  recruitment  of  public  servants.  Boosting 
horizontal  and  vertical  mobility,  and  further  promoting  performance  evaluations, 
career  progression,  strengthening  upskilling  and  reskilling,  as  well  as  promoting 
equality and inclusion for all levels of administrations, in line with the commitments 
of the MTFSP, would also be beneficial.  Italy is continuing  its simplification efforts 
by establishing Italia Semplice, alongside a one-stop-shop platform for businesses (19) 
but  further  streamlining  of  administrative  processes  is  needed,  building  up  on  the 
inter-operationalisation  of  existing  platforms.  In  addition,  administrative  capacity 

18 
19 

HRM Toolkit Minerva, Syllabus, and in PA platforms. 
www.impresainungiorno.gov.it. 

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remains uneven across regions, with significant constraints at local level, particularly 
in  the  South  and  in  areas  such  as  digitisation,  decision-making  capacity,  and  public 
financial  management,  as  well  as  between  smaller  and  larger  municipalities.  It  is 
essential  to  develop  an  overarching  and  structural  administrative  capacity  strategy, 
building on the RRP and cohesion policy measures, including the National Programme 
Capacity  for  Cohesion.  This  strategy  could  frame  a  number  of  RRP  measures  that 
proved  effective  in  supporting  local  administration  for  the  implementation  of  RRP 
projects,  while  preventing  territorial  gaps  to  further  widen.  While  better-equipped 
regions are building on the RRP experience, less-resourced regions, especially in the 
south,  would  benefit  from  a  more  active  and  targeted  support  from  the  central 
administration. Moreover, promoting forms of administrative associations, particularly 
for smaller administrations, especially in the South, could be beneficial. 

(31)  Under the RRP, Italy is implementing a comprehensive package of reforms to increase 
the efficiency of the civil, criminal, insolvency and tax justice systems. The creation of 
trial  offices  and  the  digitalisation  of  trials,  which  provide  organisational  and  legal 
support  to  judges,  have  contributed  to  improving  court  efficiency.  However, 
challenges remain. The disposition time in litigious civil and commercial cases in first-
instance  courts  increased  in  2024,  remaining  one  of  the  highest  in  the  EU.  The  time 
taken to reach a decision for administrative cases at first instance decreased in 2024, 
but  it  remains  one  of  the  longest  in  the  EU.  Institutionalising  the  trial  office  and 
introducing measures to  further reduce pressure  on courts and the average lengths of 
trials  (for  example,  in  overburdened  justice  sectors,  such  as  the  Justice  of  Peace), 
while  continuing  to  address  human  resources  shortages  (magistrates  and  court  staff) 
and  achieving  full  digitalisation  of  the  justice  system,  would  help  increase  the 
efficiency of the system, also in line with Italy’s MTFSP commitments. 

(32)  Ensuring better framework conditions for competition in several sectors and increasing 
competition  both  for  and  in  the  markets  would  enable  a  more  efficient  allocation  of 
resources, benefit consumers and lead to competitiveness and productivity gains, thus 
also  attracting  new  investments.  Under  the  RRP,  Italy  has  made  progress  in  some 
important  sectors,  including  energy,  transport  and  local  public  services,  and  it  has 
modernised national merger control rules. Further legislative initiatives are still needed 
for:  (i)  ensuring  the  competitive  tendering  of  energy  distribution  concessions;  (ii) 
transport,  particularly  in  view  of  fully  implementing  the  pro-competitive  reforms  in 
the areas of railways, highways and ports, and (iii) healthcare, particularly by ensuring 
pro-competitive  principles  and  open  and  transparent  tenders.  Furthermore,  open  and 
transparent  tenders  for  expiring  concessions  in  various  sectors  (including  regulated 
ones) would ensure market contestability. This would increase competitive pressure on 
the  incumbent  operators  and  avoid  investments  to  be  delayed,  suspended  or  unduly 
passed on to consumers/users. Finally, regulatory barriers affect the intra-EU trade in 
goods, with national packaging and labelling rules creating compliance burdens. 

(33) 

Italy faces among the highest electricity prices in the EU due to its structural reliance 
on  costly  gas-fired  generation.  This,  and  in  particular  the  elevated  electricity-to-gas 
price ratio, represent a key barrier to electrification for both households and industry. 
Despite  significant  untapped  potential,  renewable  growth  is  too  slow  to  meet  2030 
targets: accelerating renewable deployment  would contribute to  mitigating electricity 
prices in the medium term. Continued support through renewable and storage auctions 
as  well  as  full  implementation  of  the  ‘Testo  Unico’  permitting  reform  also  at  the 
regional  level  would  support  this  objective.  To  align  energy  taxation  with 
decarbonisation objectives, reducing  and rationalising taxes  and levies on electricity, 

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including  parafiscal  levies  (‘oneri  generali  di  sistema’),  would  lessen  existing 
disincentives  to  electrification,  particularly  for  firms  and  industry.  Integrating  higher 
shares  of  renewables  requires  accelerating  investments  to  strengthen  the  electricity 
grid  and  reduce  congestions,  while  limiting  the  impact  on  consumer  bills.  This 
includes  investing  in  cross-border  interconnections  and  addressing  distribution  grid 
connection delays. Italy should also continue promoting non-fossil flexibility such as 
storage and demand-response mechanisms. 

Italy  faces  severe  economic  impacts  from  intensifying  climate  risks,  particularly 
hydrogeological  hazards,  resulting  in  one  of  the  highest  ratios  of  natural  disaster 
damage  to  GDP  in  the  EU.  While  progress  has  been  made  in  implementing  the 
National  Adaptation  Plan  with  the  establishment  of  the  National  Observatory  for 
Climate  Change  Adaptation,  governance  of  climate  adaptation  policies  remains 
fragmented across authorities, at both central and local level. The investment needs for 
climate change adaptation are estimated at over EUR 10 billion per year up to 2050. A 
consolidated  planning  for  investments  in  climate  adaptation  and  reduction  of 
hydrogeological  risks  could  help  address  this  issue  effectively.  While  the  recent 
introduction  of  mandatory  insurance  against  natural  disasters  for  companies  has 
contributed  to  addressing  the  climate  insurance  protection  gap,  fair  and  affordable 
solutions to tackle the outstanding gap should be explored and implemented. Increased 
soil  sealing  exacerbates  the  high  susceptibility  to  hydrogeological  risks.  Therefore, 
increasingly making use of nature-based solutions supported by the introduction of a 
national inventory and a more systemic integration into land-use planning, could be an 
effective countermeasure. 

Infrastructure  deficits  for  water  and  waste  management,  in  particular  in  southern 
regions, have severe impacts on the quality of local public service delivery and on the 
environment,  with  considerable  costs  for  citizens  and  lost  revenues  for  the  Italian 
economy. Even though substantial investments have been made in the waste and water 
sectors,  with  support  of  RRP  and  cohesion  policy  funds,  it  is  important  to  sustain 
progress in closing infrastructural gaps. 

In light of the crucial role of human capital in enhancing the Union’s competitiveness 
and  strategic  autonomy,  in  2026  the  Council  recommended  that  Member  States  take 
action  to  urgently  address  human  capital  related  structural  challenges  in  the  areas  of 
skills  and  education,  which  hamper  competitiveness.  The  2026  country-specific 
recommendations  addressed  to  Italy  can  contribute  to  the  implementation  of  the 
Council Recommendation on human capital in the Union. 

(34) 

(35) 

(36) 

(37)  Structurally  low  job  quality,  including  low  wages,  challenges  to  job  and  career 
security as well as gender equality, remain major obstacles that call for decisive action. 
Despite  recent  increases,  Italy  is  among  the  Member  State  where  real  wages  have 
declined  the  most  since 2019.  While  wage  growth  is  constrained  by  structurally  low 
productivity  growth,  wage  stagnation  is  also  exacerbated  by  contractual  dumping, 
delays  in  contract  renewals,  and  the  limited  use  of  second-level  bargaining, 
particularly among SMEs and in the South.  Strengthening social partners' capacity is 
important  for  providing  effective  social  dialogue.  Despite  decreasing,  linked  to  the 
tightening of the labour market, the share of fixed-term employees remains among the 
highest in the EU. Italy also still records among the highest proportions of involuntary 
part-time and temporary contracts, disproportionately affecting women, young people 
and  migrants.  Transitions  from  temporary  to  permanent  jobs  remain  well  below  the 
EU  average.  Measures  and  initiatives  to  tackle  labour  market  segmentation  and 
strengthening  collective  bargaining  would  be  key  to  supporting  adequate  wage 

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increases and improving overall job quality. Women’s labour market participation and 
employment rates, including part-time employment, record the highest gaps compared 
to those of men in the EU. This is driven by southern regions, characterised also by the 
lowest  childcare  coverage.  Long-term  care  needs  are  increasing,  while  service 
provision  is  not  keeping  pace,  especially  in  southern  regions.  Although  substantial 
progress  has  been  made  in  extending  the  coverage  of  childcare  at  national  level, 
further efforts to  expand quality  childcare  and long-term  care services in  the regions 
with the lowest coverage, while ensuring affordability, are needed. 

(38)  Widespread  and  increasing  undeclared  work  needs  to  continue  being  addressed  to 
promote  job  quality  and  fair  competition  among  firms,  building  on  recent  RRP 
reforms. Effectiveness and administrative capacity of the labour inspectorate should be 
increased through improved working conditions aimed at increasing the attractiveness 
of  the  profession,  as  well  as  through  further  data-sharing  and  coordination  across 
entities carrying out inspections. The most affected sectors, such as domestic work and 
agriculture, would benefit from targeted interventions, including preventive measures. 
Labour exploitation, which particularly affects migrants, should be tackled, including 
by  improving  access  to  regular  employment  for  those  already  in  Italy,  and  ensuring 
appropriate protection and outreach for victims, as well as by preventing inappropriate 
housing conditions, notably for agricultural workers. 

(39)  Adults’  basic  skills  remain  among  the  lowest  in  the  EU,  macroeconomic  skills 
mismatches  among  the  highest  and,  at  the  same  time,  low  and  declining  adult 
participation  in  training  further  hampers  human  capital  development  and,  in  turn 
productivity.  Italy  has  undertaken  relevant  reforms  and  invested  in  adult  learning  in 
recent  years,  notably  in  the  context  of  the  RRF.  However,  barriers  to  training  - 
particularly for re-skilling and longer training programmes - persist. Based on a sound 
and  continuous  assessment  of  outcomes  of  the  Active  Labour  Market  Policies  and 
training  measures  introduced  in  recent  years,  the  integrated  system  providing 
unemployment  support,  social  services  and  training,  needs  to  be  supported  by 
sustainable  financing  beyond  2026.  Barriers  to  training  uptake,  including  to 
Vocational  Education  and  Training,  should  be  further  reduced.  Given  the  wide 
regional disparities in adult learning and employment outcomes, it is essential to better 
target activation measures. Improving skills intelligence and forecasting is also key. In 
this regard, regional observatories would benefit from a national integrated system that 
aligns skills supply with demand, drawing on local labour-market data and leveraging 
AI  tools.  The  governance  model  for  skills  forecasting  and  provision  could  be 
strengthened by placing training effectiveness and quality assurance at its core and by 
deepening  cooperation  among  training  providers,  social  partners  and  employers, 
building on, for instance, the successful experience of “Fondi Interprofessionali”. 

(40)  Further effort is needed to address Italy’s weak and uneven educational outcomes, and 
to  improve  the  employability  of  tertiary  graduates.  Learning  outcomes  have  not 
recovered to pre-pandemic levels and remain fragile. In the South, 46% of pupils fail 
to achieve basic proficiency, and disadvantaged students are around three times more 
likely  to  underperform  compared  with  their  advantaged  peers.  Greater  focus  and 
targeted intervention on the worst-performing schools, including incentives for attract 
experienced teachers, expansion of full-time schooling leveraging RRF infrastructural 
investments  and  scaling  up  successful  initiatives  such  as  the  “Piano  Estate”,  could 
help.  Leveraging  RRP’s  investments,  curricula  would  benefit  from  a  skills-based 
approach.  Following  preliminary  positive  results,  further  assessment  of  the  4-Year 
High  School  Reform  pilot  will  also  be  key  to  designing  a  structural  reform  of  the 

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education  cycle.  Raising  the  attractiveness  of  the  teaching  profession  is  also  crucial. 
Building  on  the  RRP’s  teaching  profession  reform,  more  stable  employment 
conditions  for  non-statutory  teachers,  a  clearer  link  between  salaries,  qualifications 
and  performance,  and  stronger  professional  development  and  mobility  are  needed. 
Italy’s  share  of  25-34-year-olds  with  a  tertiary  qualification,  as  well  as  the 
employability of recent graduates, remain among the lowest in the EU, driven by long 
graduation  times,  high  dropout  rates,  low  returns  on  education  and  large  skills 
mismatches. Building on RRP efforts, further reforms are needed, including aligning 
the  Italian  university  system  to  European  standards  by  curbing  free  exam  retakes, 
introducing minimum credit and attendance requirements, linking ANVUR (20)-based 
funding 
expanding 
secondary-to-tertiary  guidance  and  STEM  promotion  (especially  among  women). 
Embedding  transversal  and  work-oriented  skills  into  university  programmes  and 
increased exposure to work-based learning, notably in VET and mandatory internships 
at university level, can support graduates’ employability and better match skills supply 
with labour market needs. 

evaluations 

completion 

course 

rates, 

and 

and 

to 

(41)  Access to healthcare in Italy has deteriorated in recent years, with increasing waiting 
lists  for  public  healthcare  services  and  out-of-pocket  expenditure  significantly 
exceeding the EU average, significant territorial disparities in healthcare provision, as 
well  as  shortages  of  healthcare  staff.  The  rollout  of  the  2022  territorial  healthcare 
reform,  aiming  at  reorganising  the  territorial  healthcare  services  through  the  new 
health facilities, should continue by ensuring the completion and operationalisation of 
all  the  new  facilities  (community  health  houses  and  community  hospitals)  at  local 
level,  alongside  structural  integration  of  healthcare  personnel  within  these  facilities, 
full deployment of interoperable digital healthcare systems to guarantee continuity of 
care across healthcare structures, and sustained funding for telemedicine and homecare 
services. The territorial healthcare reform should be implemented in synergy with the 
2015  hospital  care  reform  and  complemented  by  additional  targeted  policies  to 
effectively  ensure  equitable  healthcare  access  in  Italy’s  inner  areas.  Addressing 
healthcare  personnel  shortages  is  also  crucial,  in  particular  through  the  use  of  the 
health workforce planning model to  assess and anticipate regional distribution, guide 
targeted  investments  and  better  inform  policies  on  education  and  training  of 
professionals.  Additionally,  the  attractiveness  of  key  professions,  particularly  nurses, 
general  practitioners,  emergency  doctors,  should  be  improved  through  enhanced 
working  conditions,  career  incentives,  guaranteed  safety  and  legal  protections,  and 
higher-quality  specialisation  courses.  Finally,  the  full  implementation  of  the  Waiting 
list management plan should be secured, particularly by overcoming the shortcomings 
of the waiting-list platform, including through improved data collection mechanisms, 
and adopting the relevant decrees, especially those defining workforce staffing needs 
and establishing technical guidelines for regional booking systems (CUPs). 

(42)  Despite recent improvement, poverty and social exclusion risks remain relatively high 
in Italy, notably among children and families, while territorial disparities are widening. 
Absolute  poverty  is  at  historically  high  levels  in  recent  years,  affecting  8.4%  of 
households  in  2024,  including  13.8%  of  children.  Regional  gaps  are  stark,  with  the 
number of people at Risk of Poverty and Social Exclusion around four times higher in 
the  Islands  than  in  the  North-East.  Gaps  in  social  protection,  notably  for  atypical 

20 

ANVUR  (Agenzia  Nazionale  di  Valutazione  del  Sistema  Universitario  e  della  Ricerca)  is  the  Italian 
National Agency for the Evaluation of the University and Research Systems. 

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13 

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workers, self-employed, unemployed and people outside the labour market, combined 
with persistent weaknesses in the delivery of essential services, continue to contribute 
to  elevated risks  of poverty and social exclusion. Despite some  positive effects  from 
contribution-based  benefits,  social  transfers  other  than  pensions  reduce  poverty  less 
than the EU  average  and weakened further in  2025. The reformed minimum  income 
scheme  (Assegno  di  Inclusione)  has  reduced  adequacy  and  coverage.  While  recent 
policy efforts to support families are going in the right direction, tackling child poverty 
would  further  benefit  from  expanding  full-time  schooling  and  providing  sustainable 
funding  to  school  canteens  building  on  RRF  infrastructural  investments  and  in  line 
with  the  EU  Anti-Poverty  Strategy  and  the  European  Child  Guarantee.  Furthermore, 
homelessness  remains  a  persistent  and  severe  phenomenon,  with  ample  scope  to 
expand the delivery of housing-first interventions. Lastly, important challenges in the 
social assistance services provision remain. Clear service targets, stronger monitoring 
and better coordination at national level, as well as adequate and predictable financing 
would help  expand service availability and reduce  territorial  inequalities. 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 Framework (21). 

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  2026  the  Council  recommended  that  the  euro-area  Member  States  take 
action, including through their RRPs, to implement the 2026 Recommendation on the 
economic policy of the euro area. For Italy, the recommendation (1) helps implement 
the  first,  the  second,  the  third  and  the  fifth  recommendations  on  the  euro  area, 
recommendation  (2)  helps  implement  the  fourth  recommendation  on  the  euro  area, 
recommendation  (3)  help  implement  the  seventh  and  the  tenth  recommendations  on 
the euro area, recommendation (4) helps implement the eighth recommendation on the 
euro  area,  recommendation  (5)  help  implement  the  seventh  recommendation  on  the 
euro area and the recommendation (6) helps  implement  the fifth  recommendation on 
the euro area. 

In  light  of  the  Commission’s  in-depth  review  and  conclusions  on  the  existence  of 
imbalances,  recommendations  under  Article  6  of  Regulation  (EU)  No 1176/2011  are 
reflected  in  recommendations  (1),  (2),  (3),  (4)  and  (6).  Policies  referred  to  in 
recommendation  (1)  help  to  address  vulnerabilities  linked  to  public  debt.  Policies 
referred to in recommendation (1), (2), (3), (4) 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), 
(2),  (3),  (4)  and  (6)  contribute  to  both  addressing  imbalances  and  implementing  the 
2026 Recommendation on the economic policy of the euro area, in line with recital 43. 

(43) 

(44) 

HEREBY RECOMMENDS that Italy take action in 2026 and 2027 to:  

1. 

21 

In  view  of  the  deviation  recorded  by  2025  by  the  Commission  vis-à-vis  the 
recommended  net  expenditure  ceiling,  ensure  that  net  expenditure  respects  the 
corrective path recommended by the Council on 21 January 2025. Reinforce defence 
spending  and  readiness  while  ensuring  spending  efficiency  and  gradually  adapting 
the budget to sustain structurally higher defence spending. Ensure that any measures 

SWD(2026)122  –  Second-stage  country  analysis  on  social  convergence  in  line  with  the  Social 
Convergence Framework (SCF), 2026. 

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taken to mitigate the impact  of the  hike in  energy prices  are temporary, targeted  at 
protecting  vulnerable  households  or  at  addressing  the  needs  of  energy-intensive 
firms, preserve incentives for energy savings  while ensuring that their fiscal cost is 
compatible with the commitments under the EU fiscal framework. 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  sustainable  growth,  while 
ensuring fairness,  including  by further fighting tax evasion  and reducing remaining 
tax  expenditures,  including  those  related  to  value  added  tax  and  environmentally 
harmful  subsidies.  Update  cadastral  values,  building  on  the  medium-term  fiscal-
structural plan commitment, as part of a broader review of housing-related policies. 
Step  up  efforts  to  improve  the  efficiency  and  effectiveness  of  public  expenditure. 
Address  demographic challenges to  mitigate the effects  on potential growth  and on 
the sustainability of the pension system, also by attracting and retaining high-quality 
workforce, and by encouraging older workforce participation especially in the South. 

Ensure continuity of reforms and investments implemented under the Recovery and 
Resilience  Facility.  Accelerate  efforts  to  implement  cohesion  policy  programmes, 
building, where appropriate, on the reallocation to strategic priorities and flexibilities 
in the mid-term review of the cohesion policy framework. 

innovation, 

strengthening 

research  and 

including  by 

Support 
innovation 
procurement, increasing universities’ focus on the commercialisation of research and 
researchers’ career. Promote the mobilization of savings, capital markets’ expansion, 
and firms’ growth and aggregation, including by supporting the role of corporate and 
institutional investors in venture capital and private equity, as well as by facilitating 
new listings and issuance of corporate bonds. Implement an industrial strategy with 
the aim to also reduce territorial disparities, by streamlining current policy measures 
and taking into account key infrastructure projects. 

Further increase the effectiveness of the public administration and further strengthen 
administrative  capacity,  particularly  at  local  level  and  in  the  South.  Further  reduce 
the backlog and disposition time of the justice system. Address remaining restrictions 
to competition, including in the transport and electricity sectors and tackle remaining 
barriers to free movement of goods. 

Accelerate  electrification  and  intensify  efforts  for  the  deployment  of  renewable 
energy and storage, including by fully implementing permitting reforms, particularly 
at  sub-national  level,  and  investing  in  the  electricity  grid.  Address  climate-related 
risks  and  mitigate  their  economic  impact,  including  through  more  institutional 
coordination,  nature-based  solutions  and  climate  insurance  coverage.  Tackle 
remaining inefficiencies in water and waste management by reducing infrastructural 
gaps in particular in Southern regions. 

Continue to promote job quality by further reducing labour market segmentation and 
strengthening collective bargaining, also to support adequate wages. Support labour 
market  participation,  including  by  improving  active  labour  market  policies  and 
access  to  affordable  and  quality  care  services,  taking  into  account  territorial 
disparities. Keep-up the efforts to tackle undeclared work. Continue promoting VET 
and  adult  learning,  including  by  strengthening  in-work  training  and  skills 
intelligence. Improve educational outcomes, focusing on basic skills, and the labour 
market  relevance  of  tertiary  education.  Improve  timely  access  to  affordable 
healthcare, also by tackling shortages in key health professions. Continue to improve 

2. 

3. 

4. 

5. 

6. 

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the coverage and adequacy of social protection as well as access to social services for 
in  vulnerable  situations,  notably  children,  while  maintaining  fiscal 
people 
sustainability. 

Done at Brussels, 

For the Council 
The President 

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