European Commission, "2023 Country Report - Italy" (European Economy Institutional Paper 236, June 2023)
Summary
European Commission 2023 Country Report for Italy, published as European Economy Institutional Paper 236 in June 2023 and as Staff Working Document SWD(2023) 612, dated Brussels 24.5.2023. It accompanies the Council recommendation on Italy's 2023 National Reform Programme and the Council opinion on its 2023 Stability Programme. The economic snapshot says real GDP rebounded swiftly over 2021-22 after the COVID-19 recession, but Russia's invasion of Ukraine slowed the recovery. Inflation was largely driven by energy prices and hit low-income households hardest, and higher energy and commodity prices turned the current account slightly negative in 2022. The report was prepared with the Recovery and Resilience Task Force and many Commission directorates-general.
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“European Commission, ‘2023 Country Report - Italy’ (European Economy Institutional Paper 236, June 2023).”
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ISSN 2443-8014 (online)
2023
Country
Report
Italy
INSTITUTIONAL PAPER 236 | JUNE 2023
EUROPEAN ECONOMY
Economic and
Financial Affairs
Secretariat-General
Recovery and
Resilience Task Force
European Economy Institutional Papers are important reports analysing the economic situation and
economic developments prepared by the European Commission's Directorate-General for Economic and
Financial Affairs, which serve to underpin economic policy-making by the European Commission, the Council
of the European Union and the European Parliament.
This paper has also been published as Staff Working Document SWD(2023) 612.
This specific report was prepared in cooperation with the Secretariat-General Recovery and Resilience Task
Force, with valuable contributions from Eurostat, Directorate-General for Employment, Social Affairs and
Inclusion, Directorate-General for Climate Action, Directorate-General for Environment, Directorate-General for
Regional and Urban Policy, Directorate-General for Structural Reform Support, Joint Research Centre,
Directorate-General for Energy, Directorate-General for Mobility and Transport, Directorate-General for
Internal Market, Industry, Entrepreneurship and SMEs, Directorate-General for Communications Networks,
Content and Technology, Directorate-General for Research and Innovation, Directorate-General for Education,
Youth, Sport and Culture, Directorate-General for Migration and Home Affairs, Directorate-General for Health
and Food Safety, Directorate-General for Financial Stability, Financial Services and Capital Markets Union,
Directorate-General for Taxation and Customs Union, Directorate-General for Justice and Consumers, and
Directorate-General for Translation.
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for the use that might be made of the information contained in this publication.
This paper can be downloaded from https://economy-finance.ec.europa.eu/ecfin-publications_en.
Luxembourg: Publications Office of the European Union, 2023
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CREDIT
Cover photography: © iStock.com/Teka77
European Commission
Directorate-General for Economic and Financial Affairs
Secretariat-General
Recovery and Resilience Task Force
2023 Country Report
Italy
EUROPEAN ECONOMY Institutional Paper 236
EUROPEAN
COMMISSION
Brussels, 24.5.2023
SWD(2023) 612 final
COMMISSION STAFF WORKING DOCUMENT
2023 Country Report - Italy
Accompanying the document
Recommendation for a COUNCIL RECOMMENDATION
on the 2023 National Reform Programme of Italy and delivering a Council opinion on
the 2023 Stability Programme of Italy
{COM(2023) 612 final}
EN EN
ECONOMIC AND EMPLOYMENT SNAPSHOT
prices of energy and other commodities had
an impact on Italy’s current account, which
Russia’s invasion of Ukraine has turned slightly negative in 2022.
slowed the pace of Italy’s
economic recovery Inflation has largely been driven by
energy prices, and low-income households
have been hardest hit. The price of energy
Economic output has returned to its pre- products and industrial commodities started
pandemic level but was held back by soaring already in 2021, on the back of post-
trade disruptions and the surge in pandemic supply bottlenecks and higher
commodity prices. After the sharp recession transport costs. They rose even faster in the
caused by the COVID-19 pandemic, real GDP first half of 2022, after Russia’s invasion of
swiftly rebounded over 2021-22. The Ukraine. Prices of imported unprocessed food
prospects for further robust growth were quickly followed suit, while those of
curtailed, however, by the fallout of Russia’s domestically produced goods and services rose
war of aggression against Ukraine. The two more slowly. Thanks to the measures taken by
main factors affecting growth were trade the government, retail energy prices did not
flows (both direct and indirect) and prices. increase as much as wholesale prices. By end-
2022, energy prices began to fall, particularly
Demand for exports fell only moderately for gas, followed in early 2023 by other
due to the war. The direct impact was limited commodity prices. This is expected to
as Russia and Ukraine account for only a small gradually bring down the price of food and
share of Italy’s export markets (combined, services, with the overall inflation rate
around 1% of goods export value and of expected to fall to 2.9% in 2024 (see Box 1).
foreign tourist income in 2022). However, Low-income households have been hit the
demand also slowed for goods produced hardest by the increase in energy and food
elsewhere in the EU with Italian-made inputs prices, as they spend a relatively high share of
and components. This, together with adverse their income on food and energy for housing.
international trade developments, led to a drop
Financial conditions are tightening but
in net exports that dragged down GDP growth
in 2022. Over 2023-24, annual GDP growth is remain favourable in real terms. Lending
forecast to slow down to just above 1%. to corporates continued to grow in the first
half of 2022 but contracted in Q4-2022.
Italy has reduced its dependence on Tighter financial conditions resulting from the
Russian gas but import prices have normalisation in monetary policy are quickly
soared. Until 2021, Russia provided 43% of being channelled to the real economy. The cost
of borrowing for new loans more than doubled
Italy’s imported gas, which is widely used to
over the course of a year to 3.7% for
produce electricity as well as for industrial and
households and 3.8% for firms (Q1-2023).
domestic uses. Italy rapidly diversified its
Nevertheless, business debt repayment
energy sources by ramping up imports of gas
capacity remained strong, thanks to higher
from other suppliers, by increasing renewable
profits and sounder balance sheet structures
electricity output and by using alternative
than in the past. The current low level of
fuels. It has reduced both industrial and
indebtedness and abundant liquidity enable
domestic consumption, cutting demand for gas
firms to maintain their investment plans in the
while containing the impact on energy bills.
short term. However, protracted tighter
However, the sharp increase in international
2
financing conditions could lead businesses to Graph 1.1: Decomposition of debt by sector
focus on projects offering the best risk and
350
return prospects. The higher cost of lending
coupled with the erosion of real disposable 300
income due to higher inflation is also likely to 250
reduce households' capacity to service their 200
debts, particularly for more vulnerable % of GDP 150
borrowers.
100
The cost of government measures to 50
support the economy in recent years has 0
put public finances under pressure. 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22*
Financial corporations (MFI) Government
Several measures have caused the general Household Non financial corporations
government deficit to rise in recent years, Private sector Private sector EA
including measures to support the economy in
Source: Eurostat (nasa_10_f_bs)
response to the COVID-19 pandemic and the
increase in energy prices. The higher-than-
expected uptake of tax credits supporting
energy efficiency in residential buildings, The labour market situation has
together with the change in their statistical
treatment (1), led to a significant upward
improved, but significant slack
revision to the general government deficit in remains
recent years, which reached 8.0% of GDP in
2022. Nonetheless, the economic rebound has
brought down the public debt-to-GDP ratio by Labour demand increased in 2021-22 but
about 10 percentage points over 2020-2022, weaknesses remain in the labour supply.
to 144.4% of GDP in 2022. The unemployment rate fell for the eighth
consecutive year to 8.1%. The unemployment
Government finances are expected to rate of young people (15-24) is also falling,
improve as fiscal support measures are but at nearly 24% it remains one of the
phased out, although debt is projected to highest in the EU. The implementation of the
remain high. In the short term, the European Pillar of Social Rights would require
withdrawal of energy support measures is further progress on a number of aspects. The
expected to support Italy’s public finances. activity rate rose to 70.4%, i.e. back to 2019
Nevertheless, the ratio of public expenditure to levels, but still below Italy's EU peers. The
GDP is expected to remain above pre- employment rate is also 10 pps below the EU
pandemic levels, partly due to the permanent average, with even wider gaps for women and
policy measures adopted in recent years. As a young people. The gender employment gap
result, the deficit is projected to fall but was 19.3 pps in 2022 (EU: 10.6). The share of
remain above 3% of GDP in 2024. The public young people (15-29) who are not in
debt-to-GDP ratio is also falling but projected employment, education or training fell to 19%
to remain high, reaching 140.3% by 2024. in 2022, still 7 pps above the EU average.
There are also substantial differences between
northern and southern regions in terms of
employment and participation (see Annex 12).
Overcoming these long-standing challenges
and improving active labour market policies
would help Italy achieve its national
employment rate target by 2030 (see Annex
14).
(1) On 1 March, Eurostat published advice clarifying the
statistical treatment of Italian tax credits for housing Action is needed to better match labour
efficiency. This led to a revision of the deficit by +0.2 supply to demand. The job vacancy rate in
and +1.8 pps of GDP in 2020 and 2021 respectively. the private sector has steadily increased with
3
the post-pandemic recovery, reaching 2.3% at wage growth, on average, between 2005 and
the end of 2022, more than double the pre- 2019 (-0.2% per year). While this boosted the
2020 level. Vacancies rose fastest in competitiveness of Italian firms, it affected
construction and in some service sectors, the living standards of lower income earners.
where there has been the strongest recovery In 2022, nominal wages rose by 4.5%.
in output. Employers signal increasing However, due to high inflation, real wages fell
difficulties in finding available workers at the by 2.8% in 2022 and are not expected to
prevailing wages, which may add to the long- increase again this year. In parallel, the share
standing mismatch between demand and of people at risk of poverty or social exclusion
supply of more qualified workers. In fact, low- rose slightly to 25.2% in 2021, from 24.9% in
skilled individuals have high inactivity and 2020, after falling steadily between 2015 and
unemployment rates. The main cause of the 2019.
mismatch appears to be the insufficient or
ineffective provision of education and training. Income inequality remained above the EU
average in 2021. The share of households in
Educational outcomes in Italy remain low absolute poverty has been rising since 2005
and there is scope to expand firm-level (see Annex 14). Social services are fragmented
training. The education system is beset by and do not always sufficiently meet the needs,
long-standing structural problems, which the especially in the south. More action is needed
pandemic exacerbated. Social and regional to reach the 2030 poverty reduction target. It
gaps in achievement have also widened. remains unclear what will replace the citizens’
Despite recent improvements, Italy’s education income scheme, due to be suspended in 2024.
system performs below the EU average on With social spending concentrated on
most indicators. The share of people with pensions (4), the poverty risk for older people
higher education qualifications remains very (over 65 years) is lower than for the average
low, particularly in the scientific fields. In population. The risk of poverty and social
2021, less than half of the adult population exclusion is especially high for children, people
had at least basic digital skills and in 2019, with disabilities and people with a migrant
the share of ICT graduates was among the background. Italy has among the highest
lowest in the EU (see Annex 8). Participation in shares in the EU of temporary workers and
adult learning also remained below the EU self-employed workers, who have less access
average (2) (see Annex 14). A national survey to adequate social protection. This means the
of firms with at least 10 employees (3) reports risk of in-work poverty is higher than the EU
that in 2020, around two-thirds of firms average.
organised training, involving only 45% of
employees. This share will have to increase if The macroeconomic vulnerabilities
Italy is to reach its 2030 target of 60% of identified in the In-depth Review for Italy
adults participating in training every year. are slowly improving. (5) Italy's high public
debt-to-GDP ratio constrains fiscal policy,
The risk of poverty and social exclusion particularly in a rising interest rate
remains high. Italy has had negative real environment. Persistent low productivity
growth has also been a key factor behind
Italy’s protracted weak economic growth (see
(2) The indicator on adult learning participation over the
previous four weeks is used here, rather than the Annex 12). Despite making some progress,
indicator on learning over the previous 12 months, as Italy has persistently low participation rates,
Adult Education Survey (AES) data for the 12-month wide regional and gender disparities, and a
indicator are only available for 2016, while the new high rate of youth unemployment.
Labour Force Survey (LFS) indicator agreed for use in
the social scoreboard and as 2030 headline target on
skills will only be available in 2023. (4) https://ec.europa.eu/eurostat/statistics-
explained/index.php?title=Government_expenditure_on_
(3) https://www.istat.it/it/archivio/279433 social_protection
The share of companies offering training opportunities
increases with firm size; the large majority of Italian (5) European Commission (2023), In-Depth Review for Italy,
firms employing less than 10 people were not part of Commission staff working document (COM(2023) 634
the survey. final).
4
The banking sector has made significant research and innovation and on business-
progress in reducing legacy non- science links, despite recent improvements.
performing loans. However, contained risks
remain as the energy crisis may have a The high public debt remains a major
delayed impact on asset quality. The source of vulnerability for the Italian
corporate-sovereign-bank nexus intensified economy. Though it has started to fall, public
following the pandemic and the energy crisis. debt remains above the pre-pandemic levels.
The reforms and investments planned under Pressures related to an ageing population
Italy's recovery and resilience plan are compounds the debt sustainability challenge.
expected to mitigate these macroeconomic The guaranteed loans granted during the
vulnerabilities, provided they are fully pandemic increase fiscal risks. As a result,
implemented (see Annex 22 and the 2023 In- Italy's risks related to fiscal sustainability are
Depth Review for Italy). high in the medium term.
The tax system hinders economic
efficiency and growth. Italy's tax system is
Barriers remain to inclusive and prone to longstanding weaknesses. Shifting
sustainable growth the current high tax burden on labour to other
underused sources of revenue would be less
detrimental to growth. The complexity of the
Structural inefficiencies in the public system is exacerbated by widespread tax
sector discourage investment and slow expenditures. Taxes on energy are not
down productivity growth. The public designed to support the transition to clean
administration remains prone to ineffective technologies. Tax evasion remains high,
management and excessive red tape. Local although the countermeasures taken in recent
bodies, especially in the south, have difficulties years are starting to bear fruit.
in absorbing EU funds and in adapting to
change due to limited administrative capacity. Achieving the green transition requires an
The justice system still records among the increase in public and private investment.
longest times in the EU to reach decisions. It Though Italy performs well on some key
has a large backlog of cases, which sustainability parameters and private firms
undermines the overall effectiveness of rules are increasingly taking actions promoting
and curbs investment (see Annex 11). environmental sustainability (6), it lags behind
Government-to-business payment times are on energy efficiency, renewable energy roll-
often long, despite recent progress, and this out, the quality of energy infrastructure (in
has negative effects especially on SMEs. Italy particular internal electricity transmission) and
plans reforms under the recovery and on investment in green skills. Large-scale
resilience plan that have the potential to projects in the energy sector, a more agile
improve the situation. The above-EU-average national and subnational governance of
level of restrictiveness of regulated energy policy, as well as a more innovative use
professions is a drag on competitiveness (see of financing schemes (especially targeted to
Annex 12). the most vulnerable stakeholders) can help
reduce the country’s environmental footprint
Italy's research and innovation system and its dependency on energy imports.
still has untapped potential. Italy is a
moderate performer on innovation, according Italy’s southern regions still lag behind
to the European Innovation Scoreboard. Both on institutional capacity and social
businesses and the public sector spend less outcomes. Regional disparities are significant
than the EU average on research and in service quality and access, including in
innovation. The framework conditions are not healthcare. The public administration is also
fully conducive to innovation as Italy
underperforms on human resources for
(6) ISTAT 2023 - Pratiche sostenibili delle imprese - Anno
2022 e 2023-2024 (istat.it)
5
weaker, both on locally provided services (e.g. The recovery and resilience plan includes
transport, water, waste and risk prevention) major reforms and investments to tackle
and on services managed by the central Italy’s long-standing challenges. The
government (e.g. education and justice). For measures aim to overcome structural barriers
instance, public procurement procedures take and to boost investment and productivity
longer in the south. Undeclared work and the growth, including in the public administration,
shadow economy affect the south in education and skills, justice, competition and
particular, as do low employment rates and the business environment. These measures,
education outcomes (see Annex 14). combined with the EU Cohesion Funds, are
Depopulation in the south of the country, expected to help reduce regional disparities
including through internal migration, continues and accelerate the green and digital transition.
to drain the south of human resources that
could benefit business and social services.
Along with narrow and temporary measures
such as the cut in social security contributions
for new hires, a more structural and strategic
approach to boost territorial cohesion could,
for example, target administrative capacity
and the infrastructure gap. It could include
developing the internal electricity transmission
grid to support the roll-out of renewable
generation capacity in the south (see Annexes
7, 12 and 17).
Despite progress on most UN Sustainable
Development Goals (SDGs), structural
challenges remain. Italy made progress on
almost all indicators between 2016 and 2021.
It performs better than the EU average on
some sustainability dimensions and on health
and wellbeing, but there is room for further
improvement, notably on renewable energy
and sustainable transport. On fairness and
inclusion, Italy has not made enough progress
to close the gaps with its EU peers. Inequalities
by gender and for people with a migrant
background have even widened. More action is
needed to tackle structural challenges related
to poverty, employment, education and
productivity (see Annex 1). Significant regional
differences persist in all policy areas. Civil
society (notably the Italian Alliance for
Sustainable Development - ASviS), the national
statistics agency ISTAT, and the Ministry of
Economy and Finance play a key role in Italy in
disseminating data and analysis on the SDGs
and on well-being indicators (7).
(7) For national analysis see ISTAT, 2022, Rapporto SDGS
2022. Informazioni statistiche per l'agenda 2030 In
Italia, https://www.istat.it/storage/rapporti-temati-
ci/sdgs/2022/Rapporto-SDGs-2022.pdf; ASviS, 2022,
L’Italia e gli obiettivi di sviluppo sostenibile, Rapporto
AsviS 2022, https://asvis.it/rapporto-asvis-2022/.
6
Box 1: Energy policy response in Italy
Italy adopted several support measures to cushion the impact of higher energy prices
on households and businesses. The Commission's 2023 spring forecast projects their
gross budgetary costs to amount to 1.2% of GDP in 2023 (8). Most measures in 2023
are targeted to the most vulnerable households or firms, although the majority of the
energy support measures do not fully preserve the price signal to reduce energy
demand and increase energy efficiency. Italy is expected to fully phase out the support
measures by the end of 2023.
Notable measures include subsidies, in the form of a tax credit for the extra cost
incurred, to energy and gas-intensive companies, measures to control general system
charges in the electricity and gas sectors and a reduced VAT rate (5%) on the supply of
methane gas. The government extended the eligibility criteria for the social tariff for
electricity and gas, enabling a larger group of vulnerable households to benefit from
lower electricity and gas prices. It increased the cut in social security contributions for
workers below a certain income threshold in 2023, with a further 1 percentage point cut
for workers with an annual income below EUR 25 000 in addition to the 2 percentage-
point cut for workers with an annual income below EUR 35 000.
Italy adopted a national measure to apply Council Regulation (EU) 2022/1854 (9). This
meant that, in 2023, a 50% contribution is levied on corporate profits made by energy
companies in 2022 that are at least 10% higher than the average income reported in
the 2018-2021 reference period (10). The measure applies to companies operating in
the wholesale gas and electricity markets, including renewable electricity generators, to
companies producing and distributing oil and gas and to importers of electricity, natural
gas and petroleum products. The authorities estimate this measure to yield around EUR
2.5 billion.
Gas still plays a role in Italy's energy mix. The country has taken action to improve its
overall security of energy supply in view of decreasing its reliance on fossil fuels.
Specifically, Italy took measures to accelerate the roll-out of renewable energy,
especially photovoltaic and wind installations. The Italian government also promoted
energy efficiency programmes, e.g. setting a 25 degree Celsius floor on air conditioning
during the summer and extending the Superbonus scheme until the end of 2025, albeit
with diminishing incentives. To reduce demand, the Italian Transmission System
Operator defined special measures to maximise the use of coal and oil power plants to
reduce the share of gas used to generate thermoelectric power. Italy also updated its
gas shedding plans by considering restrictions for civil consumption and introducing a
legal obligation for retailers to deliver gas to protected customers. Lastly, Italy
temporarily increased storage obligations for the Energy Services Managing Authority
(GSE) in order to reach the 90% storage capacity target.
(8) For 2022, the gross budgetary cost of measures
amounted to 2.8% of GDP. All of the measures outlined
in this box were already in place in 2022.
(9) EUR-Lex - 32022R1854 - EN - EUR-Lex (europa.eu)
(10) Member States can keep national measures that are
equivalent to the solidarity contribution specified in
Council Regulation (EU) 2022/1854 provided they are
compatible with the objectives of the regulation and
generate higher or comparable proceeds. These
measures must also cover the extraordinary and
unexpected profits of businesses active in the
extraction of crude petroleum, natural gas, coal, and
refinery sectors.
7
THE RECOVERY AND RESILIENCE PLAN IS UNDERWAY
The Recovery and Resilience Facility (RRF) will they are key to achieve the ultimate policy
finance EUR 191.6 billion of investment in Italy objectives set out in the RRP, including in
over the period 2022-2026 (10.7% of GDP). terms of territorial cohesion objectives. In
Italy’s recovery and resilience plan (RRP) early 2023, the government amended the
includes 190 measures, with 132 investments governance framework for the coordination
and 58 reforms. Italy is the largest beneficiary and monitoring of the RRP. An effective and
of the Recovery and Resilience Facility (RRF) in fully operational framework remains key for a
absolute terms and one of four Member smooth and timely implementation of the
States that have requested loans. plan. Moreover, it continues to be crucial to
identify potential delays and implementation
The implementation of Italy’s recovery issues early on and to take timely action to
and resilience plan is underway, however address them.
with increasing risk of delays. Italy
submitted 3 payment requests, corresponding The RRP seeks to boost administrative
to 151 milestones and targets in the plan and capacity, which is key to raising
resulting in an overall disbursement of EUR 42 productivity and to implementing all RRP
billion (referring to the first two payment measures. Following the recruitment of
requests submitted). Proceeding swiftly with 1 000 experts and the roll-out of technical
the implementation of the plan and the assistance, in 2022 Italy adopted a public
negotiation of its amendment is essential due employment reform. It updates job profiles,
to the temporary nature of the Recovery and increases mobility between departments,
Resilience Facility in place until 2026. The improves hiring and appointment procedures,
negotiation on the addendum and REPowerEU improves the gender balance, modernises
chapter is ongoing but Italy has not submitted performance evaluation and strengthens the
any official proposal. Italy has formally link between lifelong learning and reward
expressed interest in requesting additional mechanisms. Full implementation will be key
loans. to ensure the reform has a positive and
structural impact.
The following, more detailed review of
measures being implemented under the RRP Measures under the RRP are expected to
does not constitute a formal Commission cut red tape and benefit the business
approval or rejection of any payment environment in Italy, provided their
requests. timely and full implementation. The public
procurement reform aims to speed up
Italy has achieved important milestones tendering procedures, increase e-procurement
included in the RRP, and continuous and professionalise public buyers. These
effective implementation remains measures are also important to enable Italy to
pivotal. The RRP aims to address structural absorb the RRF and Cohesion Funds available.
barriers holding back investment and The RRP also seeks to simplify interactions
productivity growth. Reforms have started, with businesses and citizens (following the
notably in public administration, justice, ‘once-only’ principle in the Single Digital
competition, education and labour policies. The Gateway) and to speed up the average
authorities are running investment projects payment time by the public administration to
that are feeding through to final beneficiaries. 30 days (1) by end 2023.
However, numerous steps lie ahead to
implement the reforms and investments and
8
The RRP aims to remove barriers to management, including assistance to run
competition and private investment. The tender procedures, to ensure that concessions
2021 Annual Competition Law (adopted in late are granted in a transparent and non-
2022) will remove barriers to competition in discriminatory manner, thus reducing the risk
local public services, local public transport, gas of criminal activities and improving the quality
distribution, hydropower, electric charging and of public service. The RRP also proposes
waste. The package includes measures to measures to fight tax evasion and tackle
accelerate the liberalisation of electricity and undeclared work (see below).
gas retail markets. It brings merger control in
line with EU rules. Under the RRP and as part A reform to combat undeclared work
of the Annual Competition Law 2023, Italy started in 2022. The government approved
aims to improve competition in the road the national plan and roadmap at the end of
transport on highways by making the 2022. With full implementation in 2025/2026,
tendering of concession contracts mandatory inspections are expected to increase by 20%
and by reducing in-house provision. These and undeclared work to decrease by 2
measures are expected to attract private percentage points.
investment, reduce fragmentation, achieve
proper regulatory oversight and RRP measures are expected to reduce tax
professionalise public-service management. evasion and improve the efficiency of
public spending. The plan includes measures
Italy has continued the reform of its civil to counter tax evasion and encourage tax
justice system. Under the RRP, Italy compliance, such as integrated databases and
committed to reduce by 40% the disposition pseudonymised big data to better target
time at three instances of civil justice by 2026. audits and checks. In addition, it will reduce
In 2022, the government complemented the compliance costs and improve the fulfilment
civil justice reform initiated in 2021 with the of obligations by bringing in prefilled VAT tax
delegated acts to reduce the length of returns. On public spending, Italy sets savings
proceedings by simplifying procedures and targets to be achieved and yearly spending
increasing the productivity of courts. Italy has reviews over 2023-2025 under the reinforced
also taken further steps to implement the spending review framework. It will reclassify
insolvency reform by adding more detail to the the general State budget to better monitor
2021 legislative initiatives. Lastly, Italy has environmental and gender-equality-related
carried out a comprehensive tax justice reform expenditure. Lastly, the RRP plans to complete
by creating a new category for professional the fiscal federalism, expected to increase
tax judges and by adopting new rules that aim transparency and encourage spending
to make the enforcement of tax law more efficiency across all government levels.
effective and reduce the inflow of tax cases to
the Court of Cassation. Action under the RRP is supporting Italy’s
digital transition. The plan includes an
Several reforms support efforts to fight ambitious programme to digitalise Italy's
fraud and corruption. Italy has committed to public administration worth EUR 6 billion. It
reducing by 25% the disposition time at three also plans to invest EUR 6.7 billion to complete
criminal instances by 2026. Italy has the national ultra-fast and 5G
continued to pursue the 2021 criminal justice telecommunications network and EUR 13.4
reform by adopting delegated acts. The aim of billion to digitalise businesses.
the reform is still to reduce the excessive
disposition time, given the negative impact Two reforms were adopted to foster the
this has on prosecution and on the digitalisation of public administration.
adjudication of corruption cases. It will require The aim of the reforms is to streamline public
continued monitoring of its effectiveness, procurement of ICT services, support the
particularly at the appeals level. On waste migration to cloud solutions and improve data
management, Italy has adopted an action plan exchanges between public administrations.
to support local authorities on waste
9
Italy has awarded all contracts for the The RRP is boosting public and private
roll-out of ultra-fast internet connections investment to support Italy’s green
to improve connectivity. This will focus on transition. Italy’s RRP envisages significant
poorly connected households (Italia a 1 Giga), investments in energy efficiency in residential
remote areas (Italia 5G), schools, healthcare and public buildings (EUR 15.3 billion), in
facilities and smaller islands. sustainable mobility (EUR 34 billion) and
renewable energy, in the circular economy and
Italy is taking measures to support the in improving waste and water management
digitalisation of firms, to diversify and to (EUR 11.2 billion).
internationalise small and medium-sized
enterprises. The Annual Competition Law Major investments have started to reduce
adopted in 2022 will reduce the number of the country's dependence from fossil
days it currently takes to start a business. The fuels and to increase energy efficiency.
programme Transizione 4.0 is set to accelerate The government has awarded contracts for the
the digital transition of firms by offering tax development of factories producing batteries,
credits to invest in technologically advanced photovoltaics, and electrolysers. The aim is to
goods, research and development and training expand the production of renewable energy
for an estimated cost of EUR 13.4 billion under and to change the energy mix, which is still
the RRF. Italy has committed to supporting highly dependent on fossil fuels (see Annex 1
women-owned start-ups and research projects and 7). Once the investments are fully
of national interest. Italy will also help small implemented, the production capacity of
and medium firms expand internationally. photovoltaics is expected to increase from 200
Under the RRP, Italy plans to earmark MW to at least 2GW per year and the
additional resources to a fund to support production of batteries to at least 11 GWh.
Italian companies in contributing to important The government has also awarded contracts
projects of common European interest (IPCEIs). for investing in green communities and for the
To this end, Italy launched calls for expression green transition in a number of Italy’s small
of interest and allocated funding for national islands. Schemes have started to expand the
projects, notably in micro-electronics and cloud use of clean energies and to improve the
computing, to better integrate Italian firms in logistics and energy efficiency of the agri-food
EU value chains and strengthen the country’s sector. Investments underway include
position in advanced technologies. contracts to strengthen the electricity grid to
expand the network capacity to handle the
Under the RRP, Italy adopted a distribution of renewable energy. These
comprehensive R&D reform in 2022 and contracts also aim to make the network more
major investments are underway. The resilient to hydrogeological risks or adverse
reform promotes a more systematic approach weather conditions.
to R&D by creating a simplified model for
selecting research projects, in line with Italy is rolling out investments and
international best practice. The Ministry for reforms to improve the sustainability of
University and Research will coordinate the the transport sector. The government has
selection process to reduce dispersion and awarded contracts for the deployment of at
fragmentation of research priorities. The least 3 600 Km of the European Rail Traffic
reform simplifies researcher careers and Management System (ERTMS), which will
creates incentives to promote mobility of high- make Italy's rail network interoperable with
profile figures between academia and Europe. Italy has adopted legislation reducing
business, strengthening business-science links. the time needed to authorise and implement
In 2022, contracts were awarded for major rail projects. Port authorities have started
R&D investments, in particular in research and investments and have assigned works to make
innovation infrastructures, national leaders on ports more sustainable and energy efficient.
enabling technologies and innovation
ecosystems. Italy expects to complete these Italy has revised its water sector
investments in full within the RRP timeframe. governance to reduce fragmentation and
10
make water management more efficient. have dropped out or are at risk of dropping out
The government has adopted legal acts from education. Digital equipment and
making a single operator responsible for infrastructure will be upgraded under the
providing an integrated water service (Servizio School 4.0 plan and other investments
Unico Integrato) in every district, known as the envisaged by the RRP. Investments to expand
Ambito Territoriale Ottimale. This reform and improve school infrastructure, notably in
reduces fragmentation in water management early childhood education and care facilities,
and is expected to improve efficiency. Other are also included.
legal changes increased the penalties for
illegal water extraction, better aligned fees Improving young people’s employment
with the polluter-pays principle and aim to prospects and tertiary education
curb the expansion of irrigation systems. The qualifications remain priorities. Italy
reform also shortened the deadlines for adopted comprehensive reforms of tertiary
authorising and implementing projects related and higher education. These include measures
to water infrastructure and hydrogeological on PhD programmes, degree recognition to
risks. help students access the jobs market in
regulated professions and to group university
Italy has adopted reforms to accelerate degrees. The reforms adopted in 2021 are
the green transition. The milestones and complemented by investments in student
targets for the three first instalments of the housing. The 2022 reform to strengthen
RRP included the adoption of a national tertiary vocational training should also help
strategy for the circular economy, a national reduce skills mismatches on the labour
waste management programme and creating market. The RRP includes action to expand the
fiscal incentives to produce and consume universal civil service programme, which
renewable energies such as biomethane or enables young people to participate in
green hydrogen. The national strategy for the volunteering schemes to boost their skills and
circular economy includes a roadmap with job prospects.
deadlines to scrap environmentally harmful
subsidies, to promote the circular economy, to A new active labour market policy system
set up a new system of waste traceability, to and investment to boost the capacity of
adopt fiscal incentives to recycle and re-use public employment services both promote
materials and to increase landfilling taxes. up-skilling and re-skilling. The
Italy has also adopted legislation to streamline effectiveness of public employment services
projects to renovate buildings and other and adult participation in training remain low
energy efficiency projects in general. in Italy (see Annex 14). The reform of active
labour market policies brought in a national
The investments and reforms underway programme for the guaranteed employability
are also expected to improve educational of workers in 2021 and aims to combine job
outcomes. The comprehensive reforms of search and training services to provide tailored
primary and secondary education adopted in pathways to employment. The programme
2022 include action to improve the academic started to reach the first beneficiaries in 2022,
guidance system in secondary schools, align including people facing poverty, receiving
the curricula of technical and professional strengthened social services and young people
institutes with local labour market needs and neither in employment nor in education.
to foster students’ skills in science, technology,
engineering and maths. The teaching reform The RRP seeks to reduce the gender
adopted in 2022 is expected to enhance the employment gap and to create more
quality of teaching. The government plans to inclusive conditions in the private sector.
approve further implementing acts in 2023 Italy has one of the highest gender
(see Annex 15). The reforms will be employment gaps in the EU, especially in
complemented by investments to expand southern regions (see Annex 14) and the gap
vocational education, to train teachers and due to care responsibilities has widened (see
school staff and to mentor young people who Annex 1). To support women in joining the
11
labour market, the government set up the fund The RRP is expected to help improve
Impresa-donna in 2021 to support new or territorial cohesion across the country.
expanding businesses led by women. To meet Italy aims to allocate an indicative share of
the need for family care services, the plan 40% of RRP funding (including the national
includes investments to increase early complementary plan) to the south. The
childhood education and care services (for planned investments in infrastructure are key.
children between 0 and 6), long-term care and Italian authorities have committed to awarding
services for vulnerable families. contracts to upgrade 680 km of regional
railway lines and to extend 5G coverage to
The RRP aims to improve social inclusion 15 000 km2 in ‘market failure areas’ by 2022.
and prevent marginalisation. Italy has The south will also benefit from projects to
launched a reform and has begun investing in boost administrative capacity and improve
support for people with disabilities, along with public services, including reforms of
investments in adequate housing and in administrative procedures, waste and water
revitalising urban areas. The plan includes management, and the justice system. By end
measures to improve social services and their 2023, the Italian government expects to start
coverage across the country. The 2021 infrastructural projects of primary urbanisation
Framework Law on Disability brought in a work to foster competitiveness and economic
more multidisciplinary disability assessment development in special economic zones in the
and promoted autonomy and non- south. Lastly, in 2022, the government began
institutionalised care. For 2023, the next steps investment programmes to improve social
are expected to be the implementing decrees services and infrastructure in remote inland
of the reform of disability and a reform of the areas.
non-self-sufficiency condition. In 2021, the
government approved an operational plan to
invest in support measures for vulnerable
families and children, elderly people and social
workers. In 2021 and 2022, it approved
official plans and agreements to start
investing in public and social housing,
temporary housing with services for homeless
people and adequate housing solutions for
workers in agriculture.
Action under the RRP is also boosting the
resilience of Italy's health system and
improving access to territorial healthcare
across the country. The 2022 reform of
territorial healthcare sets up new proximity
healthcare structures (including community
health houses, community hospitals and
coordination centres) and brings in new
standards. The reform and complementary
investments are expected to improve proximity
and access to healthcare services and alleviate
pressure on hospital care. The investments
needed to make the reform operational
started in 2022 but major implementation
steps remain pending as these structures are
expected to become operational gradually by
2026. In 2022, Italy also began investing in
telemedicine and technological and in digital
equipment for hospitals.
12
Box 2: Key deliverables expected under the RRP in 2023/2024
Justice reform. Italy has adopted the enabling and implementing legislation to
underpin the civil and criminal justice reform. Follow-up action expected in 2023 will
include the entry into force of the secondary acts needed to complete the reform
process and the corresponding acts on digitalisation of the justice system. In 2024, Italy
is expected to finalise the recruitment of temporary staff for civil, criminal and
administrative courts to reduce the backlog of cases and the length of proceedings over
the period 2024-2026.
Public administration reform. Italy plans to roll out the reform of public employment,
to streamline administrative procedures in a structural manner and roll out cloud
services.
Business environment. Italy plans to adopt the 2022 Annual Competition Law,
complete the public procurement reform, reform the industrial property system, make
progress on the Transizione 4.0 plan and reduce late payments by the public sector.
Government finances and taxation. Measures will improve and interlink datasets to
better target tax audits and controls and will be coupled with an increase in the number
of compliance letters sent. Pre-filled VAT tax returns are expected to result in lower
compliance costs for taxpayers. Key deliverables also envisage improved operational
capacity of the tax administration, the completion of two-yearly cycles of spending
reviews, adoption of a classification of the State budget providing evidence of public
expenditure to promote the green transition and gender equality.
Green transition. Key deliverables in this area include adopting a national strategy for
the circular economy, a national waste management programme, the new framework to
integrate water services, hydrogen, tenders for key railway infrastructure investments,
including high-speed rail services to the south, and action to simplify administrative
procedures.
Digital transition. Key deliverables expected in this area are investments in
cybersecurity, the National Digital Data Platform, digitisation of central public
administrations, contracts signed for cloud services for local public administration, for
satellite investments and to boost the competitiveness and resilience of supply chains. It
will include support to select firms to participate in important projects of common
European interest (IPCEI), national ‘R&D leaders’ on key enabling technologies, to run
tenders for the European Rail Traffic Management System, and lastly action to provide
at least 18 small islands with ultra-broadband connectivity.
Jobs market, skills and social policies. Key deliverables include a reform of services
for non-self-sufficient elderly people, the adoption of implementing decrees to reform
of the framework law on disability, and full implementation of the actions under the
reform to combat undeclared work. They include investing in women-led businesses, in
the universal civil service programme, and in infrastructure to boost territorial cohesion
across southern and rural areas of the country.
Education. Action under this part of the plan includes awarding contracts for investing
in childcare facilities, in increasing university scholarships and in the provision of
educational support to under-aged people living in the south of the country.
Health. Lastly, action expected in this area includes starting operations of territorial
coordination centres, providing large-scale health equipment and action to provide
scholarships for GP training courses.
Source: CID Annex.
13
FURTHER PRIORITIES AHEAD
In addition to the challenges tackled by Italy’s appropriate fiscal adjustment and ensuring
recovery and resilience plan, Italy faces other growth-enhancing expenditure.
challenges that warrant close attention. They
concern pension expenditure, taxation, the Ageing and the surge in inflation are
fiscal framework, demographic trends and expected to increase pension expenditure.
energy-related challenges. Tackling these Pension expenditure in Italy is among the
challenges in a coordinated way could highest in the EU as a share of GDP, which
contribute to sustainable, long-term and limits the resources available for growth-
inclusive growth. It would also help drive enhancing expenditure (see Annex 21).
progress to achieve the UN Sustainable Following the surge in inflation, pension
Development Goals, not only the goals expenditure started increasing in 2022.
immediately related to macroeconomic Despite the change to the pension indexation
stability and the green transition, but also the mechanism, spending on pensions is expected
goals related to productivity and fairness. to accelerate over the coming years. It will
continue to rise over the medium term as the
population ages, despite earlier reforms to
improve long-term sustainability. The policy
Fiscal sustainability remains a measures taken in recent years increase
source of concern pension expenditure over the short to medium
term. According to recent estimates, the early
retirement scheme introduced in 2019 (Quota
Italy's public finances still face risks in 100), amended in 2022 and 2023 to make
the medium and long term. The withdrawal access gradually stricter, is expected to have
of COVID-19 pandemic support measures and increased pension expenditure by around EUR
a strong recovery translated into large gains in 25 billion from 2019-2022 (11). Italy also
revenue. This has brought down the deficit and adopted other temporary early retirement
debt ratios, despite significant expansionary schemes for women and vulnerable workers.
measures and the exceptional increases in The average effective retirement age was 63.9
energy prices. The declining trend in deficit and years at the end of 2021, well below the
debt levels is expected to continue for the statutory age of 67. To ensure Italy's pension
following years, partly due to action to scale system is sustainable over the long term, it is
down the energy compensatory measures. As essential to implement the 2011 reform in
a result, Italy's fiscal sustainability challenges full.
are deemed to be limited in the short term
(see Annex 21). However, given the high level
of government debt and projected costs
related to the ageing population, Italy's fiscal Italy’s tax system hinders
sustainability risks are high in the medium economic efficiency and growth
term and medium in the long term. The higher
cost of funding is a drag on expenditure,
though the impact is gradual. Structural Despite recent changes to the tax system,
reforms, including setting up a tax system the tax burden on labour remains high.
better geared to growth and improving the The cut in personal income taxes introduced in
design of fiscal policies, are crucial to boost
economic growth. Rationalising and reviewing
current expenditure and improving tax (11) MEF, Le tendenze di medio-lungo periodo del sistema
compliance would help in achieving an pensionistico e socio-sanitario 2022, November 2022.
14
2022 marginally decreases the tax burden on increased further in 2022. Although revenue
labour, especially for middle income earners. from environmental taxes is above the EU
The government also reduced tax on low- average, largely driven by taxes on energy, the
income earners as a temporary measure to current structure of energy taxes does not
counter the economic and social impact of the sufficiently promote the transition to cleaner
exceptional rise in energy prices. Nevertheless, technologies. Lastly, frequent changes in tax
tax on labour remains high compared to other policy increase uncertainty in the economy,
EU Member States (see Annex 19). making the tax system more complex and
increasing the burden on compliant firms and
Extended flat-rate tax schemes for the households. Ongoing delays in implementing
self-employed increase complexity and effective competitive procedures for awarding
reduce fairness. The 2023 budget introduced licences to run maritime, lakeside and riverside
two provisions that lower taxes on self- facilities for leisure and tourism (beach
employed workers and other individual concessions) remain a source of concern and
entrepreneurs. First, the government extended imply a significant loss of revenue. Although
the scope of the simplified tax regime by the government had made some progress in
increasing the income threshold from EUR reforming the sector by adopting the 2021
65 000 to EUR 85 000. Second, a one-off flat- Annual Competition Law (law 118/2022),
rate tax in 2023 only of 15% is available for subsequent legislative initiatives that granted
individual firms that do not apply the flat-rate further extensions were tabled, hampering
regime. The design of this flat-rate tax is progress on the reform of the sector.
complex, as it only extends to income
increases in 2023 over the highest income The recent proposal for reforming the tax
declared in the 2020-2022 period. These two system increases risks related to equity.
measures are small in scope and affect a On 16 March, the government presented a
limited number of taxpayers, they raise new draft enabling law to reform the tax
concerns in terms of the equity and efficiency system. The draft law provides for the
of the tax system since they reduce the wealth transition to a general flat-rate tax regime for
redistribution effect, imply different taxation personal income taxes in the medium term,
levels across taxpayer categories and create a including by reviewing tax rates and brackets
disincentive for businesses to grow. and confirming the flat-rate tax on earning
Furthermore, a rising share of self-employed increases. It includes a redesign of corporate
workers (Italy already has a higher share than taxation to set lower tax rates on reinvested
the EU average) could be eligible for relatively profits and on new hires. It provides for
lower pension contributions, putting pressure progressively phasing out the regional tax on
on the sustainability of the welfare system. productive activities (IRAP) and integrating it
into corporate tax. It comprises changes to tax
Overall, the taxation system hinders collection, recovery procedures and the system
economic efficiency and growth and does of penalties, as well as the introduction of a
not sufficiently promote the green simplified tax settlement system. It also
transition. Compared to other EU Member includes the mandate to streamline tax
States, the tax burden in Italy is skewed more expenditure, including reduced VAT rates, and
heavily to production, and therefore is not simplify certain VAT rules, including VAT on
conducive to economic growth. The extended immovable property. Following the adoption of
use of reduced rates partly explains the low the draft law by Parliament, the government
level of revenue that Italy receives from value- will need to adopt implementing decrees
added taxes compared with other EU Member within 24 months. To implement the law, it will
States. Although data on real estate is be crucial to maintain the progressive nature
collected in a single digital platform, Italy's of the tax system, reduce complexity, increase
long-awaited revision of cadastral values to the incentives to work and step up past efforts
properly reflect market values remains to combat tax evasion. In particular, reducing
pending. In addition, tax expenditures, which the number of personal income tax brackets
create distortions and reduce revenue, risks hampering the progressivity of the tax
system. It will also be important to ensure that
15
tax collection measures that aim to reorganise statutory personal income tax rate from 43%
some categories of tax debits and sanctions to 49% could finance this relief for low and
do not weaken incentives to tax compliance. In middle wage earners. This would come,
addition, the draft delegated law does not however, at the cost of increasing the already
mention the revision of cadastral values. high tax wedge on higher incomes. Overall, the
Lastly, it is crucial that the reform is modelling shows that this reform of the
implemented in a budgetary neutral way also personal income tax would reduce poverty by
in light of fiscal sustainability challenges in the 1.0% and inequality by 1.2%. (15) The
medium and long term. reduction of the tax wedge on lower income
earners is expected to increase labour market
A comprehensive tax reform could reduce participation rates and hours worked by 0.7%
the high tax wedge on labour. A budgetary and 0.6%, respectively, for single women and
neutral reform could shift taxation from labour by 1.1% and 1.0% for single men.
to other sources deemed to be less
detrimental to growth. Possible options include
reviewing reduced VAT rates and their product
scope, redesigning environmental taxation and
Proposals to increase regional
subsidies to promote the green transition, autonomy risk increasing the
redesigning inheritance and gift taxes, and complexity of the fiscal framework
reconsidering property taxes on owner-
occupied properties (12). As an example of a
targeted reduction of labour taxes, EUROMOD The government adopted a framework
simulations (13) by the European Commission law on regional differentiated autonomy.
Joint Research Centre show that an increase in In February 2023, it adopted a framework law
the personal income tax credit for the first with provisions to implement differentiated
income bracket from EUR 1 880 to EUR 2 280 levels of autonomy of regions with ordinary
and a similar tax credit increase for the second statute at the request of the regions. This
and third income brackets (14) would reduce would both grant these regions wider
the labour tax wedge by 1 pp for single competencies and enable them to retain more
earners on an average wage and by 2.2 pps resources, which would no longer be managed
for single earners on 50% of the average or allocated at central level. Regions can only
wage. This would considerably narrow the gap be granted this level of autonomy following
above the EU average to about 1 pps. For the definition of essential level of services and
earners on 66% of the average wage, the tax their financing, which is a crucial and complex
wedge would fall below the EU average by exercise, warranting detailed analysis and
about 1 pp following a reduction by 1.5 pps. thorough consultation of all stakeholders. The
Without shifting taxation from labour to other law requires that this reform must be budget-
sources, a simultaneous increase in the top neutral for the general government budget.
However, without additional resources, it could
prove difficult to provide the same essential
(12) For a EUROMOD-QUEST simulation on property taxes,
see European Commission (2020), Country Report Italy
levels of services in regions with low historical
2020, Box 4.1.1, p. 31. expenditure, also due to the lack of an
equalisation mechanism. Overall, the reform
(13) EUROMOD is the tax-benefit microsimulation model for
the EU. For more details on EUROMOD, see Sutherland, envisaged under the new framework law risks
H. and Figari, F., EUROMOD: the European Union tax- jeopardising the government's ability to steer
benefit microsimulation model, International Journal of public spending. This could have a negative
Microsimulation, 2013, vol. 1, issue 6, 4-26. impact on the quality of Italy's public finances
(14) The formula for the second income bracket (EUR and on regional disparities.
15,000 to EUR 28,000) would change from
1,910+1,190*(28,000-taxable income)/13,000 to
2,280+1,190*(28,000-taxable income)/13,000, and the
formula for the third income bracket (EUR 28,000 to (15) Changes in poverty and inequality are measured
EUR 50,000) would change from 1,910*(50,000- against a poverty line at 60% of median equalised
taxable income)/22,000 to 2,280*(50,000-taxable disposable income and a Gini indicator of equalised
income)/22,000. disposable income, respectively.
16
faces greater challenges in the education
Demographic challenges keep system (see Annex 15) and a much higher risk
worsening of poverty and social exclusion than the
Italian-born population (44.4% vs 22.6%),
even though their employment rate is
With 2022 birth rate at a historic low, comparable.
demographic trends indicate that the
working-age population continues to fall High-skilled people are relocating from
and the brain drain is worsening. Italy has the south of Italy to the north. Italy also
one of the EU’s lowest birth rates, recording a faces the challenge of domestic migration,
negative natural demographic balance for the which leads to population decline and
tenth consecutive year. According to ISTAT, exacerbates the brain drain in southern
Italy registered record low births in 2022 regions, where the unemployment rate is
(393 000), the lowest level since Italy’s higher and access to services is lower.
unification, against a high level of deaths Between 2011 and 2021, all southern regions
(713 000). This is coupled with an increasingly recorded an average annual decline in
ageing population and a shrinking workforce population (see Annex 17). Between 2012 and
(see Annex 14). With younger generations 2021, southern regions lost around 130 000
progressively smaller in number and life tertiary graduates to northern and central
expectancy increasing over the last decades, regions (16). This domestic migration is driven
the ratio of elderly people to people of working strongly by regional differences in the job
age is high and increasing. This poses serious market and the availability and quality of
challenges, including for the sustainability of education and social services. These trends
public finances. International migration is also hinder the short and long-term economic
having an effect on the skills levels of the development of southern regions and have an
workforce as higher-skilled workers are adverse effect on skill levels.
emigrating compared to the skills level of
immigrant workers (the brain drain Several policy measures could be taken
phenomenon). At the same time, internal to tackle the negative demographic trend.
migration flows exacerbate regional The low birth rate is due to several factors,
disparities. including the lack of access to quality and
affordable services, late entry in the job
The migration balance is positive but it is market, unfavourable working and social
no longer enough to offset the low birth conditions for young people, the high tax
rate and population ageing. Integrating wedge on second earners, and insufficient
people with a migrant background also work-life balance policies, in particular for
remains a challenge. In 2021, based on mothers (e.g. flexible working arrangements,
official registers, some 361 000 people leave policies, childcare and long-term care).
migrated to Italy (up 13.3% since 2021), and Policies to tackle the demographic challenges
slightly fewer Italian residents left the country, have traditionally been based on bonus
down to 132 000 (17% less than in 2021). In transfers and tax credits. No comprehensive
evaluation or impact assessments have been
2021, 25% of emigrants had at least a
degree. Based on the last available data carried out or planned to our knowledge. The
(2018), around 19% of Italian PhD graduates recent introduction of a universal child
(many with a STEM background) find jobs allowance might help increase the birth rate in
the long term, but it should be complemented
abroad due to the lack of job opportunities in
Italy, even for tertiary graduates, and due to by investment in care services, which could
low salaries in Italy (see Annex 11). The further support birth rates and in enabling
average skills level of migrants attracted by women to work. Similarly, Italy should step up
current immigration policies is lower than that measures to promote, equal opportunities and
of Italian-born (54.7% of non-EU born
migrants are low skilled and 13.4% are high- (16) Istat, Report Migrazioni Interne E Internazionali Della
skilled (2020)). The immigrant population also Popolazione Residente, 9 February 2023.
17
the work-life balance, such as healthcare and the capacity of existing pipelines and gas
adoption policy measures to remove obstacles interconnectors with North Africa, although
and facilitate parenthood. Lastly, demographic existing infrastructures are still not used to
trends would benefit from policies improving their full capacity. However, Italy is still
labour market conditions and increasing its dependent on Russian fossil fuels and further
inclusiveness, particularly for young people. To efforts towards diversification are needed to
this end, it will be key to fully and swiftly ensure security of supply. There is limited
implement several measures included in the capacity of the network to distribute any
recovery and resilience plan (see Section 2). possible new gas intake from south to north. A
higher level of ambition on electrolysers and
Migration policies can also help tackle more cooperation on the biomethane supply
the unfavourable demographic dynamics chain could help make these investments
in the short term. These include the swift future-proof. Finally, while energy prices have
transposition and implementation of the EU decreased, uncertainty remains regarding next
Directive on the Blue Card, reflecting the winter, which requires continued efforts to
competences and skills needed by businesses. structurally reduce gas demand.
Past measures to attract Italian workers back
to Italy, such as rientro dei cervelli (17) and the In addition to diversifying the supply of
follow-up agevolazione impatriati (18), could be gas, Italy has the potential to expand the
extended to non-Italian citizens and better uptake of renewable energy. The share of
targeted. For instance, the agevolazione renewable sources in the electricity production
impatriati scheme could target workers based mix has stagnated at around 40% since 2013
on their skills, rather than simply providing (see Annex 6), but momentum is building,
fiscal benefits for workers who move their especially for photovoltaic and offshore wind
fiscal residence to Italy. Complementary farms (see Annex 7). Reducing Italy’s reliance
policies could help attract and retain high- on fossil fuels is an essential part of ensuring
skilled workers. These could include easier security of supply. Moreover, hydropower
recognition of skills for non-EU country remains the leading source of renewable
nationals (for which Italy receives support energy (providing 15.9%) but, as climate
under the Technical Support Instrument and change worsens and water becomes scarcer,
under the EU Skills Profile tool), and measures shifting to solar and wind energy (which
to improve job market conditions, quality together provided 16.1% of electricity
education and social services. production in 2021) is pivotal to Italy's long-
term renewable energy security.
Resolving the bottlenecks on the internal
Infrastructure bottlenecks and electricity transmission grid is a key
governance restrictions may priority for Italy to integrate further
undermine the green transition renewable generation capacity and
and energy security ensure the efficiency of the energy
system. Around 90% of installed renewable
capacity is linked to low and medium voltage
Italy has improved the security of its gas distribution networks, which are then more
supply. In the wake of Russia's war of likely to generate excess energy as the
aggression in Ukraine, Italy diversified its gas production of renewable electricity increases.
supply to Libya, Algeria and Azerbaijan. It met Since the grid was designed for one-way
its gas storage obligations and increased the operation, any update of excess capacity to
capacity of liquefied natural gas facilities (see the higher voltage network risks undermining
Annex 7). Discussions are ongoing to increase the security of the electricity system. Scaling
up the measures in the recovery and resilience
plan and the 2021 ten-year network
(17) Decreto Crescita, Decree No. 34/2019 development plan would help upgrade the grid.
(18) Support for returning expats, Decree No. 124/2019.
18
So far, measures taken to simplify the including tax measures, but the surge in
process have not systematically resulted energy prices has put them at further risk (see
in a faster roll-out of renewables. In line Annexes 7 and 8). The complete phase out of
with the recovery and resilience plan, Italy has regulated markets for gas and electricity can
simplified the permitting process (Annex 12), help bring down prices for households and
but often by amending numerous previous microenterprises. Italy's national energy and
norms and blurring the overall legislative climate plan includes other structural solutions
framework. Streamlining amendments into a but they are not yet priorities. Public incentives
unique legislative text (Testo unico) could help for residential renovations are limited and do
make the framework more transparent and not always target the worst-performing
accessible to investors and policymakers. The buildings or vulnerable households.
regional legislative frameworks are uneven
and inconsistent and the national guidelines Italy would benefit from adopting
regions rely on to assess project proposals are sustainable soil management practices
outdated. Local energy plans lack strong (e.g. regenerative agriculture, carbon
mechanisms to monitor the achievement of farming). Healthy soils are an integral part of
targets. To attract investors, it would be enhancing land ecosystems. The main
helpful to have a fully digitalised procedure to challenges are to maintain soil quality,
obtain permits, especially for small-scale including organic content and soil's water
renewables, easier access to information on retention properties. Adopting sustainable soil
grid status and the availability of connection management practices would contribute to
substations, and a central contracting increasing soil carbon content and soil
authority (stazione appaltante). Despite some productivity, to reducing inputs and energy
progress, obstacles remain to competition for consumption in agricultural processes, and to
hydropower concessions, especially at curbing the negative effects of climate change
subnational level. by rebalancing soil-water processes and
counteracting the effects of increasingly
Italy has considerable energy efficiency frequent floods and droughts. Italy has the
potential (see Annex 7), but there are few highest risk of water soil erosion in the EU (20).
policy tools available to tap the potential. In terms of soil quality, the content of organic
There is limited take-up of financial carbon in Italian soil is lower than it is in most
instruments like the National Energy Efficiency EU countries (21), with an estimated loss of
Fund, innovative financing schemes such as 15ha/day due to soil sealing and erosion (22).
on-bill financing, energy performance The loss of the soil ecosystem has a projected
contracting, and pay-for-performance cumulative cost between 2012 and 2030
schemes. However, these schemes could help ranging from EUR 78.4 to EUR 96.5 billion (23).
mobilise private investments in energy Between 1980 and 2020, only around 6% (24)
efficiency and intercept an upward trend in of disaster losses were insured in Italy. Italy
venture capital invested in climate tech start- appears to be particularly vulnerable to floods.
ups and scale-ups, which is slowly catching up The current protection gap for floods in
but remains significantly below OECD peers
(see Annex 7). Uptake of the 'white
certificates' scheme (19) remains low with no
sign of an appetite to expand. (20) ESTAT Agri-environmental indicator - soil erosion -
Statistics Explained, European Commission/JRC Soil
Tackling energy poverty remains critical Atlas of Europe, pp 110-6.
to secure the energy transition. Italy has (21) European Commission/AGRI Soil Quality; European
taken measures to reduce the energy bill for Commission/JRC Top Soil Organic Carbon Content.
households and firms in the short term, (22) ISPRA, Yearbook 2021 in figures p. 120.
(23) ISPRA, Consumo di suolo, dinamiche territoriali e servizi
(19) White certificates are tradeable assets, which certify ecosistemici, Edizione 2022.
that a reduction of end-use energy consumption has
been attained as a result of measures and projects to (24) Disaster Risk Financing: Limiting the Fiscal Cost of
increase energy efficiency. Climate-Related Disasters (Radu, 2022)
19
Italy (25) suggests that the insurance coverage in 2015 to 1.5% in 2021), with both sectors
remains low compared to projected risk, and below the EU average of 3.6% and 1.9%,
this could result in losses to be covered by the respectively, in 2021 (27). In 2022, labour
public sector, thereby potentially posing a risk shortages were reported as a factor limiting
to public finances. industrial production (for 6.0% of firms) and
construction (for 13.9% of firms) (28). The lack
Sustainable transport in Italy is of environmental skills in the public sector,
struggling to gain momentum. The market notably at local level, is also constraining
for zero-emission vehicles is consolidating and green investments (29). Upskilling and reskilling
would benefit from action to expand the workers to participate in the green transition,
infrastructure (for example, Italy has 6.7 including in occupations and regions that are
charging outlets every 100 kilometres, set to be the most affected (30), and promoting
compared to the EU average of 8.9). Italy inclusive labour markets are essential policy
continues to grant substantial environmentally measures to accelerate the transition to net
harmful subsidies, including to road transport, zero and to ensure social fairness during the
which discourages the transition to more transition (see Annex 8).
sustainable transport solutions (see Annex 6).
Other bottlenecks are linked to excessive
Labour shortages in key sectors have restrictions and barriers to competition in
increased in recent years, also due to a regulated professions and business
lack of relevant skills. These shortages services. Being key input for investment, it is
are creating bottlenecks in the transition crucial to ensure an appropriate level of
to a net-zero economy. In 2022, labour competition in these sectors. However, for
shortages were reported in Italy for 105 several important regulated professions Italy
occupations that required specific skills or records a level of restrictiveness higher than
knowledge for the green transition, including the EU average. For instance, Italy is among
refuse sorters, waste and recycling collectors the most restrictive Member States for civil
and environmental engineers (26). The job engineers, while for accountants and tax
vacancy rate increased across key sectors, advisers it ranks third in the EU. For several
such as construction (from 0.9% in 2016 to other important professions, including e.g.
2.8% in 2021) and manufacturing (from 0.8% architects, patent/trademark agents and real
estate agents, Italy’s level of restrictiveness is
(25) The climate protection gap refers to the share of non- also above EU average. (31) Reducing the
insured economic losses caused by climate-related overall level of restrictiveness in regulation as
disasters. This indicator is based on the modelling of the
current risk from floods, wildfires, and windstorms as well as decreasing barriers could ease the
well as earthquakes, and the estimation of the current entry of new providers into the market,
insurance penetration. The indicator does not provide thereby spurring competition and generating
information on the split private/public cost of climate positive spillovers, including on service prices.
related disasters. A score of 0 means no protection gap,
while a score of 4 corresponds to a very high gap.
EIOPA considers that a score below 3 is not a relevant
protection gap but that countries with a score of 2.5
need to be monitored (EIOPA, 2022).
(26) Data on shortages is based on European Labour
Authority (2023), EURES Report on labour shortages (27) Eurostat (JVS_A_RATE_R2).
and surpluses 2022. National authorities report through (28) European Business and Consumer Survey.
a questionnaire, based on administrative data and other
sources as submitted by the EURES National (29) European Investment Bank (EIB), 2023, Investment
Coordination Offices (definitions of shortages differ, Report 2022/2023: Resilience and renewal in Europe.
thus data is not comparable across countries and (30) Evidence indicates a lack of access to training for
covers a wide variety of sectors). Skills and knowledge people most affected by the green transition in Italy
requirements are based on the ESCO (European Skills with the risks that some Italian regions fall further
Competences and Occupations) taxonomy on skills for behind than other regions in OECD countries. See OECD,
the green transition (for occupations at ISCO 4-digit 2023, Job Creation and Local Economic Development
level, of which there are 436 in total). Examples are 2023. Bridging the great green divide.
identified based on their ESCO “greenness” score and
relevant sectors. (31) European Commission, COM(2021) 385 final
20
KEY FINDINGS
Italy’s recovery and resilience plan disparities in different areas of the country,
includes measures to tackle a series of including investing in railways in regions
its structural challenges through: that lag behind.
Reforms and investments to boost the Italy should ensure an effective governance
effectiveness, efficiency and resilience of and strengthen the administrative capacity,
the public sector. They focus on the justice particularly at subnational level, to allow for a
system and the public administration, continued swift and steady implementation of
particularly administrative capacity and the recovery and resilience plan. Italy should
public procurement, and on improving the swiftly finalise the REPowerEU chapter with a
business environment and competition view to rapidly starting its implementation.
framework.
In addition to the reforms and
Reforms and investments to accelerate the investments planned in the recovery and
green transition, with measures promoting resilience plan, Italy would benefit from:
energy efficiency, in particular of buildings.
This includes action to foster the Reforms of the tax system to provide more
development of and accelerate the roll-out incentives for growth, with a focus on
of renewable energy, promote the shift to reducing the tax wedge on labour.
cleaner transport and improve the
management of biodiversity and natural Reinforcing the sustainability of the pension
resources, including water and waste system by avoiding temporary measures
management. that ease early retirement and accelerating
the phasing in of the Notional Defined
Support for the digital transition, including Contribution regime.
support to digitalise manufacturing,
upgrade the digital skills of the workforce Measures to strengthen and simplify Italy's
and improve Italy's digital infrastructure. fiscal framework, including by fostering
transparency, accountability and fairness
Reforms and investments to improve active and ensuring streamlined control of
labour market policies, tackle undeclared national public finances.
work and promote social inclusion of
vulnerable people, for instance of people Measures to mitigate the demographic
with disabilities, vulnerable families, and challenges, including measures to attract
elderly people. The reforms include and retain high-skilled workers, to integrate
investments in social housing and people with a migrant background, and a
improving the resilience of the healthcare comprehensive strategy to support families
system. and young people.
Improvements to and modernisation of the Promoting training in the skills needed for
education system, from childcare to higher the green transition.
education and training, as well as systemic
measures to boost research and innovation. Measures to diversify energy imports and
tackle energy poverty. Additional
Reforms and investments to reduce investments and measures to speed up the
economic, social and infrastructural roll-out of renewable energies, to improve
energy efficiency, to promote sustainable
21
transport and to promote sustainable soil
management.
22
ANNEXES
LIST OF ANNEXES
Cross-cutting indicators 28
A1. Sustainable Development Goals 28
A2. Progress in the implementation of country-specific recommendations 30
A3. Recovery and resilience plan - overview 33
A4. Other EU instruments for recovery and growth 36
A5. Resilience 38
Environmental sustainability 39
A6. European Green Deal 39
A7. Energy security and affordability 44
A8. Fair transition to climate neutrality 50
Productivity 53
A9. Resource productivity, efficiency and circularity 53
A10. Digital transformation 56
A11. Innovation 58
A12. Industry and single market 60
A13. Public administration 64
Fairness 66
A14. Employment, skills and social policy challenges in light of the European Pillar of Social Rights 66
A15. Education and training 69
A16. Health and health systems 71
A17. Economic and social performance at regional level 73
Macroeconomic stability 76
A18. Key financial sector developments 76
A19. Taxation 78
A20. Table with economic and financial indicators 80
A21. Debt sustainability analysis 81
A22. Macroeconomic imbalance procedure assessment matrix 84
25
LIST OF TABLES
A2.1. Summary table on 2019-2022 CSRs 31
A3.1. Key elements of the Italian RRP('s) 33
A5.1. Resilience indices summarising the situation across RDB dimensions and areas 39
A6.1. Indicators tracking progress on the European Green Deal from a macroeconomic perspective 44
A7.1. Key Energy Indicators 50
A8.1. Key indicators for a fair transition in Italy 52
A9.1. Overall and systemic indicators on circularity 55
A10.1. Key Digital Decade targets monitored by DESI indicators 58
A11.1. Key innovation indicators 60
A12.1. Industry and the single market 65
A13.1. Public administration indicators 67
A14.1. Social Scoreboard for Italy 69
A14.2. Situation of Italy on 2030 employment, skills and poverty reduction targets 70
A15.1. EU-level targets and other contextual indicators under the European Education Area strategic framework 73
A16.1. Key health indicators 75
A17.1. Selected indicators at regional level in Italy 77
A19.1. Taxation indicators 81
A20.1. Key economic and financial indicators 83
A21.1. Debt sustainability analysis - Italy 86
A21.2. Heat map of fiscal sustainability risks - Italy 86
A22.1. Assessment of macroeconomic imbalances matrix 88
LIST OF GRAPHS
A1.1. Progress towards the SDGs in Italy in the last 5 years 28
A2.1. Italy’s progress on the 2019-2022 CSRs (2023 European Semester) 30
A3.1. Total grants disbursed under the RRF 34
A3.2. Total loans disbursed under the RRF 34
A3.3. Fulfilment status of milestones and targets 34
A3.4. Disbursements per pillar 35
A4.1. Cohesion policy funds 2021-2027 in Italy: budget by fund 36
A4.2. Synergies between cohesion policy funds and the RRF with its six pillars in Italy 36
A4.3. Cohesion policy funds contribution to the SDGs in 2014-2020 and 2021-2027 in Italy 37
A6.1. Thematic – greenhouse gas emissions from the effort sharing sectors in Mt CO2eq, 2005-2021 40
A6.2. Energy mix (top) and electricity mix (bottom), 2021 41
A6.3. Thematic – environmental investment needs and current investment, p.a. 2014-2020 42
A7.1. Gas storage levels in Italy 45
A7.2. Share of gas consumption per sector, 2021 46
A7.3. Gas consumption per industrial sector, 2021 (% of total gas consumption in industry) 46
A8.1. Fair transition challenges in Italy 51
A8.2. Distributional impacts of energy prices due to rising energy expenditure (2021-2023) 52
A9.1. Trend in material use 54
A9.2. Treatment of municipal waste 54
A11.1. Innovation performance 2015-2022 59
A12.1. Labour productivity per person [% of EU-27] 62
A12.2. Labour productivity by sector [2015=100] 62
A12.3. Business environment and productivity drivers 64
A13.1. Italy: a) ratio of 25-49 to 50-64 year-olds by sector and occupation and b) higher education attainment level (in percent) of
25-64 year-olds by sector and occupation. 2021 data 66
A13.2. Italy. Performance in the single market scoreboard governance tools 67
A16.1. Life expectancy at birth, years 74
A16.2. Projected increase in public expenditure on healthcare over 2019-2070 74
A17.1. GDP growth (x-axis) and population growth (y-axis) (2011-2020) – Italy 76
A17.2. GDP per capita (PPS) in 2021 and population with high level of education 77
A18.1. Evolution of credit activity 80
A19.1. Tax revenues from different tax types as % of total taxation 82
26
A19.2. Tax wedge for single and second earners as a % of total labour costs, 2022 82
27
CROSS-CUTTING INDICATORS
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS
This Annex assesses Italy’s progress on the 14), but needs to catch up with the EU
Sustainable Development Goals (SDGs) along average on zero hunger, industry and
the four dimensions of competitive innovation, sustainable cities and
sustainability. The 17 SDGs and their related communities, climate action and life on land
indicators provide a policy framework under the (SDGs 2, 9, 11, 13, 15) and is moving away
UN’s 2030 Agenda for Sustainable Development. from the SDG on clean water and sanitation
The aim is to end all forms of poverty, fight (SDG 6). In Italy, the circular material use
inequalities and tackle climate change and the increased (18% of material input for domestic use,
environmental crisis, while ensuring that no one is vs. 12% in the EU in 2021; SDG 12), and marine
left behind. The EU and its Member States are eutrophication fell to negligible levels, further
committed to this historic global framework surpassing the EU average (SDG 14). Italy
agreement and to playing an active role in performs well on energy efficiency and
maximising progress on the SDGs. The graph consumption (SDG 7), but the share of renewable
below is based on the EU SDG indicator set energy remains low (19% of gross final energy
developed to monitor progress on the SDGs in an consumption vs. 22% in the EU in 2021; SDG 13).
EU context. Italy also faces some of the highest and increasing
climate-related economic losses (EUR
Italy is improving on most of the SDG 42/inhabitant vs. 34 in the EU in 2021; SDG 13).
indicators related to environmental The use of railways for freight transport is far
sustainability. It performs well on clean from the EU average (10 percentage points
energy, responsible consumption and difference in % of inland freight tonne/km in 2021;
production and life below water (SDGs 7, 12, SDG 9). The recycling rate at municipal level is
Graph A1.1: Progress towards the SDGs in Italy in the last 5 years
For detailed datasets on the various SDGs, see the annual Eurostat report ‘Sustainable development in the European Union’; for
details on extensive country-specific data on the short-term progress of Member States: Key findings – Sustainable development
indicators – Eurostat (europa.eu). The status of each SDG in a country is the aggregation of all indicators for the specific goal
compared to the EU average. A high status does not mean that a country is close to reaching a specific SDG, but signals that it is
doing better than the EU on average. The progress score is an absolute measure based on the indicator trends over the past 5
years. The calculation does not take into account any target values, as most EU policy targets are only valid for the aggregate EU
level. Depending on data availability for each goal, not all 17 SDGs are shown for each country.
Source: Eurostat, latest update of early April 2023, except for the EU Labour Force Survey (LFS) indicators released on 27 April
2023. Data mainly refer to 2016-2021 or 2017-2022.
28
now above the EU average but the share of the energy (SDG 7) and healthcare (SDG 3) improved
population connected to secondary wastewater and the share of people at risk of poverty or social
treatment lags behind (less than 60% of the exclusion declined sharply but remains higher than
population in 2015 vs. almost 80% in the EU; SDG in the EU (25.2% of the total population in 2021
11 and SDG 6) and access to sanitation worsened vs. 21.7% in the EU; SDG 1). The RRP measures
(despite remaining low, the share of households related to education and training, active labour
not having sanitary facilities increased between market policies, social and territorial cohesion,
2015 and 2020; SDG 6). Soil sealing increased and social services and inclusion and gender equality
soil erosion levels are well above the EU average: are expected to improve Italy’s performance on
almost 25% in 2016 vs. 5.3% in the EU (% of non- the SDGs related to fairness.
artificial erodible area; SDGs 2 and 15). Moreover,
average performance in each dimension of Italy is improving on all SDGs on productivity
environmental sustainability masks large regional (SDGs 4, 8, 9), but still needs to catch up
differences across the country. The recovery and with the EU average. Patent applications are
resilience plan (RRP) includes important measures increasing but gross domestic expenditure on R&D
that are expected to support the green transition in remains stable and is below the EU average (1.5%
the field of renewable energy, circular economy, of GDP compared to 2.3% in the EU in 2021; SDG
natural resource management, hydrogeological 9). The share of households with a high-speed
risks, sustainable transport, and energy efficiency internet connection in 2021 (44.2%) is well below
of buildings. the EU average (70.2%), despite progress since
2016 (19% in 2016). The RRP is expected to
While Italy is improving in all SDG indicators contribute significantly to the digital transition and
related to fairness and performs well on productivity by investing in the digitalisation of
health (SDG 3), it still needs to catch up with public administration, the justice, education and
the EU average on most of them (SDGs 1, 4, research systems, and the tourism and cultural
5, 8, 10). Labour market participation improved sector. Measures supporting the digitalisation and
but wide gaps with the EU remain. The share of competitiveness of manufacturing and research
young people not in education, employment or and innovation are also expected to boost
training is declining but is still well above EU productivity.
average (19% of the 15-29 population vs. 11.7%
in the EU in 2022). Despite a relatively high share Italy is improving on SDG indicators related
of women in senior management positions, the to macroeconomic stability, but still needs to
participation gender gap due to caring catch up compared to the EU (SDGs 8 and
responsibilities only slightly decreased and 17), while it performs well on SDG 16. Italy
remains twice as high as in the EU (2.6 pps vs. 1.2 has made progress on peace, justice and the
in the EU in 2022 in the 20-64 population), quality of its institutions, with a significant
similarly to the gender employment gap (19.7 pps reduction in reported crime to below the EU
vs. 10.7 pps in the EU in the 20-64 population in average (from 19.4% in 2015 to 8.4% in 2020,
2022) (SDGs 5 and 8). The share of working poor EU: 11% of total population). Access to justice
remained stable, while fatal accidents at work remains a challenge instead (SDG 16). Despite
increased, against a decline in the EU progress, economic growth and investment levels
(3.4/100 000 workers vs 1.8 in the EU in 2020; remain low (SDG 8). It progressed on global
SDG 8). Italy progressed on almost all indicators partnerships but faces challenges on public debt
on education, but the share of tertiary education and taxation, including environmental taxation
graduates remains low (29% of the 25-34 (SDG 17). Several structural reforms included in
population in 2022 vs. 42% in the EU; SDG 4). the RRP are expected to improve Italy’s
Preventing early leaving from education remains a macroeconomic stability, notably the reforms of
challenge, especially for students with a migrant public administration and the justice system and
background (22.5 pps difference in % of the the measures to fight tax evasion.
population aged 18-24 vs. 18 pps in the EU in
2022; SDG 10). Reading skills worsened but in line As the SDGs form an overarching framework, any
with a general EU trend (over 2015-2018, the % links to relevant SDGs are either explained or
low achievers in reading among 15-year-olds depicted with icons in the other Annexes.
increased of 2 pps, exceeding 20% in Italy and the
EU; SDG 4). Access to housing (SDG 1), affordable
29
ANNEX 2: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC
RECOMMENDATIONS
The Commission has assessed the 2019-2022 Graph A2.1: Italy’s progress on the 2019-2022
country-specific recommendations (CSRs) (32) CSRs (2023 European Semester)
addressed to Italy as part of the European
Semester. These recommendations concern a Full implementation
No progress
7%
wide range of policy areas that are related to 13 4%
Limited
of the 17 Sustainable Development Goals (see progress
Substantial
Annexes 1 and 3). The assessment considers the progress
9%
policy action taken by Italy to date (33) and the 14%
commitments in its recovery and resilience plan
(RRP) (34). At this stage of RRP implementation,
84% of the CSRs focusing on structural issues
from 2019-2022 have recorded at least ‘some
progress’, while 9% recorded ‘limited progress’
(see Graph A2.1). As the RRP is implemented Some
progress
further, considerable progress in addressing 66%
structural CSRs is expected in the years to come.
Source: European Commission.
(32) 2022 CSRs: EUR-Lex - 32022H0901(12) - EN - EUR-Lex
(europa.eu)
2021 CSRs: EUR-Lex - 32021H0729(12) - EN - EUR-Lex
(europa.eu)
2020 CSRs: EUR-Lex - 32020H0826(12) - EN - EUR-Lex
(europa.eu)
2019 CSRs: EUR-Lex - 32019H0905(12) - EN - EUR-Lex
(europa.eu)
(33) Including policy action reported in the national reform
programme and in Recovery and Resilience Facility (RRF)
reporting (twice a year reporting on progress in implementing
milestones and targets and resulting from the payment
requests assessment).
(34) Member States were asked to effectively address all or a
significant subset of the relevant country-specific
recommendations issued by the Council in 2019 and 2020 in
their RRPs. The CSR assessment presented here considers the
degree of implementation of the measures included in the
RRP and of those carried out outside of the RRP at the time
of assessment. Measures laid down in the Annex of the
adopted Council Implementing Decision on approving the
assessment of the RRP, which are not yet adopted or
implemented but considered credibly announced, in line with
the CSR assessment methodology, warrant ‘limited progress’.
Once implemented, these measures can lead to
‘some/substantial progress or full implementation’,
depending on their relevance.
30
Table A2.1: Summary table on 2019-2022 CSRs
Italy Assessment in May 2023* RRP coverage of CSRs until 2026** Relevant SDGs
2019 CSR 1 Limited progress
Ensure a nominal reduction of net primary government expenditure of
0.1% in 2020, corresponding to an annual structural adjustment of 0.6%
Not relevant anymore Not applicable SDG 8, 16
of GDP. Use windfall gains to accelerate the reduction of the general
government debt ratio.
Shift taxation away from labour, including by reducing tax expenditure
Limited progress SDG 8, 10, 12
and reforming the outdated cadastral values.
Fight tax evasion, especially in the form of omitted invoicing, including
Relevant RRP measures being implemented as of 2021 and
by strengthening the compulsory use of e-payments including through Substantial progress SDG 8, 16
2022 and planned as of 2022 and 2023
lower legal thresholds for cash payments.
Implement fully past pension reforms to reduce the share of old-age
pensions in public spending and create space for other social and No progress SDG 8
growth-enhancing spending.
2019 CSR 2 Some progress
Step up efforts to tackle undeclared work. Some progress Relevant RRP measures planned as of 2022 SDG 8
Ensure that active labour market and social policies are effectively
Relevant RRP measures being implemented as of 2021 and
integrated and reach out notably to young people and vulnerable Some progress SDG 1, 2, 8, 10
2022 and planned as of 2023
groups.
Support women’s participation in the labour market through a
Relevant RRP measures being implemented as of 2021 and
comprehensive strategy, including through access to quality childcare Some progress SDG 8, 10
planned as of 2022 and 2023
and long-term care.
Improve educational outcomes, also through adequate and targeted
Relevant RRP measures being implemented as of 2021 as of
investment, and foster upskilling, including by strengthening digital Some progress SDG 4
2022 and planned as of 2022 and 2023
skills.
2019 CSR 3 Some progress
Focus investment-related economic policy on research and innovation, Relevant RRP measures being implemented as of 2021 and
Some progress SDG 7, 9, 10, 11, 13
and the quality of infrastructure, taking into account regional disparities. 2022 and planned as of 2022 and 2023
Improve the effectiveness of public administration, including by
Relevant RRP measures being implemented as of 2021 and
investing in the skills of public employees, by accelerating digitalisation, Some progress SDG 4, 9, 16
planned as of 2022 and 2023
and by increasing the efficiency and quality of local public services.
Address restrictions to competition, particularly in the retail sector and in
Limited progress Relevant RRP measures planned as of 2022 SDG 9
business services, also through a new annual competition law.
2019 CSR 4 Substantial progress
Reduce the length of civil trials at all instances by enforcing and
Relevant RRP measures being implemented as of 2021 and
streamlining procedural rules, including those under consideration by Substantial progress SDG 16
2022 and planned as of 2022 and 2023
the legislator and with a special focus on insolvency regimes.
Improve the effectiveness of the fight against corruption by reforming Relevant RRP measures being implemented as of 2021 and as
Some progress SDG 16
procedural rules to reduce the length of criminal trials. of 2022 and planned as of 2022 and 2023
2019 CSR 5 Some progress
Foster bank balance sheet restructuring, in particular for small and
medium-sized banks, by improving efficiency and asset quality,
Some progress SDG 8
continuing the reduction of non-performing loans, and diversifying
funding.
Relevant RRP measures being implemented as of 2021 and
Improve non-bank financing for smaller and innovative firms. Some progress SDG 8, 9
planned as of 2024
2020 CSR 1 Some progress
In line with the general escape clause, take all necessary measures to
effectively address the pandemic, sustain the economy and support the
ensuing recovery. When economic conditions allow, pursue fiscal Not relevant anymore Not applicable SDG 8, 16
policies aimed at achieving prudent medium-term fiscal positions and
ensuring debt sustainability, while enhancing investment.
Strengthen the resilience and capacity of the health system, in the areas Relevant RRP measures being implemented as of 2021 and
Some progress SDG 3
of health workers, critical medical products and infrastructure. 2022 and planned as of 2022
Enhance coordination between national and regional authorities. Some progress Relevant RRP measures being implemented as of 2022 SDG 3, 16
2020 CSR 2 Some progress
Provide adequate income replacement and access to social protection, Relevant RRP measures being implemented as of 2021 and
Some progress SDG 1, 2, 8, 10
notably for atypical workers. 2022 and planned as of 2022
Mitigate the employment impact of the crisis, including through flexible
Some progress Not applicable SDG 8
working arrangements and
Relevant RRP measures being implemented as of 2021 and
active support to employment. Some progress SDG 8
planned as of 2022
Relevant RRP measures being implemented as of 2021 and
Strengthen distance learning and skills, including digital ones. Some progress SDG 4
planned as of 2022 and 2023
2020 CSR 3 Some progress
Ensure effective implementation of measures to provide liquidity to the
Relevant RRP measures being implemented as of 2021 and
real economy, including to small and medium-sized enterprises, Substantial progress SDG 8, 9
2022 and planned as of 2022 and 2023
innovative firms and the self-employed, and avoid late payments.
Relevant RRP measures being implemented as of 2021 and
Front-load mature public investment projects Some progress SDG 8, 16
2022 planned as of 2022, 2023, 2025 and 2026
(Continued on the next page)
31
Table (continued)
Relevant RRP measures being implemented as of 2021 and
and promote private investment to foster the economic recovery. Some progress SDG 8, 9
2022
Focus investment on the green and digital transition, in particular on Relevant RRP measures being implemented as of 2021 and
Some progress SDG 7, 9, 13
clean and efficient production and use of energy, 2022 and planned as of 2022, 2023 and 2024
Relevant RRP measures being implemented as of 2021 and
research and innovation, Some progress SDG 9
2022 and planned as of 2022 and 2023
Relevant RRP measures being implemented as of 2021 and
sustainable public transport, Some progress SDG 11
2022 and planned as of 2022, 2023 and 2024
Relevant RRP measures being implemented as of 2021 and
waste and water management Some progress SDG 6, 12, 15
2022 and planned as of 2022, 2023, 2024 and 2025
as well as reinforced digital infrastructure to ensure the provision of Relevant RRP measures being implemented as of 2021 and
Some progress SDG 9
essential services. 2022 and planned as of 2022
2020 CSR 4 Some progress
Relevant RRP measures being implemented as of 2021 and
Improve the efficiency of the judicial system and Substantial progress
2022 and planned as of 2022 and 2023 SDG 16
Relevant RRP measures being implemented as of 2021 and
the effectiveness of public administration. Some progress
2022 and planned as of 2022 SDG 16
2021 CSR 1 Substantial progress
In 2022, use the Recovery and Resilience Facility to finance additional
investment in support of the recovery while pursuing a prudent fiscal
Full implementation Not applicable SDG 8, 16
policy. Preserve nationally financed investment. Limit the growth of
nationally financed current expenditure.
When economic conditions allow, pursue a fiscal policy aimed at
achieving prudent medium-term fiscal positions and ensuring fiscal Some progress Not applicable SDG 8, 16
sustainability in the medium term.
At the same time, enhance investment to boost growth potential. Pay
particular attention to the composition of public finances, on both the
revenue and expenditure sides of the budget, and to the quality of
SUbstantial progress Not applicable SDG 8, 16
budgetary measures in order to ensure a sustainable and inclusive
recovery. Prioritise sustainable and growth-enhancing investment, in
particular investment supporting the green and digital transition.
Give priority to fiscal structural reforms that will help provide financing
for public policy priorities and contribute to the long-term sustainability
of public finances, including, where relevant, by strengthening the Some progress Not applicable SDG 8, 16
coverage, adequacy and sustainability of health and social protection
systems for all.
2022 CSR 1 Some progress
In 2023, ensure prudent fiscal policy, in particular by limiting the growth
of nationally financed primary current expenditure below medium-term
potential output growth, taking into account continued temporary and
Full implementation Not applicable SDG 8, 16
targeted support to households and firms most vulnerable to energy
price hikes and to people fleeing Ukraine. Stand ready to adjust current
spending to the evolving situation.
Expand public investment for the green and digital transitions, and for
energy security taking into account the REPowerEU initiative, including
Substnatial progress Not applicable SDG 8, 16
by making use of the Recovery and Resilience Facility and other Union
funds.
For the period beyond 2023, pursue a fiscal policy aimed at achieving
prudent medium-term fiscal positions and ensuring credible and gradual
Some progress Not applicable SDG 8, 16
debt reduction and fiscal sustainability in the medium term through
gradual consolidation, investment and reforms.
In order to further reduce taxes on labour and increase the efficiency of
the system, adopt and appropriately implement the enabling law on the
tax reform, particularly by reviewing effective marginal tax rates, aligning
No progress SDG 8, 10, 12
the cadastral values to current market values, streamlining and reducing
tax expenditures, also for VAT, and environmentally harmful subsidies
while ensuring fairness, and by reducing the complexity of the tax code.
2022 CSR 2 Limited progress
Proceed with the implementation of its recovery and resilience plan, in
line with the milestones and targets included in the Council RRP implementation is monitored by assessing RRP payment requests and analysing reports published twice a year on the
Implementing Decision of 13 July 2021. achievement of the milestones and targets. These are to be reflected in the country reports.
Swiftly finalise the negotiations with the Commission of the 2021-2027
cohesion policy programming documents with a view to starting their Progress on the cohesion policy programming documents is monitored under the EU cohesion policy.
implementation.
2022 CSR 3
Relevant RRP measures being implemented as of 2021 and
Reduce the reliance on fossil fuels and diversify energy import. Some progress SDG 7, 9, 13
2022 and planned as of 2022, 2023 and 2024
Overcome bottlenecks to increase the capacity of internal gas
No progress SDG 7, 9, 13
transmission,
develop electricity interconnections, Some progress SDG 7, 9, 13
Relevant RRP measures being implemented as of 2021 and
accelerate the deployment of additional renewable energy capacities Some progress SDG 7, 9, 13
2022 and planned as of 2022, 2023 and 2024
Relevant RRP measures being implemented as of 2021 and
and adopt measures to increase energy efficiency Limited progress SDG 7
2022 and planned as of 2022, 2023 and 2024
Relevant RRP measures being implemented as of 2021 and
and to promote sustainable mobility. Limited progress SDG 11
2022 and planned as of 2022, 2023 and 2024
Note:
* See footnote (33).
** RRP measures included in this table contribute to the implementation of CSRs. Nevertheless, additional measures outside the
RRP are necessary to fully implement CSRs and address their underlying challenges. Measures indicated as ‘being implemented’
are only those included in the RRF payment requests submitted and positively assessed by the European Commission. Measures
included in the third payment request under assessment are classified as planned as of 2022.
Source: European Commission
32
ANNEX 3: RECOVERY AND RESILIENCE PLAN - OVERVIEW
The Recovery and Resilience Facility (RRF) is graphs in this Annex show the current state of play
the centrepiece of the EU’s efforts to help it of the milestones and targets to be reached by
recover from the COVID-19 pandemic, speed and subsequently assessed as satisfactorily
up the twin transition and strengthen fulfilled by the Commission. No revision was
resilience against future shocks. The RRF submitted at the time of publication of this
also contributes to implementation of the country report yet.
SDGs and helps to address the Country
EUR 66.89 billion has so far been disbursed
Specific Recommendations (see Annex 4). Italy
to Italy under the RRF. The Commission
submitted its initial recovery and resilience plan
disbursed EUR 24.89 billion to Italy in pre-
(RRP) on 30 April 2021. The Commission’s positive
financing on 13 August 2021, equivalent to 13%
assessment on 22 June 2021 and Council’s
of the financial allocation.
approval on 13 July 2021 paved the way for
disbursing EUR 68.9 billion in grants and EUR Italy’s first payment request was positively
122.6 billion in loans under the RRF over the assessed by the Commission, taking into
2021-2026 period.
account the opinion of the Economic and
Since the entry into force of the RRF Financial Committee, leading to EUR 21
Regulation and the assessment of the billion being disbursed in financial support
national recovery and resilience plans, (net of pre-financing) on 13 April 2022. The
geopolitical and economic developments related 51 milestones and targets cover reforms in
the areas of public administration, public
have caused major disruptions across the EU.
procurement, justice, the spending review
In order to effectively address these disruptions,
framework, tertiary education, active labour
the (adjusted) RRF Regulation allows Member
market policies and the framework law to
States to amend their recovery and resilience plan
strengthen the autonomy of people with
for a variety of reasons. In line with article 11(2)
disabilities, as well as Italy's audit and control
of the RRF, the maximum financial contribution for
system for the implementation of the RRF. They
Italy was moreover updated on 30 June 2022 to
also concern major investments in the field of
an amount of EUR 69 billion in grants.
digitalisation of businesses, energy efficiency and
renovation of residential buildings.
Table A3.1: Key elements of the Italian RRP('s)
Italy’s second payment request was
Current RRP
positively assessed by the Commission,
Scope Initial plan taking into account the opinion of the
Economic and Financial Committee, leading
CID adoption date 13 July 2021 to EUR 21 billion being disbursed in financial
support (net of pre-financing) on 8 November
EUR 68.9 billion in grants 2022. The related 45 milestones and targets
Total allocation and EUR 122.6 billion in loans
cover reforms in the areas of public employment,
(10.79% of 2021 GDP)
public procurement, teaching, tax administration
133 investments and and healthcare, as well as investments in areas
Investments and reforms
59 reforms such as ultra-broadband and 5G networks,
Total number of research and innovation, tourism and culture,
527
milestones and targets production and consumption of clean hydrogen,
Source: European Commission urban regeneration and digitalisation of schools.
Italy’s progress in implementing its plan is On 30 December 2022, Italy submitted its
published in the Recovery and Resilience third payment request, for which the
Scoreboard (35). The Scoreboard also gives an Commission’s assessment is ongoing. Overall,
overview of the progress made in implementing Italy reports a timely implementation of the
the RRF as a whole, in a transparent manner. The milestones and targets covered by the third
payment request, which does not however
prejudge the timing of the submission of
(35) https://ec.europa.eu/economy_finance/recovery-and-
resilience-scoreboard/country_overview.html subsequent payment requests or the Commission’s
33
formal assessment of the fulfilment of the Graph A3.3: Fulfilment status of milestones and
relevant milestones and targets. targets
Graph A3.1: Total grants disbursed under the RRF Satisfactorily
fulfilled
€ 5.75 billion
Not
fulfilled
Note: This graph displays the share of satisfactorily fulfilled
milestones and targets. A milestone or target is satisfactorily
fulfilled once a Member State has provided evidence to the
Commission that it has reached the milestone or target and
the Commission has assessed it positively in an implementing
Note: This graph displays the amount of grants disbursed so decision.
far under the RRF. Grants are non-repayable financial Source: Recovery and Resilience Scoreboard
contributions. The total amount of grants given to each
Member State is determined by an allocation key and the
total estimated cost of the respective RRP.
Source: Recovery and Resilience Scoreboard
Graph A3.2: Total loans disbursed under the RRF
€ 37.94 billion
Note: This graph displays the amount of loans disbursed so
far under the RRF. Loans are repayable financial contributions.
The total amount of loans given to each Member State is
determined by the assessment of its loan request and cannot
exceed 6.8% of its 2019 GNI.
Source: Recovery and Resilience Scoreboard
34
Graph A3.4: Disbursements per pillar
12 bn
10 bn
8 bn
6 bn
4 bn
2 bn
0 bn
Green transition Digital Smart, Social and Health, and Policies for the
transformation sustainable and territorial economic, social next generation
inclusive growth cohesion and institutional
resilience
Note: Each disbursement reflects progress in the implementation of the RRF, across the six policy pillars. This graph displays how
disbursements under the RRF (excluding pre-financing) relate to the pillars. The amounts were calculated by linking the milestones
and targets covered by a given disbursement to the pillar tagging (primary and secondary) of their respective measures.
Source: Recovery and Resilience Scoreboard
35
ANNEX 4: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH
The EU budget of over EUR 1.2 trillion for of projects benefiting companies and citizens, in
2021-2027 is geared towards implementing particular in the South of Italy. Attention should
the EU’s main priorities. Cohesion policy therefore be paid to on the synergy with the public
investment amounts to EUR 392 billion across the administration reforms to be carried out under the
EU and represents almost a third of the overall EU Italian recovery and resilience plan. The European
budget, including around EUR 48 billion invested in Social Fund Plus (ESF+) allocates EUR 4 billion to
line with REPowerEU objectives. education and skills and, overall, EUR 2.17 billion
to digital skills (partially in other thematic areas).
Graph A4.1: Cohesion policy funds 2021-2027 in This investment will strengthen green and digital
Italy: budget by fund skills by supporting the extension of vocational
education and training (VET) and its link with
1,211
1% labour market needs, as well as through training
to low-skilled adults and promoting life-long
28,640 learning.
39%
Of the investments mentioned above, EUR
44,216
60% 5.1 billion will be invested in line with
REPowerEU objectives. This is on top of the EUR
2.5 billion dedicated to REPowerEU under the
CF ERDF ESF+ JTF
2014-2020 budget. EUR 2.6 billion (2021-2027)
(1) million EUR in current prices, % of total; (total amount and EUR 432 million (2014-2020) is for improving
including EU and national co-financing) energy efficiency; EUR 1.5 billion (2021-2027) and
Source: European Commission, Cohesion Open Data EUR 2.1 billion (2014-2020) is for renewable
energy and low-carbon R&I; and EUR 1 billion
In 2021-2027, in Italy, cohesion policy (2021-2027) is for smart energy systems.
funds (36) will invest EUR 20.5 billion in the
green transition and EUR 3.3 billion in the Graph A4.2: Synergies between cohesion policy
digital transformation as part of the funds and the RRF with its six pillars in Italy
country’s total allocation of EUR 74 billion. In 30000 23 434
25 204
particular, the European Regional Development 25000
20 518
13 700
Fund (ERDF) will improve the competitiveness and
20000
13 007 12 029
15000
productivity of Italian industry. 148 783 firms will 10000
3 340
1 498 7 326
4 082
receive support to strengthen innovation, up- 5000 2 299
1 030
0
skilling, speeding up the country’s digital and green Green transition Digital
transformation
Smart, sustainable Social and territorial Health, economic, Policies for the next
and inclusive growth cohesion social and generation
transitions. The ERDF will also support energy institutional
resilience
efficiency in public buildings, covering almost 3 EU CP 2014-2020 (million EUR) EU CP 2021-2027 (million EUR)
million square meters, as well as the deployment (1) million EUR in current prices (total amount, including EU
of renewables to help sustain over 852 renewable and national co-financing)
energy communities. Public goods and services will Source: European Commission
also be improved, particularly water, urban waste
and transport in the South of Italy. Italy will be In 2014-2020, cohesion policy funds made
allocated an additional EUR 1 billion under the Just EUR 47.9 billion available to Italy (37) with an
Transition Fund (JTF), to support territories facing absorption of 64% (38). Including national
socio-economic challenges arising from the financing, the total investment amounts to EUR
transition to climate neutrality. The JTF will target 64.9 billion - around 0.5% of GDP for 2014-2020.
Sulcis Iglesiente in Sardinia, and Taranto in Puglia,
helping to get 15 775 people into jobs and
supporting 2 900 businesses. Administrative
capacity is key to the successful implementation (37) Cohesion policy funds include the ERDF, CF, ESF and the
Youth Employment Initiative (YEI). ETC programmes are
excluded here. According to the ‘N+3 rule’, the funds
committed for 2014-2020 must be spent by 2023. REACT-
(36) European Regional Development Fund (ERDF), Cohesion Fund EU is included in all figures. The total amount includes EU
(CF), European Social Fund+ (ESF+), Just Transition Fund and national co-financing. Data source: Cohesion Open Data.
(JTF) excluding Interreg programmes. Total amount includes
national and EU contributions. Data source: Cohesion Open (38) 2014-2020 Cohesion policy EU payments by MS is updated
Data. daily on Cohesion Open Data.
36
Italy continues to benefit from cohesion Deal while ensuring long-term food security. They
policy flexibility to support recovery, step up promote social, environmental and economic
convergence and provide vital support to sustainability and innovation in agriculture and
regions following the COVID-19 pandemic. rural areas, in coordination with other EU funds.
The Recovery Assistance for Cohesion and the The European Maritime and Fisheries Fund made
Territories of Europe instrument (REACT-EU) (39) EUR 537 million available to Italy in 2014-2020
under NextGenerationEU provides EUR 14.4 billion and the European Maritime, Fisheries and
to Italy. This includes support for SMEs, Aquaculture Fund allocates EUR 518 million in
accelerating the green transition and investing in 2021-2027.
human capital. With SAFE (Supporting Affordable
Energy), the 2014-2020 cohesion policy funds Italy also benefits from other EU
may also be mobilised by Italy to support programmes, notably the Connecting Europe
vulnerable households, jobs and companies Facility, which under CEF 2 (2021-2027) has so
particularly affected by high energy prices. far allocated EU funding of EUR 426 million to 27
specific projects on strategic transport networks.
Graph A4.3: Cohesion policy funds contribution to Similarly, Horizon Europe has so far allocated
the SDGs in 2014-2020 and 2021-2027 in Italy more than EUR 958 million for Italian R&I actors,
while, Horizon 2020 earmarked EUR 5.7 billion.
The Public Sector Loan Facility established under
30 000
26 108
25 000 the Just Transition Mechanism makes EUR 78.1
20 000
20 524
million of grant support available in 2021-2027,
which will be combined with loans from the EIB to
15 000
11 495
10 191
support investments by public sector entities in
10 000 8 566
7 0957 387 just transition regions.
5 752
4 360
5 000 3 290
Italy received support under the European
0
SDG 8 Decent
work and
SDG 9 Industry,
innovation,
SDG 1 No poverty SDG 4 Quality
education
SDG 7 Affordable
and clean energy
instrument for temporary support to
economic growth infrastructure
mitigate unemployment risks in an
EU CP 2014-2020 (millions EUR) EU CP 2021-2027 (millions EUR)
emergency (SURE) to finance short-time work
(1) 5 largest contributions to SDGs in million (EUR) current schemes similar measures and as an ancillary
prices health-related measures, to mitigate the impact of
Source: European Commission
COVID-19. The Council granted financial
assistance to Italy in September 2020 for EUR
In both 2014-2020 and 2021-2027, cohesion 27.438 billion in loans, which supported around
policy funds have contributed substantially 57% of workers and 50% of firms in 2020, and
to the Sustainable Development Goals around 28% of workers and 25% of firms in 2021.
(SDGs). These funds support 11 of the 17 SDGs,
notably SDG 8 ‘decent Work and economic growth’ The Technical Support Instrument (TSI)
and SDG 9 ‘industry, innovation and supports Italy in designing and implementing
infrastructure’ ( ).
40
growth-enhancing reforms, including the
implementation of its recovery and resilience
Other EU funds make significant resources plan (RRP). Italy has received significant support
available to Italy. The common agricultural since 2017. Examples include combating
policy (CAP) made EUR 50.5 billion available in disparities in access to inclusive education and
2014-2022. It will keep supporting Italy with EUR enhancing the quality and cooperation of public
28.1 billion in 2023-2027. The two CAP Funds administrations. The TSI is also helping Italy
(European Agricultural Guarantee Fund and implement specific reforms and investments
European Agricultural Fund for Rural included in its RRP, e.g. the digitalisation of Italy’s
Development), contribute to the European Green national and local healthcare systems (41).
(39) REACT-EU allocation on Cohesion Open Data.
(40) Other EU funds contribute to the implementation of the
SDGs. In 2014-2022, this includes both the European
Agricultural Fund for Rural Development (EARDF) and the
European Maritime and Fisheries Fund (EMFF). (41) Country factsheets on reform support are available here.
37
ANNEX 5: RESILIENCE
This Annex illustrates Italy’s relative capacities in the digital and geopolitical
resilience capacities and vulnerabilities using dimensions, and medium-high capacities in the
the Commission’s resilience dashboards social and economic and the green dimensions.
(RDB) (42). Comprising a set of 124 quantitative Italy shows stronger capacities than the EU
indicators, the RDB provide broad indications of average in the area of ‘sustainable use of
Member States’ ability to make progress across resources’. There is room for improving capacities
four interrelated dimensions: social and economic, compared to the EU in relation to ‘health,
green, digital, and geopolitical. The indicators show education and work’, ‘digitalisation for industry
vulnerabilities (43) and capacities (44) that can and personal space’ and ‘financial globalisation’,
become increasingly relevant, both to navigate among others.
ongoing transitions and to cope with potential
future shocks. To this end, the RDB help to identify Table A5.1: Resilience indices summarising the
areas that need further efforts to build stronger situation across RDB dimensions and areas
and more resilient economies and societies. They Dimension/Area Vulnerabilities Capacities
IT EU-27 IT EU-27
are summarised in Table A5.1 as synthetic Social and economic
resilience indices, which illustrate the overall Inequalities and social impact of
relative situation for each of the four dimensions the transitions
Health, education and work
and their underlying areas for Italy and the EU-
Economic & financial stability
27 (45). and sustainability
Green
According to the set of resilience indicators Climate change mitigation &
adaptation
under the RDB, Italy generally displays a Sustainable use of resources
similar level of vulnerabilities compared to Ecosystems, biodiversity,
sustainable agriculture
the EU average. Italy shows medium-high Digital
vulnerabilities in the social and economic and Digital for personal space
green dimensions of the RDB, medium Digital for industry
vulnerabilities in the digital dimension and Digital for public space
Vulnerabilities Index
High
medium-low vulnerabilities in the geopolitical Medium-high
Cybersecurity Medium
dimension. It has higher vulnerabilities than the EU Medium-low
average in all areas of the social and economic Geopolitical Low
Not available
dimension as well as in ‘sustainable use of Raw material and energy supply
Capacities Index
resources’ and ‘ecosystems, biodiversity, Value chains and trade High
Medium-high
sustainable agriculture’. Italy has relatively low Financial globalisation Medium
vulnerabilities in relation to ‘climate change Security and demography
Medium-low
Low
mitigation and adaptation’, ‘digital for industry’, Not available
‘cybersecurity’ and ‘raw material and energy Data are for 2021, and EU-27 refers to the value for the EU
as a whole. Data underlying EU-27 vulnerabilities in the area
supply’. ‘value chains and trade’ are not available as they comprise
partner concentration measures that are not comparable with
Compared to the EU average, Italy shows an Member States’ level values.
overall lower level of capacities across all Source: JRC Resilience Dashboards - European Commission
RDB indicators. Italy has medium-low resilience
(42) For details see https://ec.europa.eu/info/strategy/strategic-
planning/strategic-foresight/2020-strategic-foresight-
report/resilience-dashboards_en; see also 2020 Strategic
Foresight Report (COM(2020) 493).
(43) Vulnerabilities describe features that can exacerbate the
negative impact of crises and transitions, or obstacles that
may hinder the achievement of long-term strategic goals.
(44) Capacities refer to enablers or abilities to cope with crises
and structural changes and to manage the transitions.
(45) This Annex is linked to Annex 1 on SDGs, Annex 6 on the
green deal, Annex 8 on the fair transition to climate
neutrality, Annex 9 on resource productivity, efficiency and
circularity, Annex 10 on the digital transition and Annex 14
on the European pillar of social rights.
38
ENVIRONMENTAL SUSTAINABILITY
ANNEX 6: EUROPEAN GREEN DEAL
Italy’s green transition requires action on one, 44% (49). In its recovery and resilience plan
several aspects, including renewable energy (RRP), Italy has attributed 37.5% of its Recovery
and on climate adaptation, in particular and Resilience Facility allocations to key reforms
concerning soil and water. Implementation of and investments to attain climate objectives (50).
the European Green Deal is underway in Italy with
some weaknesses as those quoted above. This Graph A6.1: Thematic – greenhouse gas emissions
Annex provides a snapshot of the key areas from the effort sharing sectors in Mt CO2eq,
involved (46). 2005-2021
400
Italy has not yet defined all the climate 350
policy measures it needs to reach its 2030 300
climate target for the effort sharing 250
200
sectors (47). Data for 2021 on Italy’s greenhouse 150
gas emissions in these sectors are expected to 100
show the country generated slightly more than its 50
annual emission allocations (48). Current policies in 0
Italy are projected to reduce these emissions by 2005 2021
Domestic transport (excl. aviation) Buildings (under ESR) Agriculture Small industry Waste
29% relative to 2005 levels in 2030, not sufficient
to reach the effort sharing target even before it Source: European Environmental Agency.
was raised to meet the EU’s 55% objective.
Additional measures tabled but not adopted would Italy’s net carbon removals from the land
bring the emission reductions to 40%, exceeding use sector have been declining, with a
the current target but not reaching the updated growing distance to the 2030 target (51).
Italy’s forests achieve the majority of carbon
removals through land use, land use change and
forestry (LULUCF). For 2030, Italy’s target for the
sector implies to remove 35 758 kt CO2eq (see
(46) The overview in this Annex is complemented by the
information provided in Annex 7 on energy security and
Table A6.1). Net removals have increased in 2018
affordability, Annex 8 on the fair transition to climate but they kept on decreasing from 2019. The Italian
neutrality and environmental sustainability, Annex 9 on RRP includes investment for the protection of the
resource productivity, efficiency and circularity, Annex 11 on territory and to safeguard the quality of the air,
innovation, and Annex 19 on taxation.
including the planting of over 6 million trees.
(47) Member States’ greenhouse gas emission targets for 2030
(‘effort sharing targets’) were increased by Regulation (EU) Imported fossil fuels made up the bulk of
2023/857 (the Effort Sharing Regulation) amending
Regulation (EU) 2018/842, aligning the action in the Italy’s energy mix, although the share of
concerned sectors with the objective to reach EU-level, renewable energy is very slowly increasing. In
economy-wide greenhouse gas emission reductions of at 2021, natural gas provided 41% of Italy’s energy,
least 55% relative to 1990 levels. The Regulation sets
national targets for sectors outside the current EU Emissions
followed by oil (35%) and coal (4%), while
Trading System, notably: buildings (heating and cooling), road renewable energy provided 20%. Italy’s electricity
transport, agriculture, waste, and small industry. Emissions production mix comprised a share of 42% from
covered by the EU ETS and the Effort Sharing Regulation are renewable sources in 2021, with hydropower being
complemented by net removals in the land use sector,
regulated by Regulation (EU) 2018/841 (the Land Use, Land
the leading source, and the remaining part coming
Use Change and Forestry (LULUCF) Regulation) amended by from gas (50%), solid fossil fuels (5%) and oil
Regulation (EU) 2023/839.
(48) Italy’s annual emission allocations for 2021 were some
266.6 Mt CO2eq, and its approximated 2021 emissions were (49) See the information on the distance to the 2030 climate
271.7 Mt (see European Commission, Accelerating the policy target in Table A6.1. Current and additional measures
transition to climate neutrality for Europe’s security and as of 15 March 2021.
prosperity: EU Climate Action Progress Report 2022, (50) For example, investments in zero-emission mobility, energy
SWD(2022)343). Greenhouse gas emissions in the effort efficiency of buildings and near-zero emission buildings for
sharing sectors above the annual emission allocations do not the education system.
imply non-compliance with the Effort Sharing Regulation, as
the latter provides for specific flexibility instruments that (51) This value is indicative and will be updated in 2025 (as
may be used for compliance. mandated by Regulation (EU) 2023/839).
39
(3%) (52). Further investment in renewable power and in the REPowerEU Plan. Although Italy met the
generation, renewable heat and heat pumps and 2020 target (17%) already in 2014, the share of
grid infrastructure would accelerate the renewable energy in Italy has essentially
decarbonisation of Italy’s economy. Italy envisages stagnated over the past few years (at 18.3% in
phasing out coal for electricity production and 2017). Italy’s RRP envisages several measures
decommissioning coal power plants by 2025. promoting renewable energy such as a reform the
process of awarding hydropower concessions, or
Graph A6.2: Energy mix (top) and electricity mix investments to support the development of
(bottom), 2021 offshore multi-power systems, combining wind,
floating photovoltaics, and wave motion power, or
for example the experimental use of hydrogen in
4%
hard-to-abate industries.
20%
The planned energy efficiency actions if fully
Solid fossil fuels, peat
and oil shale
implemented would allow Italy to meet its
Gas energy efficiency goals and the 2030
41% targets. Italy’s NECP targets for final and primary
Oil
energy consumption were considered of sufficient
Renewables ambition in the 2020 Commission assessment.
Based on the energy consumption trajectory for
35%
2018-2021, Italy is expected to be on track to
meet its 2030 target for primary and final energy
consumptions notified in the current NECP (53).
5% Overall, Italy aims to reduce its primary energy
consumption by 13.7% and its final energy
Solid fossil fuels, peat
consumption by 8.8% by 2030, compared to
42% and oil shale energy consumption in 2021. Italy has multiple
Gas measures in place that have a substantial energy
Oil
saving potential, such as the white certificates
scheme and the tax deduction schemes for
Renewables building renovations. Italy’s RRP supports
50% important measures in energy efficiency,
addressing in particular residential renovations
3%
with the “Superbonus” scheme, as well as energy
efficiency in public buildings and district heating
networks. Italy has repeatedly amended the key
The energy mix is based on gross inland consumption, and
excludes heat and electricity. The share of renewables
features of its main programme for residential
includes biofuels and non-renewable waste. renovation “Superbonus”, increasing uncertainty on
Source: Eurostat. the building renovation sector. A more stable and
comprehensive environment is needed to support
Renewable energy plays a central role in investments in renovation and the decarbonisation
decarbonising Italy’s energy system. Italy’s of the Italian building stock and to achieve the
target of 30% of share of energy from renewable medium- and long-term goals.
sources in gross final energy consumption by
2030 included in the NECP was considered Road transport is the dominant form of
sufficiently ambitious. Italy will need to increase transport in Italy. Freight haulage has increased,
its renewable energy target in the updated NECP in turn increasing greenhouse gas emissions from
to reflect the more ambitious EU climate and transport. The share of zero-emission vehicles in
energy targets in line with the Fit for 55 Package Italy’s car fleet is well below the EU average. The
government has recently provided incentives for
(52) According to Terna, in 2022, the demand for electricity was
met at 55.3% by production from non-renewable sources, for (53) After the conclusion of the negotiations for a recast EED, the
31.1% from renewable energy and 13.6% from energy ambition of both the EU and national targets as well as of
imports. Source: Rapporto Mensile sul Sistema Elettrico – the national measures for energy efficiency to meet these
Dicembre 2022. targets is expected to increase.
40
zero-emission vehicles, but they have not been areas together cover 21.4% of Italy’s land (56). It
fully used, partly due to competing incentives for has yet to allocate sufficient resources to the
conventional cars. Italy’s share of electrified priority action frameworks (57), and the designation
railroads is among the highest in the EU, but the of marine protected areas is not yet completed.
rail network needs more investment. Italy’s RRP
allocates funding for rail corridors, mass transit Climate change is affecting many sectors in
systems in local public transport, the purchase of Italy, with adaptation challenges concerning
3 000 zero-emission buses and 150 zero-emission soil and water management in particular (58).
trains, the installation of 21 000 charging points The problem of water scarcity has expanded to
for electric vehicles, and hydrogen re-fuelling cover northern Italy (59), with decreasing moisture
stations. Air quality remains a serious concern: in and increased sealing and degradation of soils.
terms of number of deaths from air pollution, This affects hydropower generation, water for
Italy’s results are among the worst in the EU (see human consumption, agriculture, and the flow of
Table A6.5). water bodies (60). Local communities are exposed
to flash floods and extreme heat, with the risk of
Graph A6.3: Thematic – environmental investment heat-related death and morbidity projected to rise
needs and current investment, p.a. 2014-2020 significantly. Italy’s governance of water
7000,0 6.644 management is fragmented with significant
5.588
leakages (61) (Annex 17). High water use in
6000,0 agriculture is a concern in the south. Investing in
flood control, re-naturalising water bodies,
5000,0
improving land use planning, reducing the sealing
EUR million (at current prices)
3.941
4000,0
3.584
of soils, and regenerating them would help
mitigate some adverse effects of climate change.
3.422 3.402
3000,0
2.137 The recovery and resilience plan contains some
2.786
2000,0
measures to restore biodiversity and regenerate
soils (Annex 9).
1.591
1000,0
548
Italy provides fossil fuel and other
0,0
Pollution Water (industries, Circular economy Biodiversity and R&I&D and other environmentally harmful subsidies that could
prevention and excl. protection)
control
(incl. waste) ecosystems
be considered for reform, while ensuring
Current investment Total need food and energy security and mitigating
Source: European Commission. social effects. Italy has a catalogue of
environmentally harmful subsidies, estimated at
Italy would benefit from investing more in EUR 20.4 billion in 2020 (62), which it intends to
environmental protection and better
protecting biodiversity, tackling pollution and (56) In 2021, Italy had 21.4% terrestrial protected areas (Natura
promoting the circular economy, including 2000 and nationally designated areas), against the EU
average of 26.4% (European Environment Agency, 2023,
waste management. Between 2014 and 2020, Natura 2000 Barometer).
the environmental investment needs (54) were
(57) Environmental Implementation Review 2022 – country report
estimated to be at least EUR 21.9 billion while Italy, p. 36; Quinto rapporto sullo stato del capitale naturale
investment was about EUR 11.7 billion, leaving a in Italia, Ministry of Environment and Energy Security, 2023,
gap of at least EUR 10.1 billion per year (see p.9.
Graph A6.3) (55). Key sectors for investment are (58) European Environmental Agency, Advancing towards climate
waste and urban wastewater treatment. Italy’s resilience in Europe, forthcoming.
Natura 2000 land network and national protected (59) JRC Global Drought Observatory (GDO) of the Copernicus
Emergency; Drought in northern Italy, March 2022.
(54) Environmental objectives include pollution prevention and (60) According to the 6th IPCC climate adaptation report, in
control, water management and industries, circular economy southern Europe, more than a third of the population will be
and waste, biodiversity and ecosystems (European exposed to water scarcity if global warming reaches 2 °C.
Commission, 2022, Environmental Implementation Review,
country report Italy). (61) ISTAT, i divari territoriali nel PNRR: dieci obiettivi per il
Mezzogiorno, 25.1.2023.
(55) When also accounting for needs estimated at EU level only
(e.g., water protection, higher circularity, biodiversity (62) Ministry of Environment and Energy Security, Economia
strategy). Ambientale.
41
reduce. Environmentally harmful subsidies have carbon. In 2021, Italy’s revenue from the EU
been identified, via an initial assessment, in the Emissions Trading System amounted to some
agriculture, forestry and fishing, electricity, gas, EUR 2.5 billion. In the past years, Italy has
steam and air conditioning, transportation and allocated only 50% to climate and energy-related
storage, mining and quarrying, manufacturing, measures, the minimum allowed under the
water supply and sewerage, accommodation, food Emissions Trading System Directive.
services and other services sectors. Italy has
increased fossil fuel subsidies slightly since 2016
(see Table A6.1). Examples of environmentally
harmful subsidies include the flat rate taxation of
privately used company cars, the reduced VAT rate
for fertilisers and pesticides, the excise tax refund
for diesel fuel used in agriculture, the
reimbursement of excise duty on diesel used in
freight and other categories of passenger
transport or the refund scheme for energy-
intensive industry under conditions (63).
Italy has the potential to use taxation to
tackle resource use and pollution, despite
having above-average environmental tax revenues
compared with other EU countries (64) (see Annex
19). Low water charges discourage investment in
water infrastructure and contribute to high water
consumption rates. Italy planned to increase the
floor rate for the regional landfill tax under the
2022 circular economy action plan (addendum),
but it has not yet done so (65). It also has scope to
bring in pesticide taxes (66) and use congestion
taxes to reduce air pollution, as the city of Milan
does (67).
By earmarking a higher share of Emission
Trading System revenue for climate action,
Italy could reduce its exposure to the cost of
(63) Fossil fuel figures in EUR of 2021 from the 2022 State of
the Energy Union report. Initial assessment of
environmentally harmful subsidies done by the Commission
in the 2022 toolbox for reforming environmentally harmful
subsidies in Europe, using OECD definitions, and based on the
following datasets: OECD Agriculture Policy Monitoring and
Evaluations; OECD Policy Instruments for the Environment
(PINE) Database; OECD Statistical Database for Fossil Fuels
Support; IMF country-level energy subsidy estimates. Annex 4
of the toolbox contains detailed examples of subsidies on
the candidates for reform.
(64) European Commission, 2021, Green taxation and other
economic instruments – Internalising environmental costs to
make the polluter pay.
(65) Ministry of Environment and Energy Security, Riforma 1.1 -
Strategia nazionale per l’economia circolare.
(66) European Commission, Study on assessing the environmental
fiscal reform potential for the EU 28, 2016.
(67) European Commission, 2021, Green taxation and other
economic instruments – Internalising environmental costs to
make the polluter pay.
42
Table A6.1: Indicators tracking progress on the European Green Deal from a macroeconomic perspective
'Fit for 55'
2030 Distance
2005 2017 2018 2019 2020 2021 target/value WEM WAM
Greenhouse gas emission reductions in effort sharing sectors (1) Mt CO2eq; %; pp 334,5 -19% -17% -18% -24% - -43,7% -14,7 -3,7
Progress to policy targets
Net carbon removals from LULUCF (2) kt CO2eq -35.557 -23.298 -45.171 -41.837 -32.545 -27.473 -35758 n/a n/a
National contribution to 2030 EU
2005 2017 2018 2019 2020 2021 target
Share of energy from renewable sources in gross final consumption of
% 8% 18% 18% 18% 20% 19% 30%
energy (3)
(3)
Energy efficiency: primary energy consumption Mtoe 180,8 148,9 147,2 145,9 132,3 145,3 125,1
Energy efficiency: final energy consumption (3) Mtoe 137,2 115,2 116,3 115,4 102,7 113,3 103,8
Italy EU
2016 2017 2018 2019 2020 2021 2019 2020 2021
Environmental taxes (% of GDP) % of GDP 3,5 3,3 3,3 3,2 3,0 3,0 2,4 2,2 2,2
Fiscal and financial
Environmental taxes (% of total taxation) (4) % of taxation 8,3 8,0 7,9 7,7 7,1 6,9 5,9 5,6 5,5
Government expenditure on environmental protection % of total exp. 1,8 1,8 1,8 1,9 1,7 1,7 1,70 1,61 1,6
Investment in environmental protection (5) 0,3 0,3 0,3 0,3 - - 0,4 0,4 0,4
indicators
% of GDP
Fossil fuel subsidies (6) EUR2021bn 5,9 6,0 5,6 5,7 5,1 - 53,0 50,0 -
Climate protection gap (7) score 1-4 2,4 2,4 1,5
Net greenhouse gas emissions 1990 = 100 83,0 85,0 84,0 84,0 82,0 78,0 76,0 69,0 72,0
Climate
Greenhouse gas emission intensity of the economy kg/EUR'10 0,29 0,28 0,27 0,27 0,27 - 0,31 0,30 0,26
Energy intensity of the economy kgoe/EUR'10 0,10 0,10 0,10 0,09 0,09 - 0,11 0,11 -
Final energy consumption (FEC) 2015=100 99,7 99,1 100,1 99,3 88,4 97,5 102,9 94,6 -
Energy FEC in residential building sector 99,0 101,2 98,2 95,8 94,3 98,6 101,3 101,3 106,8
2015=100
FEC in services building sector 2015=100 100,3 118,5 123,5 118,2 107,6 112,8 100,1 94,4 100,7
Smog-precursor emission intensity (to GDP) (8) tonne/EUR'10 0,70 0,74 0,69 0,71 0,67 - 0,93 0,86 -
Pollution
Years of life lost due to air pollution by PM2.5 per 100.000 inh. 854,5 884,6 782,5 711,6 775,0 - 581,6 544,5 -
Years of life lost due to air pollution by NO2 per 100.000 inh. 242,7 241,6 205,4 204,0 165,4 - 309,6 218,8 -
Nitrates in ground water mg NO3/litre - - - - - - 21,0 20,8 -
Land protected areas % of total 20,2 21,4 - 21,3 21,3 21,4 26,2 26,4 26,4
Biodiversity
Marine protected areas % of total 5,2 - - 5,4 - 6,9 10,7 - 12,1
% of total utilised
Organic farming 14,0 14,7 15,2 15,2 16,0 16,8 8,5 9,1 -
agricultural area
2017 2018 2019 2020 2021 2022 2020 2021 2022
% in new
Share of zero-emission vehicles (9) registrations
0,1 0,3 0,6 2,4 4,6 3,6 5,4 8,9 10,7
Mobility
Number of AC/DC recharging points (AFIR categorisation) - - - 13379 24122 32936 188626 330028 432518
Share of electrified railways % 71,4 71,6 71,6 - 71,6 70,2 56,6 n/a 56,6
Hours of congestion per commuting driver per year 37,4 37,3 37,2 - n/a n/a 28,7 n/a n/a
Sources: (1) Historical and projected emissions, as well as Member States’ climate policy targets and 2005 base year emissions
under the Effort Sharing Decision (for 2020) are measured in global warming potential (GWP) values from the 4th Assessment
Report (AR4) of the Intergovernmental Panel on Climate Change (IPCC). Member States’ climate policy targets and 2005 base
year emissions under the Effort Sharing Regulation (for 2030) are in GWP values from the 5th Assessment Report (AR5). The
table above shows the base year emissions 2005 under the Effort Sharing Decision, using AR4 GWP values. Emissions for 2017-
2021 are expressed in percentage change from 2005 base year emissions, with AR4 GWP values. 2021 data are preliminary. The
table shows the 2030 target under Regulation (EU) 2023/857 that aligns it with the EU’s 55% objective, in percentage change
from 2005 base year emissions (AR5 GWP). Distance to target is the gap between Member States’ 2030 target (with AR5 GWP
values) and projected emissions with existing measures (WEM) and with additional measures (WAM) (with AR4 GWP values), in
percentage change from the 2005 base year emissions. Due to the difference in global warming potential values, the distance to
target is only illustrative. The measures included reflect the state of play as of 15 March 2021.
(2) Net removals are expressed in negative figures, net emissions in positive figures. Reported data are from the 2023
greenhouse gas inventory submission. 2030 value of net greenhouse gas removals as in Regulation (EU) 2023/839
amending Regulation (EU) 2018/841 (LULUCF Regulation) – Annex IIa, kilotons of CO2 equivalent, based on 2020 submissions.
(3) Renewable energy and energy efficiency targets and national contributions are in line with the methodology established under
Regulation (EU) 2018/1999 (Governance Regulation).
(4) Percentage of total revenue from taxes and social contributions (excluding imputed social contributions). Revenue from the EU
Emissions Trading System is included in environmental tax revenue.
(5) Expenditure on gross fixed capital formation for the production of environmental protection services (abatement and
prevention of pollution) covering government, industry, and specialised providers.
(6) European Commission, Study on energy subsidies and other government interventions in the European Union, 2022 edition.
(7) The climate protection gap refers to the share of non-insured economic losses caused by climate-related disasters. This
indicator is based on modelling of the current risk from floods, wildfires and windstorms as well as earthquakes, and an
estimation of the current insurance penetration rate. The indicator does not provide information on the split between the
private/public costs of climate-related disasters. A score of 0 means no protection gap, while a score of 4 corresponds to a very
high gap (EIOPA, 2022).
(8) Sulphur oxides (SO2 equivalent), ammonia, particulates < 10 µm, nitrogen oxides in total economy (divided by GDP).
(9) Battery electric vehicles (BEV) and fuel cell electric vehicles (FCEV).
43
ANNEX 7: ENERGY SECURITY AND AFFORDABILITY
Italy is progressing with its efforts to reduce Italy operates nine storage fields (72) with a total
dependency on Russian fossil fuels, but capacity of around 19.8 billion cubic metres (bcm),
important challenges on the electricity representing 26% of its total yearly demand.
transmission and distribution system, on the Gazprom halved the amount of gas sent to Italy in
increase of renewable capacity and the June 2022. Since then, Italy put in place
reduction of the energy demand still need to determined energy diplomacy and diversified gas
supplies coming through the pipeline from Libya,
be addressed. Imported fossil fuels represent
Algeria and Azerbaijan. Extra volumes are
the bulk of Italy’s energy mix. This makes its
expected to come from Qatar, Egypt and the US.
economy particularly sensitive to global price
Following a legal issue, Gazprom resumed gas
developments, requiring it to step up efforts on the
deliveries to Italy via Austria on 5 October 2022.
energy transition. This Annex (68) sets out actions
Moreover, Italy received 1.36 bcm of Russian gas
carried out by Italy to achieve the REPowerEU
via liquefied natural gas (LNG) in 2022.
objectives, including through the implementation
of its recovery and resilience plan, in order to
Graph A7.1: Gas storage levels in Italy
improve energy security and affordability while
accelerating the clean energy transition, and
contributing to enhancing the EU’s competitiveness
in the clean energy sector (69).
Despite its high dependence on Russian gas
and the ‘Early Warning’ (70) issued in
February 2022, Italy showed a good level of
gas supply security in light of challenging
circumstances. Considering its strategic
geographical location, Italy’s natural gas
infrastructure can contribute to the overall security Source: JRC calculation based on AGSI+ Transparency
of supply in Europe. Italy fulfilled its gas storage Platform, 2022 (Last update 2 May 2023)
obligations last winter, reaching 95.45% by 1
November 2022 (well above the 80% EU legal The security of supply of the gas system and
obligation), and ended the heating season with a electricity system are closely interlinked, and
filling gas storage at 60.65% by 15 April 2023 (71). Italy has adopted a comprehensive plan with
demand response measures. Electricity security
in Italy had a share of 42% coming from
(68) It is complemented by Annex 6 as the European Green Deal renewable sources in 2021, with hydropower as
focuses on the clean energy transition, by Annex 8 on the the leading source, and 59% coming from thermal
actions taken to mitigate energy poverty and protect the
most vulnerable ones, by Annex 9 as the transition to a
power plants (49.9% natural gas, 5% coal and
circular economy will unlock significant energy and resource 1.5% petroleum) (Annex 6). To address the risk of
savings, further strengthening energy security and supply disruption and high energy prices, Italy
affordability, and by Annex 12 on industry and single market launched national campaigns on energy efficiency,
complementing ongoing efforts under the European Green
Deal and REPowerEU.
approved mandatory energy saving measures in
public and residential buildings, adopted heating
(69) In line with the Green Deal Industrial Plan COM(2023) 62
and cooling measures, and provided direct support
final, and the proposed Net-Zero Industry Act COM(2023)
161 final. to customers. Voluntary and mandatory energy
saving measures are expected to deliver 6.2 bcm
(70) According to Regulation (EU) 2017/1938 of the European
Parliament and of the Council of 25 October
2017 concerning measures to safeguard the security of gas
supply and repealing Regulation (EU) No 994/2010.
(72) Through its subsidiary company Stogit, Snam is the largest
(71) Regulation of the European Parliament and of the Council storage operator in Italy and one of the largest in Europe. It
amending Regulations (EU) 2017/1938 and (EC) No manages nine storage facilities: 5 in Lombardy (Brugherio,
715/2009 with regard to gas storage and Implementing Bordolano, Ripalta, Sergnano and Settala), 3 in Emilia-
Regulation (EU) 2022/2301 of 23 November 2022 setting Romagna (Cortemaggiore, Minerbio, Sabbioncello), and 1 in
the filling trajectory with intermediary targets for 2023 for Abruzzo (Fiume Treste). It operates in synergy with the
each Member State with underground gas storage facilities company’s transport and regasification infrastructure,
on its territory and directly interconnected to its market area. ensuring energy security for the country.
44
of natural gas savings in 2023 (73). Recent Italy is further upgrading its grid
measures and the high energy prices led to a gas infrastructure, but further infrastructure
demand reduction of about 19% over the period investments would be needed to
August 2022 – March 2023 when compared to the accommodate a higher share of renewable
previous 5-years average. However, no direct electricity. Italy will carry out investments to
interlinkages were established between the short- strengthen the grid in order to facilitate the
term emergency energy saving measures and integration of renewable energy sources. Its cross-
medium-term structural energy efficiency border electricity interconnection level is
improvements. approximately 5% in 2023, still significantly below
the interconnection target of 10% for 2020 and
Graph A7.2: Share of gas consumption per sector, 15% for 2030. Electricity interconnections
2021 currently in the pipeline with Austria and Slovenia
0.3%
would help progress towards the target. Besides
the cross-border interconnections, Italy also needs
27.0% Energy
to make progress with the internal bottlenecks in
Industry the energy grids, in particular the limited electricity
43.8% Transport
transmission capacity to connect areas with high
renewable generation capacity and the high
Services and public sector
energy consumption centres. The 2021 Ten Year
11.4% Households Network Development Plan envisages over EUR 18
Agriculture, forestry and
billion in investments in the national electricity
2.3% fishery transmission grid until 2030 to enable the energy
15.3%
transition and integrate the growing amount of
variable renewable production capacity from the
Source: Eurostat south and the islands.
On natural gas infrastructure, Italy has Graph A7.3: Gas consumption per industrial sector,
interconnectors with Switzerland, Austria, 2021 (% of total gas consumption in industry)
Slovenia and Albania via the Trans Adriatic
Pipeline as well as 3 LNG terminals. Moreover, Textile and leather
Construction
the Italian government mandated its transmission Wood and wood products
system operator Snam to purchase and set up two Paper, pulp and printing
additional floating storage and regasification units Food, beverages and tobacco
near the cities of Piombino (Tuscany) and Ravenna Mining and quarrying
(Emilia Romagna) with an annual regasification Machinery
capacity of 5 bcm. They benefit from an
Transport equipment
Non-metallic minerals
exemption from the environmental impact Non-ferrous metals
assessment to speed up implementation. One of Chemical and petrochemical
the terminals has been commissioned in 2023 and Iron and steel
the second one in 2024. To increase its import 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
transmission, the Italian transmission system Source: Eurostat
operator is considering improving its internal
transmission network, upgrading the Despite the measures taken by Italy to
interconnection point with Austria, and potentially mitigate the soaring energy prices,
also building an offshore pipeline with Spain. If the households, in particular low-income
Southern Gas Corridor is enhanced, the capacity of families, and industries are being severely
the Trans Adriatic Pipeline would need to be impacted. Based on Eurostat 2021 data, Italy
increased. In parallel, the internal bottlenecks in uses mainly gas for power generation (32.5 bcm)
the Italian network would need to be removed by and household consumption (20 bcm). This puts
realising the Projects of Common Interest Adriatica households at risk and their ability to cover basic
Line and the Matagiola-Massafra pipeline. needs such as heating or transport (74). Similarly,
(73) Italian national plan to contain national gas consumption
(Piano nazionale di contenimento dei consumi di gas (74) Annex 8 looks at the impact of soaring energy prices on the
naturale) 2022. most vulnerable households.
45
the surge in energy prices has had a considerable This was mostly due to the growth in solar PV (2.5
impact on the Italian industry, which consumes GW of new capacity added), especially
around 12 bcm of gas. Industrial sectors such as decentralised installations, whose growth was
non-metallic minerals, chemicals, paper, iron and driven by simplified permitting procedures and
steel are heavily exposed to energy shocks and are support schemes. Nevertheless, progress is still too
experiencing growing pressure to either raise their slow regarding permitting for larger renewable
prices to safeguard margins or reduce production generation facilities. The permitting timeline for
due to the high share of energy consumption. solar PV and wind is 1.5 and 5 years respectively.
This is mostly due to the fragmentation of
Graph A7.4: Italy´s retail energy prices for competencies and the involvement of many
industry (top) and households (bottom) stakeholders. Slow procedures are the main reason
for the low participation rate in auctions for
renewable energy deployment. A contribution to
renewables development could come from
innovative forms of deployment such as agri-PV,
which will be supported under the recovery and
resilience plan. Offshore wind energy represents
an important potential in Italy to reduce
dependence on fossil fuels. In 2022, Italy
completed the construction of its first offshore
wind farm in Taranto after a lengthy permitting
process. The development of innovative floating
offshore renewables is supported by the RRP
Mission 2 to trigger innovation in the sector. Wind
power, including offshore wind power, can boost
the recovery, but some structural revisions
hindering the development of the sector need to
be addressed.
There is still potential to further explore key
sectors to meet the country’s renewables
penetration and decarbonisation targets. The
(1) On electricity, the band consumption is DC for households national association of biogas/biomethane
and ID for industry producers has estimated Italy’s potential for
(2) On gas, the band consumption is D2 for households and I4 biomethane production in 2030 to be
for industry approximately 8 bcm/year. Italy has put in place
Source: Eurostat
large investments in biomethane, including as part
of its RRP. It adapted its legislative framework to
Italy has high ambitions to transform its incentivise the use of biomethane, but further
energy system, and further policy support implementation measures are required, in
could steer its potential for decarbonising particular to set specific tariffs. Another example
the economy. Renewable capacity grew very is provided by geothermal energy, where Italy has
slowly in the last period. From 2016 to 2021, Italy been a historical frontrunner, but the sector has
added only around 5.8 GW (slightly more than 1 seen limited development in recent years. A
GW per year) to its renewable energy capacity, specific plan to develop geothermal potential,
reaching a total of 58 GW. In 2021, the installed notably to reduce dependency on imported fossil
solar PV capacity increased by 4.4% compared to gas, has not been developed yet.
the year before (22.6 GW total capacity), while
wind grew by 3.5% (11.3 GW total capacity). Data Improving efficiency potential in key sectors
from 2022 show an accelerating trend, with could contribute to Italy’s energy
around 3 GW of additional capacity installed (75). independence, affordability and
decarbonisation objectives. Energy efficiency of
(75) Terna, renewable installed capacity,
buildings will remain a key priority for Italy, in
https://www.terna.it/it/sistema-elettrico/dispacciamento/fonti- particular with regard to the worst performing
rinnovabili buildings. Its building stock has considerable
46
energy efficiency potential, considering in thermal and solar PV), which it aims to
particular the large share of old and low energy strengthen in order to achieve the
buildings. For instance, in the residential sector, decarbonisation objectives. According to
65% of buildings are over 45 years old, i.e. before EurObserv’ER indicative estimate, the deployment
the first law on energy savings was passed. At the of clean energy technologies had the biggest
moment, Italian public budget financing schemes impact on conventional energy sector employment
do not target worst performing buildings, low- in Italy, among other countries (79). In 2021, the
income households and deep renovations. Most of renewable energy direct and indirect employment
the schemes to support energy renovations in (all technologies) in Italy totalled 68.173 jobs (80).
residential buildings are grant-based such as the Public investment in research and innovation (R&I)
successful Conto Termico for energy efficiency in the energy field (81) decreased from 0.036% in
measures and on-site renewables, and/or the well- 2014 to 0.024% in 2019 (as a share of GDP),
known 110% Superbonus tax credit, and the use while no absolute change (as a share of GDP) was
of financial instruments is rather limited. A stable recorded over the same period for private
targeted support framework could ensure that the investment in R&I (82) (83). There was an upward
goals envisaged in Italy’s Long-term Renovation trend in venture capital invested (84) in climate
Strategy are achieved. Italy is not carrying out
checks on products covered by ecodesing and
energy labelling. This generates serious concerns (79) EurObserv’ER. 2022. The State of Renewable Energies in
with respect to the level playing field among Europe. Edition 2021 – 20th EurObserv’ER Report.
economic operators and uncertainty as to the (80) Source IRENA and ILO (2022), Renewable energy and jobs:
compliance levels of the concerned products, and Annual review 2022, Interna.onal Renewable Energy Agency,
Abu Dhabi and Interna.onal Labour Organiza.on, Geneva.
therefore possible missed energy and CO2
Data are principally for 2021, with some dates for 2020 and
savings (76). a few instances in which only earlier informa.on is available.
The data for hydropower include direct employment only and
Increased energy efficiency in industry and for other technologies include both direct and indirect
employment wherever possible. 'Other Technologies' include
tertiary sectors remains key to help boost EU jobs not broken down by individual renewable energy
energy independence, competitiveness and technologies.
decarbonisation. The key enabling measures to (81) Renewables, smart systems, efficient systems, sustainable
increase energy efficiency in businesses are the transport, carbon capture, utilisation and storage, and nuclear
Italian white certificate scheme and the positive safety, COM(2015) 80 final (Energy Union Package).
coverage in terms of the energy audit obligation. (82) Private R&D spending on Energy Union topics was 0.041% in
However, the public budget support available to 2014 and 0.041% in 2019 as a share of GDP (EUR 668.6
increase energy efficiency uptake in businesses, million and EUR 731.2 million respectively). Source: JRC
SETIS (20222) https://setis.ec.europa.eu/publications/setis-
and in particular in micro, Small and Medium research-and-innovation-data_en Mountraki, A., Georgakaki,
Enterprises, is limited by the small capacity of the A., Shtjefni, D., Ince, E. and Charleston, G., RandI data for
National Energy Efficiency Fund (77) and the SETIS and the State of the Energy Union Report, European
absence of dedicated technical support. This limits Commission, 2022, JRC130405.
http://data.europa.eu/89h/jrc-10115-10001
the possibility to access low-interest finance and
implement energy audit recommendations. (83) Italy is among the 5 EU countries with the highest public
investment in solar energy technologies (peaking at 0.0034
of GDP in 2014). Also among the 5 countries with the
Italy has a traditionally strong highest level of private investments in PV for the period
manufacturing base of low-carbon 2010-2018. Source: JRC analysis based on (Fiorini et al.,
technologies and components (wind (78), solar 2017; Pasimeni, Fiorini and Georgakaki, 2019) in Clean
Energy Technology Observatory: Photovoltaics in the
European Union 2022 Status Report on Technology
(76) The internet-supported information and communication Development, Trends, Value Chains and Markets.
system for the pan-European market surveillance
(84) Venture capital investment includes venture capital deals (all
(77) The Italian National Energy Efficiency Fund has a capacity of stages) and private equity growth/expansion deals (for
EUR 310 million to support the financing of energy efficiency companies that have previously been part of the portfolio of
measures in businesses and public authorities. a venture capital investment firm). Venture capital deals are
defined as early-stage deals (including pre-seed,
(78) Italy is one of the leading markets in the EU with a
accelerator/incubator, angel, seed, series A and B occurring
substantial number of manufacturers. The
within 5 years of the company's founding date) and later-
WindEurope/WoodMackenzie (2020) data set covers Tier1
stage deals (usually series B to series Z+ rounds and/or
and Tier2 component manufacturers of the following
occurring more than 5 years after the company's founding
components: Nacelle, Bearings, Blades, Converters,
date, undisclosed series and private equity
Gearboxes, Generators, Castings, Forgings, Towers.
growth/expansion).
47
tech start-ups and scale-ups, which are at the
forefront of innovation (1.1% in 2021 compared to
0.1% in 2019 as a percentage of total venture
capital invested in Italy) (85), which follows the EU
growing trend in 2021. More public and private
investment in clean energy R&I, like the TANGO
(iTaliAN pv Giga factOry) (86) in Catania (Sicily) are
pivotal in bridging the gap between R&I and
market uptake and boosting EU competitiveness.
(85) The analysis presented in this section is based on the JRC
calculation of Pitchbook data. PitchBook currently identifies
more than 2 750 venture capital companies in its climate
tech vertical.
(86) The project was selected as part of EU’s first Innovation Fund
call for large-scale projects. ENEL had already set up a 200
MW heterojunction pilot production line in its production
plant in Catania (Sicily) back in 2017. With the TANGO
project, the capacity of ENEL’s cell production plant will
increase to 400 MW in September 2023 and 3,000 MW by
July 2024. The total investment in the new module factory
will reach EUR 600 million, with the European Union and the
Italian government contributing up to EUR 188 million. Enel
Green Power will initially target the European market, where
it is required to sell up to 60% of its products, due to
conditions related to the aforementioned EU funding. This
will generate a total of 1,000 indirect jobs, including current
ones, by 2024, according to the company.
48
Table A7.1: Key Energy Indicators
ITALY EU
2018 2019 2020 2021 2018 2019 2020 2021
Import Dependency [%] 76% 77% 73% 74% 58% 61% 57% 56%
ENERGY DEPENDENCE
of Solid fossil fuels 101% 99% 93% 97% 44% 44% 36% 37%
of Oil and petroleum products 90% 93% 89% 84% 95% 97% 97% 92%
of Natural Gas 93% 95% 93% 94% 83% 90% 84% 83%
Dependency from Russian Fossil Fuels [%]
of Hard Coal 36% 43% 56% 62% 40% 44% 49% 47%
ofCrude Oil 9% 14% 11% 10% 30% 27% 26% 25%
of Natural Gas 48% 47% 43% 40% 40% 40% 38% 41%
2015 2016 2017 2018 2019 2020 2021 2022
Gross Electricity Production (GWh) 282,993 289,768 295,830 289,708 293,853 280,531 289,070 -
Combustible Fuels 191,458 198,693 208,824 192,129 195,084 180,805 189,132 -
Nuclear 0 0 0 0 0 0 0 -
ELECTRICITY
Hydro 46,969 44,257 38,025 50,503 48,154 49,495 47,478 -
Wind 14,844 17,689 17,742 17,716 20,202 18,762 20,927 -
Solar 22,942 22,104 24,378 22,654 23,689 24,942 25,039 -
Geothermal 6,185 6,289 6,201 6,105 6,075 6,026 5,914 -
Other Sources 595 736 661 601 650 501 579 -
Net Imports of Electricity (GWh) 46,378 37,027 37,761 43,899 38,141 32,200 42,790 -
As a % of electricity available for final consumption 16% 13% 13% 14% 13% 11% 14% -
Electricity Interconnection (%) - - - - 8.7% 8.8% 3.8% 4.0%
2015 2016 2017 2018 2019 2020 2021 2022
Gas Consumption (in bcm) 67.5 70.9 75.2 72.7 74.3 70.9 76.1 68.5
Gas Imports - by type (in bcm) 67.1 71.5 77.5 76.6 84.9 78.7 82.9 -
Gas imports - pipeline 61.3 65.3 69.7 67.9 71.1 66.4 73.0 -
DIVERSIFICATION OF GAS SUPPLIES
Gas imports - LNG 5.8 6.2 7.9 8.7 13.8 12.3 9.9 -
Gas Imports - by main source supplier (in bcm) (1)
Russia 27.7 26.8 33.1 32.9 33.4 28.7 29.2 -
Algeria 7.7 19.6 20.2 18.8 16.5 18.4 23.8 -
Qatar 11.5 11.0 13.5 13.1 13.1 13.9 13.7 -
Azerbaijan 0.0 0.0 0.0 0.0 0.0 0.0 7.2 -
Others 20.2 14.0 10.7 11.8 21.8 17.7 9.0 -
2019 2020 2021 2022
LNG Terminals
Number of LNG Terminals (2) 3 3 3 3
LNG Storage capacity (m3 LNG) 487,500 487,500 487,500 487,500
Underground Storage
Number of storage facilities 14 14 14 14
Operational Storage Capacity (bcm) 20.1 20.2 20.2 19.8
2019 2020 2021 2022
VC investments in climate tech start-ups and scale-ups
1.0 0.1 15.9 n.a.
(EUR Mln) (3)
CLEAN ENERGY
as a % of total VC investments in Italy 0.1% 0.0% 1.1% n.a.
Research & Innovation spending in Energy Union R&i
priorites
Public R&I (EUR mln) 417.3 n.a. n.a. n.a.
Public R&I (% GDP) 0.023% n.a. n.a. n.a.
Private R&I (EUR mln) 731.2 n.a. n.a. n.a.
Private R&I (% GDP) 0.04% n.a. n.a. n.a.
(1) The ranking of the main suppliers is based on the latest available figures (for 2021)
(2) FSRU included
(3) Venture Capital investments include Venture Capital deals (all stages) and Private Equity Growth/Expansion deals (for
companies that have previously been part of the portfolio of a VC investment firm).
Source: Eurostat, Gas Infrastructure Europe (Storage and LNG Transparency Platform), JRC SETIS (2022), JRC elaboration based
on PitchBook data (06/2022)
49
ANNEX 8: FAIR TRANSITION TO CLIMATE NEUTRALITY
This Annex monitors Italy’s progress in workers) along with the decline of coal and lignite
ensuring a fair transition towards climate mining. Total jobs in the environmental goods and
neutrality and environmental sustainability, services sector grew by 10.5% (to 435 677) during
notably for workers and households in 2015-19 (EU: 8.3%), reaching 1.7% of total
vulnerable situations. The number of jobs in the employment, close to the EU average (see Annex 9
green economy has quickly risen. To ensure a fair for circular jobs specifically). The job vacancy rate
green transition in line with the Council in construction, a key sector for the green
Recommendation (87), upskilling and reskilling transition, is 3.3% vs 4.0% in the EU (2022) (89).
measures will promote smooth labour market Since 2016, through the Green&Blue Economy
transitions and the implementation of REPowerEU. project, local authorities in Sardinia, in cooperation
Italy's recovery and resilience plan (RRP) outlines with business communities, offer various training
crucial reforms and investment for a fair green courses related to roles within the green economy.
transition (88), such as significant investment in
energy efficiency in residential and public Upskilling and reskilling in declining and
buildings, sustainable transport and renewable transforming sectors has slightly increased.
energy, complementing the territorial just Skills are key for smooth labour market transitions
transition plans and action supported by the and preserving jobs in transforming sectors. In
European Social Fund Plus (ESF+). energy-intensive industries, workers’ participation
in education and training has increased from 6.3%
Graph A8.1: Fair transition challenges in Italy in 2015 to 7.7% in 2022, remaining below the EU
average (10.4%). In 2020, green skills were
EU Latest IT Latest (vs EU Latest) IT 2015 (vs EU Latest)
considered important for around 38% of
GHG per worker vacancies (90), while in 2022 43% of citizens
believed they did not have the necessary skills to
2.5
2
Carbon 1.5
Employment EII
contribute to the green transition (EU: 38 %) (91)
inequality
1
(cf. Annex 15).
0.5
0
To address this challenge, the Just Transition
Transport
poverty
Education & Mechanism assists workers and jobseekers
training EII
(proxy)
through up- and reskilling, as well as support
for job creation on green subjects. Support
Energy poverty
focuses particularly on two territories: Sulcis
Source: Eurostat, EMPL-JRC GD-AMEDI/AMEDI+ projects and
Iglesiente, headquarter of Italy’s last coal mine,
World Inequality Database (see Table A8.1). and Taranto, which hosts one of Europe’s largest
steel mills (ILVA). Furthermore, through funding
Employment in Italy’s most affected sectors under its RRP and REACT-EU, a broader training
remains stable while the green economy is offer is financed at national level, including
innovative doctorate-level studies relevant to
expanding, but workers in declining activities
green skills as well as training for both employed
need active support. The greenhouse gas (GHG)
workers and those looking for a job (Fondo e Piano
emissions intensity of Italy’s workforce declined Nuove Competenze). In Italy, around 14% of ESF+
from 13.8 to 12.4 tonnes per worker between funding contributes to green skills and jobs.
2015 and 2021, and is now below the EU average
of 13.7 tonnes in 2021 (see Graph A8.1 and Significant progress has been made on
Table A8.1). Employment in Italy’s energy- people’s ability to keep homes adequately
intensive industries (EII) represented a share of
warm, but the spike in energy prices is
2.4% of total employment in 2020 (EU average:
expected to worsen the situation. The share of
3.0%). Employment in mining and quarrying
decreased by 9.8% since 2015 (to around 21 000
(89) Eurostat (JVS_A_RATE_R2)
(87) Council Recommendation of 16 June 2022 on ensuring a fair
transition towards climate neutrality (2022/C 243/04) covers (90) European Commission, European Centre for Expertise (ECE)
employment, skills, tax-benefit and social protection article on skills shortages and structural changes in the
systems, essential services and housing. labour market (forthcoming).
(88) See 2022 Country Report (Annex 6 and Annex 3) for an (91) Special Eurobarometer 527. Fairness perceptions of the
overview. green transition (May – June 2022).
50
Table A8.1: Key indicators for a fair transition in Italy
Indicator Description IT 2015 IT Latest EU Latest
GHG per worker Greenhouse gas emissions per worker - CO2 equivalent tonnes 13.8 12.4 (2021) 13.7 (2021)
Employment share in energy-intensive industries, including mining and quarrying (NACE B), chemicals (C20),
Employment EII 2.5 2.4 (2020) 3 (2020)
minerals (C23), metals (C24), automotive (C29) - %
Education & training EII Adult participation in education and training (last 4 weeks) in energy-intensive industries - % 6.3 7.7 (2022) 10.4 (2022)
Energy poverty Share of the total population living in a household unable to keep its home adequately warm - % 17 8.1 (2021) 6.9 (2021)
Transport poverty (proxy) Estimated share of the AROP population that spends over 6% of expenditure on fuels for personal transport - % 47.8 52.3 (2023) 37.1 (2023)
Carbon inequality Average emissions per capita of top 10% of emitters vs bottom 50% of emitters 4.7 4.7 (2020) 5 (2020)
Source: Eurostat (env_ac_ainah_r2, nama_10_a64_e, ilc_mdes01), EU Labour Force Survey (break in time series in 2021), EMPL-
JRC GD-AMEDI/AMEDI+ projects and World Inequality Database (WID).
those unable to keep their homes adequately would affect the middle class in particular. Among
warm declined to 8.1% in 2021 (2015: 17%) (92). the (expenditure-based) AROP population, the
In 2021, 17% of the population at risk of poverty share of individuals living in households with
(EU: 16.4%) and 8.3% of lower middle-income budget shares for private transport fuels (96) above
households (in deciles 4-5) were affected (EU: 6% would have increased less than the EU
8.2%). Energy poverty is higher in the South and average (4.5 pps vs 5.3 pps), reaching 52.3% in
on the islands (around 14% in both), and lower in January 2023 (EU: 37.1%) due to the increase in
urban and suburban areas. (93) Before the energy transport fuel prices.
price hikes, an estimated 20.8% of the total
population and 49.1% of the (expenditure-based) Graph A8.2: Distributional impacts of energy prices
at-risk-of-poverty (AROP) population had due to rising energy expenditure (2021-2023)
residential expenditure budget shares on IT Gas IT Electricity EU Gas EU Electricity
electricity, gas, and other fuels (94) above 10% of 10.0%
their household budget (EU: 26.9% and 48.2%, 9.0%
8.0%
respectively). The RRP includes measures 7.0%
stimulating the construction of efficient district 6.0%
heating networks in urban areas. 5.0%
4.0%
3.0%
The increased energy prices in 2021-2023 2.0%
negatively affect household budgets, in 1.0%
0.0%
particular for low-income groups. As a result Gas
Electricity
Gas
Electricity
Gas
Electricity
Gas
Electricity
Gas
Electricity Electricity
Gas
Electricity
Gas
Electricity
Gas
Electricity
Gas
Electricity
Gas
of energy price changes during the August 2021 to D1 D2 D3 D4 D5 D6 D7 D8 D9 D10
January 2023 period relative to the 18 months
Mean change of energy expenditure as a percentage (%) of
prior (cf. Annex 7), in the absence of policy support total expenditure per income decile (D) due to observed price
and behavioural responses, the share of changes (August 2021 – January 2023 relative to the 18
individuals living in households which spend more months prior), excl. policy support and behavioural responses.
than 10% of their budget on energy would have Source: EMPL-JRC GD-AMEDI/AMEDI+ projects, based on
increased by 30.0 percentage points (pps) for the Household Budget Survey 2015 and Eurostat inflation data
for CP0451 and CP0452.
whole population and by 35.3 pps among the
(expenditure-based) AROP population, much more
Access to public transport displays an urban-
than for the EU (16.4 pps and 19.1 pps,
respectively). (95) Expenditure shares of low and rural divide. Around half the population perceive
lower-middle income groups would have increased public transport to be available (48% vs 55% in
the most, particularly for electricity, and to a lower the EU), affordable (52% vs 54%) and of good
extent for gas, as shown in Graph A8.2. By quality (50% vs 60%). As regards these
contrast, transport fuel price increases in Italy perceptions, rural areas in Italy perform worse
than urban areas, yet are still better when
compared to rural areas in the EU overall (97). The
(92) Energy poverty is a multi-dimensional concept. The indicator
used focuses on an outcome of energy poverty. Further average carbon footprint of the top 10% of
indicators are available at the Energy Poverty Advisory Hub. emitters among the population in Italy is about 4.8
(93) Osservatorio Italiano sulla Povertà Energetica, link.
times higher than that of the bottom 50% (see
Graph A8.1), i.e. slightly less pronounced than the
(94) Products defined according to the European Classification of
Individual Consumption according to Purpose (ECOICOP): CP045.
(96) ECOICOP: CP0722.
(95) EMPL-JRC GD-AMEDI/AMEDI+ ; see details in the related
technical brief. (97) Special Eurobarometer 527.
51
EU average (5.0 times). In Italy, the average levels
of air pollution in 2020 stood above the EU
average (15 vs 11.2 µg/m PM2.5), with 94% of the
population living in regions exposed to critical
levels of air pollution (98), leading to significant
health impacts, in particular on vulnerable groups,
and 52 300 premature deaths annually (99).
(98) Two times higher than the recommendations in the WHO Air
Quality Guidelines (annual exposure of 5µg/m3)
(99) EEA- Air Quality Health Risk Assessment
52
PRODUCTIVITY
ANNEX 9: RESOURCE PRODUCTIVITY, EFFICIENCY AND CIRCULARITY
The circular economy transition is key to Graph A9.1: Trend in material use
delivering on the EU’s climate and 16.0 120.0
environmental goals and provides large 14.0
socio-economic benefits. It spurs job growth, 12.0
100.0
innovation and competitiveness and fosters 80.0
10.0
tonnes/capita
resilience and resource security. The circularity
kg/capita
8.0 60.0
transition of industry, the built environment and
6.0
agri-food can generate significant environmental 40.0
improvements (see Annex 6), as they rank among 4.0
20.0
the most resource-intensive systems. 2.0
0.0 0.0
2016 2017 2018 2019 2020 2021
Italy is on track to meet the EU’s circular
Material footprint Italy (tonnes/capita)
economy goals, although there remain areas Material footprint EU-27 (tonnes/capita)
in which improvement is needed. The EU’s Trade in recyclable raw materials Italy (imports extra EU, kg/capita)
2020 circular economy action plan (CEAP) aims at Trade in recyclable raw materials EU-27 (imports extra EU, kg/capita)
doubling circular material use by 2030 vs 2020. Source: Eurostat
Italy’s circular use of material increased from
17.8% in 2016 to 18.4% in 2021, well above the
EU 2020 average of 11.7%. The CEAP also aims to Graph A9.2: Treatment of municipal waste
significantly decrease the EU’s material footprint. 600 487
497 503
Italy’s material footprint at 9.8 tonnes/head was 488 499
well below the EU average of 13.7 tonnes/head in 500
2020. Despite limited data availability, the labour
market benefits of the circular transition are 400
Kg per capita
materialising, with an increase in direct circular
jobs since 2016 (see Annex 8). As regards health 300
and safety in circular jobs, fatal accidents in waste
200
management and materials recovery are above
the average of all economic sectors in Italy but
100
below the EU average (100).
0
Italy adopted a national strategy for the 2016 2017 2018 2019 2020
circular economy in June 2022. Italy also has a Difference waste generated/treatment
Landfill/disposal
national circular economy network and platform.
Total incineration (including energy recovery)
Furthermore, Italy adopted a national programme Composting and digestion
for waste management (101). Italy had a recovery Material recycling
and resilience plan milestone in 2022 for setting EU-27
selection criteria for flagship circular economy Source: Eurostat
projects. Since 2021 the Commission’s technical
support instrument has been supporting a project Italy demonstrates steady improvements in
on measuring circular economy processes, and in waste management performance despite
2023 a project is starting up on industrial regional differences. There has been a
ecosystems for sustainable tourism. Regions in consistent increase in recycling (51.4% in 2020 vs
Italy are at different stages of development in the EU average of 48.5% in 2021 (103) and a
terms of circular economy policies, with those in decrease in landfilling (with a 20% share in 2020).
the centre-north more advanced (102). The centre and south of the country perform less
well than the north (104), with a lower separate
collection rate and recycling performance and the
(100) Eurostat [HSW_N2_02] for NACE Rev. 2 sector E38; 5.70
fatal accidents p.100 000 employed in 2018-2020 vs 2.58
for all sectors in IT; 6.33 in the EU-27 for sector E38.
(103) N.B. no data available for Italy for 2021
( ) Ministry of Environment and Energy Security
101
(104) ISPRA, Rapporto Rifiuti Urbani 2022, (e.g. p. 40 on separate
( ) Politecnico di Milano, 2022.
102
collection by region & p. 239 on quantity-based pricing).
53
Table A9.1: Overall and systemic indicators on circularity
Latest year
AREA 2016 2017 2018 2019 2020 2021 EU-27 EU-27
Overall state of the circular economy
Material footprint (tonnes/capita) 10.9 11.2 11.6 10.9 9.8 - 13.7 2020
YoY growth in persons employed in the circular economy (%)1 0.0 0.5 - 3.4 - - 2.9 2019
Water exploitation index plus (WEI+) (%) 9.8 14.1 7.3 7.3 - - 3.6 2019
Industry
Resource productivity (purchasing power standard (PPS) per kilogram) 3.5 3.6 3.6 3.6 3.7 3.5 2.3 2021
2
Circular material use rate (%) 17.8 18.4 18.8 19.5 20.6 18.4 11.7 2021
Recycling rate (% of municipal waste) 45.9 47.8 49.8 51.4 51.4 - 49.6 2021
Built environment
Recovery rate from construction and demolition waste (%)3 98.0 - 98.0 - 98.0 - 89.0 2020
Soil sealing index (base year = 2006)4 103.1 - 106.4 - - - 108.3 2018
Agri-food
Food waste (kg per capita)5 - - - - 146.0 - 131.0 2020
Composting and digestion (kg per capita) 94.0 98.0 105.0 107.0 116.0 - 100.0 2021
(1) Persons employed in the circular economy only tracks direct jobs in selected sub-sectors of NACE codes E, C, G and S; (2) the
circular material use rate measures the share of material recovered and fed back into the economy in overall material use; (3) the
recovery rate of construction and demolition waste includes waste which is prepared for reuse, recycled or subject to material
recovery, including through backfilling operations; (4) soil sealing: 2016 column refers to 2015 data; (5) food waste includes
primary production, processing and manufacturing, retail and distribution, restaurants and food services, and households.
Source: Eurostat, European Environment Agency
use of quantity-based pricing almost exclusively in estimated 15 ha/day are lost to soil sealing and
the north. In June 2022, there were still 23 erosion. A law on containing the loss of land and
irregular landfills for which Italy is paying fines. soil reuse is pending in the Italian parliament. The
Campania is continuing to pay fines for poor waste 2023 budget law sets up a soil protection fund.
management, after it was sanctioned by the Court The restoration of land sites without an owner was
of Justice of the EU for its previous waste- also a 2022 RRP milestone. Furthermore, links
management policies. Italy is not considered at between land use, water abstraction and circularity
risk of missing the EU’s 2025 targets for recycling underpin the national circular economy strategy.
of municipal and packaging waste, but efforts are
necessary to comply with later-date EU targets. The agri-food system has yet to design out
food waste and efficiently manage water
The industrial system in Italy is increasingly resources. Italy’s composting and anaerobic
circular. The economy, particularly industry, is digestion per head has increased and is above the
more efficient at using materials than the EU EU average. Increasing anaerobic digestion
average, with a resource productivity of 3.4 PPS enhances Italy’s autonomy in generating
per kg in 2021 vs 2.3 for the EU (see Annex 5). biomethane and/or organic fertilisers. Scope
Italy’s consumption footprint is above the EU remains for using more efficient techniques to
average and its material input dependency is promote water reuse and reduce leakages.
almost double the EU average, which can threaten
competitive sustainability. Italy performs better There remains a financing gap in the circular
than the EU average for SMEs green performance economy, including waste management
and is a frontrunner on green public procurement. requiring additional investments. The financing
gap was estimated at EUR 3.2 billion per year
The built environment system provides an between 2014 and 2020. Over this period,
opportunity to increase resource efficiency. investment needs were estimated to be at least
The recovery rate of construction and demolition EUR 6.6 billion per year, while investment
waste has remained steady since 2016 (98% in baselines were EUR 3.4 billion per year (see Annex
2020) and above the EU average (89% in 2020). 6). Italy is using funds from the ERDF and RRF for
Soil sealing has increased between 2015 and
2018 at a faster rate than the EU average; ISPRA
54
recycling. The capacity gap is estimated at 5.2
million tonnes by 2035 (105).
(105) Cassa Depositi e Presiti, Brief, 2023
55
ANNEX 10: DIGITAL TRANSFORMATION
Digital transformation is key to ensuring a has the lowest share of ICT graduates in the EU
resilient and competitive economy. In line with (1.4% of all Italian graduates in 2020 studied ICT,
the Digital Decade Policy Programme, and in compared with an EU average of 3.9%). The share
particular with the targets in that Programme for of ICT specialists is also below the EU average
digital transformation by 2030, this Annex (see also annex 15 for further information on
describes Italy’s performance on digital skills, measures taken).
digital infrastructure/connectivity and the
digitalisation of businesses and public services. As regards digital infrastructure/
Where relevant, it makes reference to progress on connectivity, although Italy recorded
implementing the Recovery and Resilience Plan progress on 5G, the country needs to
(RRP). Italy allocates 25% of its total RRP budget increase its very high capacity network
to digital (EUR 48.1 billion) (106). (VHCN) coverage, including in remote/rural
areas. In 2022 a significant increase is observable
The Digital Decade Policy Programme sets in the percentage of households covered by VHCN,
out a pathway for Europe’s successful digital including fibre to the premises. However, it still
transformation by 2030. The Programme remains considerably below the EU average (54 %
provides a framework for assessing the EU’s and vs 73 %). For 5G, the overall coverage reaches
Member States’ digital transformation, notably via 100 % of populated areas and the coverage on
the Digital Economy and Society Index (DESI). It the 3.4-3.8 GHz spectrum band attains 80% of
also provides a way for the EU and its Member populated areas. Italy has started to implement
States to work together, including via multi- one of its RRP measures with five projects that are
country projects, to accelerate progress towards expected to help improve fixed connectivity
the Digital Decade digital targets and general throughout the country. The public contracts for all
objectives (107). More generally, several aspects of five projects have been awarded and are currently
digital transformation are particularly relevant in being implemented.
the current context. In 2023, the European Year of
Skills, building the appropriate skillset to make full Most Italian companies have a basic level of
use of the opportunities that digital transformation digital intensity, and performance on the
offers is a priority. A digitally skilled population uptake of advanced digital technologies is
increases the development and adoption of digital mixed. Most Italian SMEs have at least a basic
technologies and leads to productivity gains (108). level of digital intensity and the share of
Digital technologies, infrastructure and tools all enterprises using cloud services is particularly
play a role in the fundamental transformation high. However, Italy’s performance remains weak
needed to adapt the energy system to the current in other areas, namely the use of big data and of
structural challenges (109). technologies based on artificial intelligence. The
partially RRP-funded national ‘Transition 4.0’ plan
Stepping up work to improve digital skills has been launched and is expected to support
remains a key priority for Italy, to support an enterprises' uptake of digital technologies through
inclusive and robust digital transformation. tax credits for research and development, and the
Italy has very low levels of basic digital skills and purchase of tangible and intangible goods.
(106) The share of financial allocations that contribute to digital Italy is making progress in implementing
objectives has been calculated using Annex VII of the RRF major e-government projects, but results are
Regulation. still not fully reflected in the indicators. The
(107) The Digital Decade targets as measured by DESI indicators provision of digital public services to citizens and
and complementary data sources are integrated to the businesses is still below EU average. The online
extent currently available and/or considered particularly
relevant in the MS-specific context. interaction with public authorities is slightly above
the EU average (76% of internet users vs the EU
(108) See for example OECD (2019): OECD Economic Outlook,
Digitalisation and productivity: A story of complementarities,
average of 74%). Italy’s performance regarding
OECD Economic Outlook, Volume 2019 Issue 1 | OECD the access to electronic health records is in line
iLibrary (oecd-ilibrary.org). with the EU average with a score of 71 out of 100.
(109) The need and possible actions for a digitalisation of the The ‘Italia Digitale 2026’ plan is expected to
energy system are laid out in the Communication modernise public administration and services, with
‘Digitalisation the energy system – EU action plan’ RRP support. The uptake of electronic identification
(COM(2022)552.
56
(eID), provided via two schemes notified under the
eIDAS regulation, continues to increase: The Italian
eID card (Carta di Identità elettronica) is notified at
level of assurance ‘high’. The second scheme, SPID
– Public System of Digital Identity, offers eID
means offered at levels of assurance ‘low’,
‘substantial’, and ‘high’.
Table A10.1: Key Digital Decade targets monitored by DESI indicators
Digital Decade
Italy EU target by 2030
DESI 2021 DESI 2022 DESI 2023 DESI 2023 (EU)
Digital skills
At least basic digital skills NA 46% 46% 54% 80%
% individuals 2021 2021 2021 2030
ICT specialists (1) 3.6% 3.8% 3.8% 4.5% 20 million
% individuals in employment aged 15-74 2020 2021 2021 2021 2030
Digital infrastructure/connectivity
Fixed Very High Capacity Network (VHCN) coverage 34% 44% 54% 73% 100%
% households 2020 2021 2022 2022 2030
Fibre to the Premises (FTTP) coverage (2) 34% 44% 54% 56% -
% households 2020 2021 2022 2022 2030
Overall 5G coverage 8% 100% 100% 81% 100%
% populated areas 2020 2021 2022 2022 2030
5G coverage on the 3.4-3.8 GHz spectrum band NA NA 80% 41% -
% populated areas 2022 2022 2030
Digitalisation of businesses
SMEs with at least a basic level of digital intensity NA NA 70% 69% 90%
% SMEs 2022 2022 2030
3
Big data ( ) 9% 9% 9% 14% 75%
% enterprises 2020 2020 2020 2020 2030
Cloud (3) NA 52% 52% 34% 75%
% enterprises 2021 2021 2021 2030
Artificial Intelligence (3) NA 6% 6% 8% 75%
% enterprises 2021 2021 2021 2030
Digitalisation of public services
Digital public services for citizens NA 67 68 77 100
Score (0 to 100) 2021 2022 2022 2030
Digital public services for businesses NA 79 75 84 100
Score (0 to 100) 2021 2022 2022 2030
Access to e-health records NA NA 71 71 100
Score (0 to 100) 2023 2023 2030
(1) The 20 million target represents about 10% of total employment.
(2) The Fibre to the Premises coverage indicator is included separately as its evaluation will also be monitored separately and
taken into consideration when interpreting VHCN coverage data in the Digital Decade.
(3) At least 75 % of Union enterprises have taken up one or more of the following, in line with their business operations: (i) cloud
computing services; (ii) big data; (iii) artificial intelligence.
Source: Digital Economy and Society Index
57
ANNEX 11: INNOVATION
This Annex provides a general overview of the 2021, recording little improvement since 2015
performance of Italy’s research and innovation (0.52%) and remaining well below the European
system, which is essential for delivering the twin average (114). Government support for business
green and digital transition. R&D has considerably increased since 2015 (115),
mainly due to the extension of R&D tax relief: the
Italy is a ‘moderate innovation performer’. number of recipients increased by a factor of 12
The gap between its performance and the between 2014 and 2019 (116).
overall performance of the EU has widened
in 2022. According to the 2022 edition of the The Italian recovery and resilience plan (RRP)
European Innovation Scoreboard (EIS) (110), the is mobilising major investment in research
country’s innovation performance was 91.6% of and innovation (R&I), estimated at more than
the EU average, falling from its peak of the EUR 14 billion for the 2021-2026 period,
previous year (Graph A11.1). Improvements in partially and temporarily helping address
business-science linkages, business innovation and underinvestment. The RRP measures, and
government support for business R&D contributed initiatives such as the tax credit for R&I and the
to improving the country’s performance between Fund to finance the priorities set out in the
2015 and 2021. However, these same sub- National Research Programme, will translate into
indicators worsened in 2022, as part of Italy’s an annual average increase of around 24% in
overall decline in innovation performance. publicly funded R&D investment (117). This increase
is an important step forward, although it is unclear
Graph A11.1: Innovation performance 2015-2022 if higher public investment will be maintained in
the aftermath of the RRP timeframe.
107
Italy underperforms in human resources for
102
research and innovation, which impacts the
97 performance of the R&I system as a whole. In
92 2021, the country had one of the lowest tertiary
education completion rates in the EU (118).
87
According to Eurostat, the number of new
82
2015 2016 2017 2018 2019 2020 2021 2022
graduates in science, technology, engineering and
EU IT
mathematics (STEM subjects) increased between
2010 and 2020, but it is still below the EU
Source: European Innovation Scoreboard, 2022 average, while data on new STEM doctoral
graduates remained stagnant between 2013 and
Rather stagnant public R&D investment and 2020. In addition, average salaries for PhD
subdued private R&D expenditure result in graduates have been higher abroad than in Italy,
low overall R&D investment. R&D intensity with those graduating in STEM PhDs tending to
(defined as gross domestic expenditure on R&D as work abroad more frequently (119). Such a situation
a percentage of GDP) was 1.48% of GDP in 2021, risks further exacerbating the brain drain.
falling from 2020’s peak (111) and still far below
the European average (112). Private R&D
investment remains low and below EU levels, while (114) Source: Eurostat. Eu average in 2021: 0.76%.
slightly shrinking in 2021 compared to 2020 (113). (115) Source: EIS 2022.
Public expenditure on R&D was 0.55% of GDP in (116) OECD (2021). ‘R&D Tax Incentives: Italy, 2021’,
www.oecd.org/sti/rd-tax-stats-italy.pdf.
(110) 2022 European Innovation Scoreboard, Country profile: Italy (117) Source: elaboration on Eurostat (2021) and RRP data. The
https://ec.europa.eu/assets/rtd/eis/2022/ec_rtd_eis-country- value refers to the annual growth average and not to entire
profile-it.pdf. The EIS provides a comparative analysis of stock of investment for the whole duration of the Italian RRP
innovation performance in the EU countries, including the (2021-2026).
relative strengths and weaknesses of their national (118) Share of population aged 25-34 who have successfully
innovation systems (also compared to the EU average). completed tertiary education: 28.3% in IT; 41.2% in the EU.
(111) 1.51% in 2020 (source: Eurostat). (119) Source: elaboration on data of the ‘Relazione sulla Ricerca e
(112) 2.26% in 2021 (source: Eurostat). l’innovazione in Italia’ – Third edition (2021) by the Italian
National Research Council. Data refers to PhD graduates in
(113) IT: 0.91% / EU: 1.49% (source: Eurostat, 2021). 2018, 6 years after their graduation (2012).
58
Table A11.1: Key innovation indicators
EU
Italy 2010 2015 2019 2020 2021 average (1)
Key indicators
R&D intensity (GERD as % of GDP) 1.22 1.34 1.46 1.51 1.48 2.26
Public expenditure on R&D as % of GDP 0.52 0.52 0.51 0.55 0.55 0.76
Business enterprise expenditure on R&D (BERD) as % of GDP 0.66 0.78 0.92 0.93 0.91 1.49
Quality of the R&I system
Scientific publications of the country within the top 10% most
cited publications worldwide as % of total publications of the 10.0 10.6 10.8 : : 9.8
country
Patent Cooperation Treaty patent applications per billion GDP (in
2.0 2.3 2.1 : : 3.3
PPS)
Academia-business cooperation
Public-private scientific co-publications as % of total publications 6.5 7.6 8.0 7.9 8.1 7.1
Human capital and skills availability
New graduates in science & engineering per thousand pop. aged
6.5 10.8 14.8 15.1 : 16.0
25-34
New doctorate graduates in science & engineering per thousand
: 0.7 0.6 0.6 : 0.7
pop. aged 25-34
Public support for business enterprise expenditure on R&D (BERD)
Total public sector support for BERD as % of GDP 0.051 0.106 0.218 : : 0.194
R&D tax incentives: foregone revenues as % of GDP 0.004 0.051 0.162 : : 0.100
Green innovation
Share of environment-related patents in total patent applications
12.3 10.8 10.4 : : 13.3
filed under the Patent Cooperation Treaty (%)
Finance for innovation and economic renewal
Venture capital (market statistics) as % of GDP 0.007 0.004 0.010 0.015 0.018 0.074
Employment in fast-growing enterprises in 50% most innovative
2.9 3.1 3.7 : : 5.5
sectors
(1) EU average for the latest available year or the year with the highest number of country data.
Source: Eurostat, OECD, DG JRC, Science-Metrix (Scopus database and EPO’s Patent Statistical database), Invest Europe
The RRP includes reforms and investments to not strategic. Initiatives in this field are often
improve career opportunities for researchers poorly institutionalised (122).
and PhD graduates. These initiatives not only
streamline researchers’ career paths, but also The Italian RRP includes partial reforms and
focus on innovative PhD scholarships (120). adequate investment to facilitate knowledge
Additional measures include support for projects exchange. Approved reforms aim to simplify the
presented by young researchers and incentives for management of research funds and support the
companies to employ them temporarily. These intersectoral mobility of high-profile individuals.
initiatives could reduce the R&I human resource Proceeding with the planned reform of intellectual
gap, but their impact in the long term is unclear. property management could help create a more
conducive environment to innovation. Planned
Business-science linkages in Italy remain investments will support industrial property-
weak and higher education institutions could related projects and will strengthen technology
play a more effective role in knowledge transfer offices.
valorisation. Although public-private co-
publications are above the EU average, HRST job-
to-job mobility (121) is low, with negative effects on
knowledge creation. The Italian higher education
system’s approach to knowledge exchange is still
(120) They are centred around industry and the twin transitions.
(122) OECD/EU (2019), Supporting Entrepreneurship and
( ) Human Resources in Science&Technology. Source: EIS 2022.
121
Innovation in Higher Education in Italy, OECD Skills Studies.
59
ANNEX 12: INDUSTRY AND SINGLE MARKET
Italy’s labour productivity vigorously Graph A12.2: Labour productivity by sector
rebounded after the sharp fall experienced in [2015=100]
2020, but the country’s long-term
productivity growth remains subdued. After
the dramatic drop experienced in 2020, largely 105
due to temporary job-protection schemes, in 2021 95
Italy’s labour productivity per person employed 85
rebounded by 6.3% (aggregate level), compared to 2015 2016 2017 2018 2019 2020 2021
an EU average of 3.9%. Over the longer run,
however, Italy’s productivity performance remains Agriculture, forestry and fishing
unsatisfactory. As shown in Graph A12.1, given the Industry (except construction)
stagnation of productivity growth over the past Construction
two decades, levels of productivity in Italy have Wholesale and retail trade, transport, accommodation
been consistently declining over time vis-à-vis the and food service activities
Information and communication
EU average, decreasing from 117% of the EU
average in 2005 to 105.1% in 2021. Financial and insurance activities
Professional, scientific and technical activities;
administrative and support service activities
Graph A12.1: Labour productivity per person [% of
EU-27] Source: Eurostat.
125.0
In 2022, the Italian industrial sector was
120.0 significantly impacted by the consequences
115.0
of Russia’s invasion of Ukraine, in particular
the energy crisis. The skyrocketing price of gas,
110.0
exceeding 230 EUR/MWh on the Italian wholesale
105.0 market in August 2022 (123), had a severe impact
on the energy and electricity prices faced by both
100.0
businesses and consumers, particularly given the
95.0 high share of natural gas in Italy’s energy mix, as
well as the country’s significant dependence on
90.0 Russian gas imports (see Annex 7). While the
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 incidence of energy costs over total production
EU-27 Euro area Germany
costs increased in most sectors, energy-intensive
Spain France Italy
industries were hit the hardest. For instance,
according to estimates by Confindustria,
Source: Eurostat. metallurgy saw the incidence of energy costs
increase by 15 percentage points compared to
Nevertheless, as shown in Graph A12.2, pre-crisis levels, while the non-metallic minerals
productivity performance is not uniform and paper sectors faced increases of 11 and 6
across economic sectors. Segments such as percentage points respectively (124). In order to
financial and insurance activities, for instance, cope with the energy crisis and reduce reliance on
experienced steady productivity growth in recent imports from Russia, after the outbreak of
years, including during the pandemic. Industry, hostilities in Ukraine, the Italian government
construction and the retail, transport and enacted an ambitious strategy to diversify gas
accommodation sector, instead, are catching up sources, which led to a substantial reduction in the
after being strongly affected by restrictions in country’s dependence on Russian gas (see Annex
2020 (e.g. productivity in industry fell by 9.5% in 7).
2020 before rebounding by 12.9% in 2021),
whereas agriculture has been suffering from
structurally weaker productivity dynamics.
(123) European Commission, Quarterly report on European gas
markets, volume 15 issue 2, 2022.
(124) Centro Studi Confindustria, Rapporto di Previsione, Economia
italiana ancora resiliente a incertezza e shock? 2022.
60
For what concerns raw materials other than more than peer countries such as Germany or
fuels, Italy’s strategic dependence on the Spain. Problems of payment delays are unevenly
belligerent countries is overall in line with distributed across levels of government and types
the EU average. While Italy imports several types of public administration, with large variations
of non-food materials from Russia and Ukraine, its across regions, municipalities and even central
dependence on such imports is in line with or government ministries. The Italian recovery and
below the EU average for most product categories resilience plan (RRP) contains an ambitious
– with the exception of metals, which Italy imports initiative for reducing payment arrears, which aims
from Ukraine more than the EU average (7.5% of to bring payment times within the limits set by EU
Italy’s extra-EU imports of metals come from law. Achieving RRP targets, as well as maintaining
Ukraine, vs. EU average of 2.8%) (125). Italy’s such performance in future years, will be key to
overall import concentration index is also in line overcoming this structural challenge of the Italian
with the EU average, while the share of firms business environment, which hampers firms'
reporting materials shortages in 2022 is still well liquidity management and constitutes a
below the EU average (18% vs. 47%). disproportionate drag for smaller firms, which
have more limited resources to cope with cash
The business environment in Italy remains flow disruptions.
challenging, despite some improvements. The
percentage of firms reporting business regulation Access to finance is instead perceived more
as a major obstacle is significantly above the EU positively, although the relative underdevel-
average (36.4% vs. 29.6%). When companies are opment of non-traditional forms of finance
asked to identify the areas that cause them the persists. The share of firms that consider access
biggest problems, the top concerns reported are to finance a major challenge is lower in Italy than
regulatory obstacles and administrative burden, as in the EU (12% vs. an EU average of 21%) (126).
well as payment delays. The permitting framework Indeed, Italy performs slightly better than the EU
for renewable energy sources (RES), instead, has average on the 2021 EIF Access to Finance
been simplified, including in the context of the subindex for loans, which summarises the
recovery and resilience plan, although room for performance of loan finance in Member States.
improvement remains ample, e.g. for what The country also records a low share of rejected or
concerns staffing levels and skills. refused loans (SAFE survey) and an average
performance in the Credit and Leasing EIF
The situation of payment delays, which subindex. Nonetheless, alternative forms of
affects both government-to-business (G2B) finance remain underdeveloped, as reflected for
and business-to-business (B2B) relations, instance in a lower-than-average penetration of
remains a source of concern for Italian firms venture capital.
and particularly SMEs, despite improvements
For what concerns public procurement, a new
over time. Concerning G2B transactions, while
Code of Public Contracts is being introduced.
there have been improvements, payment times
The reform is part of the RRP and aims, inter alia,
often remain long. The gap between the time
requested by the creditor firm for payment and at enhancing digitalisation, streamlining
procedures and professionalising public buyers.
the actual execution of the payment by the public
administration was 22 days in 2022, according to Fully achieving RRP targets as well as ensuring
adequate levels of competition and transparency
Intrum, compared to an EU average of 15 days. A
similar gap can be observed in B2B relations, will be key to address the long-standing
where the gap is 4 days longer for Italian firms challenges of Italy's public procurement system,
than for their EU peers (Intrum). Consistently, including the comparatively high, and increasing,
52.4% of Italian SMEs report having experienced share of single bids (37% of contracts awarded in
late payments in the 6 months prior to the survey 2022, up from 35% in 2021 and 31% in
(SAFE), which is almost 10 percentage points more 2020) (127).
than the EU average and 20 percentage points
(125) European Commission, JRC Technical Report - Russian trade
in non-food raw materials (2022), and European (126) Flash Eurobarometer 486.
Commission, JRC Technical Report – Ukraine’s trade in non-
food raw materials (2022). (127) European Commission, Single Market Scoreboard, 2022.
61
Italy is well integrated into the single Graph A12.3: Business environment and
market, although barriers remain. Italy is well productivity drivers
integrated into the Single Market, with the shares
of intra-EU imports and exports of goods reaching
51% and 52.7% respectively in 2022. 1) Business
investments
Nevertheless, some long-standing challenges
persist, notably in the area of services. For 5) Single bids
2) EIF access to
instance, in the area of regulated professions the finance index
level of restrictiveness remains above the EU
average for several professions, including e.g.
architects, civil engineers, accountants, 4) Labour
shortage
3) Payment gap
- G2B
patent/trademark agents and real estate
agents (128), while restrictions are comparatively
high also in retail – especially when it comes to 4) Material
shortage
3) Payment gap
- B2B
establishment rules, where Italy is one of the most
restrictive Member States (129). Similarly, the
delays in implementing effective competitive
procedures for the award of maritime, lakeside European Union Italy
and riverside concessions for leisure and touristic Source: 1) % of GDP, 2021 Eurostat;
activities (‘beach concessions’), as well as the 2) composite indicator, 2021 European Investment Fund
limited profitability of such concession contracts access to finance index;
for public authorities, remain sources of concern: 3) average payment delay in number of days, 2022 Intrum;
indeed, although the 2021 Annual Competition 4) % of firms in manufacturing facing constraints, 2022
European Commission business consumer survey;
Law (130) provided the preconditions for a reform 5) proportion of contracts awarded with a single bidder, 2022
of the sector, subsequent legislative initiatives Single Market Scoreboard.
granting further extensions of existing contracts
were introduced, thereby hindering progress
towards such reform.
In terms of compliance with single market
rules, Italy’s transposition deficit is slightly
below the EU average, although above the 1%
target, while the number of pending infringement
proceedings is in line with peer countries. Italy is
also equipped with a well-functioning SOLVIT
network for addressing problems related to the
application of single market legislation, even
though centres across the country could benefit
from additional staff.
(128) European Commission, COM(2021) 385 final.
(129) European Commission, Retail Restrictiveness Indicator (2022
update), forthcoming.
(130) Legge 5 agosto 2022, n. 118.
62
Table A12.1: Industry and the single market
EU27
POLICY AREA INDICATOR NAME 2018 2019 2020 2021 2022
average (*)
Net private investment, level of private capital stock, net of
HEADLINE INDICATORS
0.9 0.8 -0.8 1.9 3.7 3.7
depreciation, % GDP (1)
Economic
Net public investment, level of public capital stock, net of
Structure -0.6 -0.4 -0.4 0 -0.2 0.4
depreciation, % GDP (1)
Real labour productivity per person in industry (% yoy)(2) 0.9 -0.8 -9.5 12.9 -1.6 1.4
Cost
competitive- Nominal unit labour cost in industry (% yoy)(2) 0.5 2.1 3.1 -3.3 5 2.9
ness
Material shortage (industry), firms facing constraints, % (3) 2 1 1 10 18 47
Labour shortage using survey data (industry), firms facing
Shortages 2 2 1 3 6 28
constraints, % (3)
RESILIENCE
Vacancy rate (business economy)(4) 1.3 1.4 0.8 1.8 2.2 3.1
Concentration in selected raw materials, Import concentration
0.18 0.16 0.15 0.16 0.17 0.18
Strategic index based on a basket of critical raw materials (5)
dependencies
Installed renewables electricity capacity, % of total electricity
48.8 49.3 50.3 43.8 n.a. 50.9
produced (6)
Single Market
EU trade integration, % (7) 16.1 16.1 15.3 17.7 20.2 45.8
SINGLE integration
Restrictions EEA Services Trade Restrictiveness Index (8) 0.06 0.06 0.06 0.06 0.06 0.05
MARKET Public
Single bids, % of total contractors (9) 30 32 31 35 37 29
procurement
Investment Impact of regulation on long-term investment, % of firms
36.5 40.0 34.9 34.3 36.4 29.6
obstacles reporting business regulation as major obstacle (10)
Business Bankruptcies, Index (2015=100)(11) 75.8 75.5 51.5 61 48.6 86.8
BUSINESS ENVIRONMENT - SMEs
demography Business registrations, Index (2015=100) (11) 90.8 94.7 77.7 89 84 121.2
Payment gap - corporates B2B, difference in days between
6 4 0 11 17 13
offered and actual payment (12)
Payment gap - public sector, difference in days between
Late payments 31 11 3 12 22 15
offered and actual payment (12)
Share of SMEs experiencing late payments in past 6 months, %
(13) n.a. 56.9 58.2 46.6 52.4 43
EIF Access to finance index - Loan, Composite: SME external
0.79 0.73 0.8 0.6 n.a. 0.46
financing over last 6 months, index values between 0 and 1 (14)
Access to
finance
EIF Access to finance index - Equity, Composite: VC/GDP,
0.1 0.12 0.09 0.12 n.a. 0.23
IPO/GDP, SMEs using equity, index values between 0 and 1 (14)
(*) last available year
Source: (1) AMECO, (2) Eurostat, (3) ECFIN BCS, (4) Eurostat, (5) COMEXT and Commission calculations, (6) Eurostat, (7) Eurostat,
(8) OECD, (9) Single Market Scoreboard, (10) EIB survey, (11) Eurostat: (12) Intrum, (13) SAFE Survey, (14) EIF SME Access to
Finance Index.
63
ANNEX 13: PUBLIC ADMINISTRATION
This Annex outlines the performance of a decade-long hiring freeze (Graph A13.1a). The
Italy’s public administration, which is share of public sector workers with higher
essential for providing services and carrying education is well below the EU average (Graph
out reforms. Italy ranks below the EU average for A13.1b). Public employment is set to be renewed
government effectiveness1, hindered by significant by one-third and further professionalised, with the
gaps in strategic management, an ageing, target of one million better skilled new employees
understaffed and low-skilled public workforce, and entering the public sector throughout the RRP
regional disparities in the administrations’ implementation. The simplified, digitalised
performance. The government reform agenda for recruitment procedures and the significant
public administration, enshrined in the recovery investments in the upskilling and reskilling of
and resilience plan (RRP), focuses on improving the public employees are expected to help achieve this
recruitment and management of public employees, objective. Italy ranks in the bottom third of
strengthening administrative capacity, fostering Member States on the provision of digital public
digitalisation and ensuring administrative services and the share of e-government users is
simplification. well below the EU average (Table A13.1 and Annex
10). Consequently, the Italian RRP includes
Progress has been registered, particularly in investment to improve the supply of digital public
human resource management and services, which should be implemented by the end
digitalisation. This has led to the attainment of of 2023.
several of the milestones set out in the RRP. A key
The indicators mask, however, a deep
issue is the persistently high political instability,
which in the past has hindered the implementation geographical divide. Public sector performance
and continuity of public administration reforms. is persistently lower in southern Italy, with an older
Also, the regional divide is widening, with southern population of civil servants and lower levels of
Italy showing, on average, weaker performance in education and digitalisation. Since June 2022, the
public administration. internet portal Capacity Italy has assisted
subnational governments by connecting them to
Italy’s performance in selected human experts. The planned recruitment of 2,400 experts
capital indicators and digitalisation is in Southern administrations did not yield the
expected results due to the relatively low
weaker than the EU average. It has among the
attractiveness of the posts (temporary nature of
oldest public workforce in the EU, driven in part by
Graph A13.1: Italy: a) ratio of 25-49 to 50-64 year-olds by sector and occupation and b) higher education
attainment level (in percent) of 25-64 year-olds by sector and occupation. 2021 data
a) Ratio of older to younger workers by sector b) Higher education attainment
and occupation
80
1.8 70
1.6 60
1.4 50
1.2 40
1.0 30
0.8 20
0.6 10
0.4 0
0.2 IT EU-27 IT EU-27 IT EU-27 IT EU-27
0.0 Public admin., Education Healthcare Total economy
Public Education Healthcare Total economy defence and
administration, social security
defence and
social security
High-skilled occupations Medium-skilled occupations
IT High-skilled Medium-skilled Low-skilled EU-27 Unskilled occupations Armed forces
2022 data.
Graph A13.1a): a lower ratio denotes a more aged civil service.
Source: European Commission, based on the Labour Force Survey
64
Table A13.1: Public administration indicators
IT Indicator (1) 2017 2018 2019 2020 2021 2022 EU-27(2)
E-government and open government data
Share of individuals who used the internet within the last year to
1 33.5 31.7 29.9 36.4 40.4 n/a 64.8
interact with public authorities (%)
2 E-government benchmark overall score (3) n/a n/a n/a 64.4 60.9 61.3 72.9
3 Open data and portal maturity index n/a 0.8 0.8 0.9 0.9 0.9 0.8
Educational attainment level, adult learning, gender parity and ageing
Share of public administration employees with tertiary education
4 26.8 28.4 29.3 30.2 32.1 (b) 34.1 52.0
(levels 5-8, %)
Participation rate of public administration employees in adult
5 9.7 10.3 9.7 8.6 14.5 (b) 13.7 16.9
learning (%)
6 Gender parity in senior civil service positions (4) 38.4 27.6 24.2 24.2 35.8 29.0 11.0
7 Ratio of 25-49 to 50-64 year olds in NACE sector O 0.9 0.8 0.8 0.8 0.9 (b) 0.9 1.5
Public financial management
8 Medium term budgetary framework index 0.8 0.8 0.8 0.8 0.8 n/a 0.7
9 Strength of fiscal rules index 2.3 2.3 2.3 2.3 2.3 n/a 1.5
Evidence-based policy making
10 Regulatory governance 2.45 n/a n/a n/a 2.55 n/a 1.7
( ) High values denote a good performance, except for indicator # 6. ( ) 2022 value. If not available, the 2021 value is shown.
1 2
(3) Measures the user centricity and transparency of digital public services as well as the existence of key enablers for the
provision of those services. (4) Defined as the absolute value of the difference between the percentage of men and women in
senior civil service positions. Flags: (b) break in time series; (d) definition differs; (u) low reliability.
Source: ICT use survey, Eurostat (# 1); E-government benchmark report (# 2); Open data maturity report (# 3); Labour Force
Survey, Eurostat (# 4, 5, 7), European Institute for Gender Equality (# 6); Fiscal Governance Database (# 8, 9); OECD Indicators of
Regulatory Policy and Governance (# 10).
contracts and salaries attached). The justice system is still facing efficiency
challenges. Despite recent improvements, the
Graph A13.2: Italy. Performance in the single length of proceedings remains excessive. At 560
market scoreboard governance tools days in 2021, the time to hand down a decision in
litigious civil and commercial cases at first
instance is well above the EU average. The RRP
includes reforms that aim to simplify procedures,
establish timeframes for cases and improve the
use of mediation to reduce the length of
proceedings and backlogs. The overall quality of
the justice system is good, despite a few
shortcomings, especially in the criminal courts and
(1) Red denotes a poor performance; green, a good
performance. TRIS: Technical Regulation Information System;
prosecution services. New measures that introduce
IMI: Internal Market Information System. specific arrangements for child-friendly
Source: Single Market Scoreboard proceedings have been implemented. The level of
digitalisation is advanced. No systemic deficiencies
Once adopted, the new code of public in judicial independence have been reported (131).
procurement is expected to strengthen
competition in Italy’s public procurement
system. The increasing share of single bids points
to issues with competition (see Annex 12). Italy
also lags in most indicators that measure
(131) For a more detailed analysis of the performance of the
performance on the single market governance justice system in Italy, see the 2023 EU Justice Scoreboard
tools (Graph A13.2). (forthcoming) and the country chapter for Italy in the 2023
Rule of Law Report (forthcoming).
65
FAIRNESS
ANNEX 14: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF
THE EUROPEAN PILLAR OF SOCIAL RIGHTS
The European Pillar of Social Rights is the remained one of the highest in the EU. Similarly, in
compass for upward convergence towards 2022, the activity rate in the 20-64 age group
better working and living conditions in the (70.4%) is one of the lowest (EU: 79.4%). In 2022,
EU. This Annex provides an overview of Italy’s the share of long-term unemployed (4.6%) in the
progress in implementing the Pillar’s 20 principles active population is also significantly above the EU
and EU headline and national targets for 2030 on average (2.4%). Real wages in Italy have
employment, skills and poverty reduction. stagnated or fallen in recent decades. After
decreasing steeply in 2020 (-4.5%) and
rebounding in 2021 (4.6%), real wages fell again
Table A14.1: Social Scoreboard for Italy
in 2022 (-2.9%). (132) The high shares of non-
Policy area Headline indicator standard employment and undeclared work
Early leavers from education and training
(% of population aged 18-24, 2022)
11.5 continue to be challenges. In 2022, as many as
Share of individuals who have basic or above basic overall 8.6% of employees state that they have a
45.6
Equal opportunities
digital skills (% of population aged 16-74, 2021)
temporary job due to their inability to find a
Youth NEET rate
and access to the
labour market
(% of population aged 15-29, 2022)
19 permanent contract. The high prevalence of non-
Gender employment gap
(percentage points, 2022)
19.7 standard forms of work, especially among young
Income quintile ratio people, creates persisting gaps in access to social
5.86
(S80/S20, 2021)
Employment rate
protection. Addressing these challenges would
(% of population aged 20-64, 2022)
64.8
support progress towards the 2030 national
Dynamic labour
Unemployment rate
(% of active population aged 15-74, 2022)
8.1 employment target of 73%. As part of its recovery
markets and fair
working conditions Long term unemployment
4.6
and resilience plan (RRP), Italy introduced a reform
(% of active population aged 15-74, 2022)
GDHI per capita growth
of active labour market policies (GOL) and
(2008=100, 2021)
94.57
capacity-building investments in employment
At risk of poverty or social exclusion rate
(% of total population, 2021)
25.2 centres (PES) aimed at providing personalised
At risk of poverty or social exclusion rate for children
29.7
services to jobseekers countrywide. The European
(% of population aged 0-17, 2021)
Impact of social transfers (other than pensions) on poverty
Social Fund Plus (ESF+) will contribute by financing
reduction (% reduction of AROP, 2021)
29.47
active inclusion policies, expanding the services
Social protection
and inclusion
Disability employment gap
(percentage points, 2021)
14.9 offered by job centres and integrating their
Housing cost overburden
7.2
activities with social services to target the most
vulnerable.
(% of total population, 2021)
Children aged less than 3 years in formal childcare
33.4
(% of population under 3-years-old, 2021)
Self-reported unmet need for medical care
(% of population 16+, 2021)
1.8 Adverse demographic developments and low
Critical
situation
To watch
Weak but
improving
Good but to
monitor
On average Better than average Best performers participation of women, young people and
(1) Update of 27 April 2023. Members States are classified on non-EU nationals are key challenges for the
the Social Scoreboard according to a statistical methodology Italian labour market. The workforce (20-64
agreed with the EMCO and SPC Committees. It looks jointly at
levels and changes of the indicators in comparison with the
age group) decreased by 1.8% in the last 20 years
respective EU averages and classifies Member States in seven and its composition has changed significantly. The
categories. For methodological details, please consult the total population within the 20-39 age group fell by
Joint Employment Report 2023. Due to changes in the 25.3% while the 40-64 age group grew by 19.5%
definition of the individuals' level of digital skills in 2021,
which will further accelerate the adverse
exceptionally only levels are used in the assessment of this
indicator; NEET: neither in employment nor in education and demographic development in the future. Moreover,
training; GDHI: gross disposable household income. the gender employment gap in Italy (19.7 pps) is
Source: Eurostat among the highest in the EU (10.8%). The
employment rate of women with children aged
The Italian labour market has made a robust less than 6 years (55.5%) is considerably lower
recovery in 2022, but major challenges than that of women without children (76.6%) (133).
persist. On the back of a strong recovery from the Moreover, with less than 38% in employment,
COVID-19 crisis, the employment rate reached a women with children under 6 years in the south of
record high of 64.8% in 2022, but still remained
(132) AMECO database and DG EMPL computations on Eurostat
significantly below the EU average of 74.6%. data.
Despite reaching its lowest level since 2010 in
2022 at 8.1%, the unemployment rate in Italy (133) ‘Benessere equo e sostenibile in Italia (BES) 2022’, ISTAT.
66
the country are much less likely to be employed construction, industry, manufacturing and services
than those in the centre at 63.4% or the north at to businesses. In response, Italy is developing its
almost 66%. One of the reasons is that childcare non-academic tertiary sector by reforming the
responsibilities affect mothers disproportionately. istituti tecnici superiori (ITS) to make them an
At 33.4%, the share of children aged less than 3 integral part of the tertiary vocational education
years in formal childcare in 2021 was below the system. Up- and re-skilling is funded by REACT-EU
EU average (36.6%), with significant regional and the ESF+ to support the green and digital
differences in the availability of childcare places. transitions and contribute to the target of at least
In addition, compulsory paternity leave (10 days) 60% of adults participating in training every year
is still considerably lower than maternity leave (5 by 2030 (41.5% in 2016).
months). Italy has committed to increase childcare
services under its RRP and through cohesion Although it stayed broadly stable during the
funding. Finally, the rate of young people not in pandemic, the risk of poverty and social
employment, education or training (NEET) (15-29) exclusion remains high. While swift policy action
(19%) is among the highest in the EU (11.7%). mitigated the social consequences of the
While in the 15-24 age group, the female (15.4%) pandemic, the rate of people at risk of poverty or
and male (16.3%) NEET rates are similar, in the social exclusion (AROPE) slightly increased from
25-29 age group, the female NEET rate (30.2%) 24.9% in 2020 to 25.2% in 2021. This remains
significantly exceeds that of males (20.4%). The above pre-pandemic levels (24.6% in 2019) and
higher rates of the older groups reflect the the EU average (21.7% in 2021). At 29.7%, the
challenges that young people face in entering the AROPE rate among children significantly exceeds
labour market (accompanied by a prevalence of the EU average (24.4%). The introduction of the
temporary contracts compared to older groups). universal family allowance in 2022 is estimated to
Although the employment rate of non-EU have reduced the risk of poverty (134). According to
nationals (63.5%) almost matches that of Italian national data, the share of persons in absolute
nationals (65.5%) in 2022, they face much higher poverty, which doubled between 2010 and 2018,
poverty or social exclusion risks (47.6% vs 24.7%) continued rising to 9.4% in 2021; it is particularly
and in-work poverty (31.2% vs 9.7%). high in the south (135). Access to affordable and
suitable housing is still a challenge, with many
Table A14.2: Situation of Italy on 2030 households not having a sufficient number of
employment, skills and poverty reduction targets rooms (28% vs EU: 17%), in particular for tenants
National EU renting at market prices and young people.
Latest Trend
Indicators target by target
data (2015-2022)
2030 by 2030 A well-functioning minimum income scheme
64.8
Employment (%)
(2022)
73 78 is key to reduce social inequalities and
33.9 disparities, but its implementation in Italy
Adult learning1 (%) 60 60
(2016) needs to be monitored. The minimum income
2
Poverty reduction +31
(thousands) (2021)
-3 200 -15 000 scheme (so-called citizens’ income) introduced in
(1) Adult Education Survey, adults in learning in the past 12 2019, along with the active inclusion approach,
months. helps to prevent and mitigate poverty. While the
(2) Number of persons at risk of poverty or social exclusion total number of households benefiting from the
(AROPE), reference year 2019. scheme increased during the pandemic (1.11
Source: Eurostat, DG EMPL.
million in 2019 vs 1.77 million in 2021), that
number fell to 1.66 million in 2022. The 2023
Italy faces challenges in relation to the low budget law reduced the length of time during
proportion of young adults with a tertiary which people can receive benefits, added
educational qualification (29.2% vs 42% in conditions on education and training, and included
the EU), and further efforts on adult learning the possibility to combine benefits with income
are needed. In 2021, only 45.6% of Italian adults from seasonal work. From 2024, the scheme will
had at least basic digital skills, significantly fewer be suspended and replaced by a recently
than in the EU (53.9%), and in 2022, only 11.9% introduced measure. A lower coverage and
participated in training over the past 4 weeks. In
2021, the share of ICT graduates at 1.4% also
(134) ‘La redistribuzione del reddito in Italia’, ISTAT.
stood well below the EU average (3.9%). Labour
shortages are reported in sectors such as (135) ‘Nel 2021 stabile la povertà assoluta’, ISTAT.
67
adequacy could further limit the poverty reduction
potential of the future scheme for vulnerable
groups. Weak active labour market policies should
be strengthened to support the job integration part
of the scheme. Overall, there is scope for greater
efforts to achieve the national target of 3.2 million
fewer people at risk of poverty or social exclusion
by 2030 (compared to 2019).
68
ANNEX 15: EDUCATION AND TRAINING
This Annex outlines the main challenges for Italy’s in 2022, down from 12.7% the previous year,
education and training system in light of the EU- confirming the downward trend seen over the past
level targets and other contextual indicators under decade. While below the national target of 16%,
the European Education Area strategic framework, the ELET rate remains above the EU average of
based on the 2022 Education and Training 9.6% and some way off the new EU-level target of
Monitor. below 9% by 2030. The ELET rate varies widely
across regions: from 9.6% in the north-east to
The Italian education and training system 15.3% in the south, with a peak of 21.2% in Sicily.
struggles with some long-standing structural Boys are more likely than girls to leave school
challenges that hinder the formation of early (13.6% vs 9.1%), with a wider than average
human capital with the relevant skills for gender gap (4.5 pps vs 3.1 pps for the EU). At
labour market developments. Italy faces key 28.7% thee ELET rate among foreign born 18-24-
challenges linked to the quality, equity and labour year-olds is three times as high as that of Italian-
market relevance of education and training as well born people (9.7%), and considerably higher than
as wide territorial disparities. These translate into the EU average of 21.6%.
skills shortages and mismatches, and high rates
for youth unemployment and those not in Italy is reforming the initial training and
education, employment or training (NEET), recruitment of teachers. The new system
particularly in the south of the country (see Annex strengthens the specific teaching qualification that
14). Wide-ranging reforms implemented under the needs to be acquired by those wishing to access
Recovery and Resilience Facility (RRF) are expected national competitions for the recruitment of
to address some of these challenges. teachers. Once fully implemented, the new system
is expected to have positive effects on educational
School education in Italy produces mixed outcomes and on the overall teaching quality. The
results in terms of basic skills proficiency, reform also introduces performance-related salary
with significant differences between regions increases following the completion of three-year
and types of schools. After the learning loss training cycles. However, it is still to be seen
recorded in 2021, the results of the 2022 round of whether it will be enough to attract the best
standardised national testing remained largely graduates to the teaching profession, particularly
stable for Italian and maths and improved for those with degrees in science, technology,
English. The results confirmed wide geographical engineering and mathematics (STEM).
disparities, which tend to widen with school level.
The government is promoting digital
The gaps in student performance between schools
and between classes are more pronounced in the education. Coding and digital teaching were
southern regions. This indicates that primary included in teacher training programmes as
education in the south is not able to ensure equal priorities starting from the 2022/23 school year.
opportunities for all pupils, with clear negative The new legislation brings in computer
repercussions on subsequent school grades. More programming (as a subject and integrated into
generally, the strong influence of family other subjects) and specifies the further
background on learning achievement throughout development of digital skills in primary and
the country is an indication that school education secondary education. The plan ‘School 4.0 -
does not adapt sufficiently to different learning innovative schools, new classrooms and
needs and is not able to compensate for socio- laboratories’ allocates over EUR 2 billion in RRF
economic disadvantage. The government has funding to transform 100 000 classrooms into
allocated EUR 1.5 billion in RRF support for innovative learning environments and to build
initiatives to reduce territorial disparities in laboratories for the digital professions of the
learning outcomes. The investment shall promote future in all upper secondary schools.
mentoring activities for young people at risk of
early school leaving or that have already dropped The proportion of young adults with a
out. tertiary educational qualification is low. In
2022, 29.2% of 25-34-year-olds had a tertiary
Early school leaving is on a declining trend educational qualification, well below both the EU
but remains well above the EU average. The average of 42% and the EU-level target of 45%
proportion of early leavers from education and by 2030. Women are more likely to hold a tertiary
training (ELET) in the 18-24 age group was 11.5% qualification than men (35.5% vs 23.1%), in line
69
Table A15.1: EU-level targets and other contextual indicators under the European Education Area
strategic framework
2015 2022
Indicator Target Italy EU27 Italy EU27
1
Participation in early childhood education (age 3+) 96% 94.9% 91.9% 94.6% 2020 93.0% 2020
Reading < 15% 21.0% 20.0% 23.3% 2018 22.5% 2018
2
Low achieving 15-year-olds in: Mathematics < 15% 23.3% 22.3% 23.8% 2018 22.9% 2018
Science < 15% 23.2% 21.1% 25.9% 2018 22.3% 2018
3
Total < 9% 14.7% 11.0% 11.5% 9.6%
3
Men 17.5% 12.5% 13.6% 11.1%
By gender
Women 11.8% 9.4% 9.1% 8.0%
4
Cities 14.8% 9.6% 12.5% 8.6%
Early leavers from education and training (age 18-24) By degree of urbanisation
Rural areas 15.2% 12.2% 10.2% 10.0%
Native 12.7% 10.0% 9.7% 8.3%
5
By country of birth EU-born 26.4% 20.7% 22.9% 20.3%
Non EU-born 33.0% 23.4% 30.6% 22.1%
6
Equity indicator (percentage points) : : 18.4 2018 19.3 2018
7
Exposure of VET graduates to work based learning Total ≥ 60% (2025) : : 25.9% 60.1%
8
Total 45% 25.2% 36.5% 29.2% 42.0%
8
Men 19.4% 31.2% 23.1% 36.5%
By gender
Women 31.0% 41.8% 35.5% 47.6%
9
Cities 30.0% 46.2% 35.2% 52.2%
Tertiary educational attainment (age 25-34) By degree of urbanisation
Rural areas 21.3% 26.9% 24.7% 30.2%
Native 28.0% 37.7% 32.5% 43.0%
10
By country of birth EU-born 13.0% 32.7% 14.5% 39.5%
Non EU-born 12.7% 27.0% 12.6% 35.7%
11
Share of school teachers (ISCED 1-3) who are 50 years or over 57.2% 38.3% 53.0% 2020 39.2% 2020
Source: (1,3,4,5,7,8,9,10,11) = Eurostat; 2 = OECD (PISA); 6 = European Commission (Joint Research Centre). Notes: Data is not
yet available for the remaining EU-level targets under the European Education Area strategic framework, covering
underachievement in digital skills and participation of adults in learning. The equity indicator shows the gap in the share of
underachievement in reading, mathematics and science (combined) among 15-year-olds between the lowest and highest quarters
of socio-economic status.
with the rest of the EU but with a slightly wider EU average of 84.5%. Low demand from a
gender gap (12.4 pps vs 11.1 pps). The tertiary productive sector characterised by small- and
educational attainment rate is particularly low medium-sized firms contributes to the poor
among the foreign population, whether born in the employment prospects of graduates.
EU (13.2%) or outside (12.6%), reflecting a
substantial difficulty in attracting highly qualified Recent reforms are expected to increase
people. flexibility and make tertiary education
curricula more innovative. In 2021, the
The share of STEM graduates remains government adopted a reform of university degree
comparatively low. In 2020, 22.7% of all groups, encouraging the creation of cross-
graduates had a STEM qualification, fewer than in disciplinary paths and the development of
2019 (24.5%) and below the EU average (24.9%). innovative professional profiles. It also adopted a
The share of graduates in information and reform of PhD programmes, promoting the
communication technologies is particularly low, at involvement of businesses in university research
just 1.4% compared with the EU average of 3.9%. programmes and applied research through
industrial PhDs.
While a tertiary educational degree
constitutes an advantage on the labour
market, transition into employment remains
difficult. The employment rate of recent tertiary
graduates has risen steadily over recent years,
reaching 67.5% in 2021. But while it is
considerably higher than the employment rates for
vocational education and training and general
upper school graduates, it remains well below the
70
ANNEX 16: HEALTH AND HEALTH SYSTEMS
A healthy population and an effective, the EU overall (14.4%). Spending on preventive
accessible, and resilient health system are care, one of the highest in EU ((5.5% of total
prerequisites for a sustainable economy and healthcare expenditure), increased by 19%
society. This Annex provides a snapshot of between 2020 and 2019 (compared to a 26%
population health and the health system in Italy. increase for the EU overall), driven mainly by
spending on public health COVID-19 pandemic
Italy has one of the highest life expectancies response programmes.
at birth in the EU. After a significant drop in
2020, life expectancy significantly rebounded in Based on the age profile of the Italian
2021, reflecting the decrease in COVID-19 population, public expenditure on health is
mortality in 2021 (136). Italy has one of the lowest projected to increase by 1.2 percentage
rates in the EU for treatable and preventable points (pps) of GDP by 2070 (compared to 0.9
mortality. In 2020 leading causes of death are pps for the EU overall). This underscore concerns
diseases of the circulatory systems about the long-term fiscal sustainability of the
(“cardiovascular diseases” notably ischaemic heart Italian health system.
diseases) followed by neoplasms and COVID-19.
Overall, large regional differences are observed. Graph A16.2: Projected increase in public
expenditure on healthcare over 2019-2070
Health spending relative to GDP in Italy is
below the EU average, despite an increase in
2020 (by almost one percentage point). This is
Italy 5.9 1.2
in line with the upward trend in all Member States. 2019
For 2020 in Italy, the increase of the share of
2070
healthcare spending relative to GDP was largely EU 6.6 0.9
increase
explained by the significant GDP contraction
0 2 4 6 8
observed (by 9%, compared to 5.7% in the EU
% of GDP
overall). Spending per capita in purchasing power
standards (at EUR 2 608) is well below the EU
AWG reference scenario
average (EUR 3 269). Source: European Commission / EPC (2021)
Graph A16.1: Life expectancy at birth, years
Italy has an above-average number of
83.6
practising doctors per 1 000 inhabitants, but
83.4 83.1 83.4
82.3
82.7 the overall availability and territorial
80.9 80.9 81.0 81.3
80.4
distribution of the health workforce raise
80.1
concerns. The high share of active physicians
over the age of 55 (56% in Italy vs an EU average
2016 2017 2018 2019 2020 2021 of 35.9%) and the significant shortage of nurses
Italy EU (the provision level per 1 000 population is well
below the EU average) underline challenges as
Source: Eurostat regards staff availability in the longer term. This
is coupled with a consolidated trend of population
The public share of health expenditure in Italy is ageing (with an increase of 26,7 million people in
below the EU average and slightly increased in the cohort “old-age dependency ratio 20-64”)
2020 (to 76.1%, from 73.7% in 2019). Italy’s which will be in growing need of health care
hospital bed density is below the EU average. assistance (in 2019 around 30% of the population
Nevertheless, the overall breakdown of total aged above 65 years is reporting unmet medical
healthcare spending by outpatient and inpatient needs ).In recent years, the number of medicine
services is broadly similar to that of the rest of the graduates have slightly increased, fact that can
EU. At 21.3%, the share of household out-of- partially mitigate the projected shortages,
pocket spending is almost 1.5 times higher than in although the challenge of ensuring long term
accessibility to health services. Another reason for
(136) “Based on data provided directly by Member States to ECDC
concern is the territorial distribution of doctors
under the European Surveillance System (data current as of (especially in primary care, with variations of up to
13 April 2023)” 50% between regions). Shortages of qualified
71
Table A16.1: Key health indicators
EU average
2017 2018 2019 2020 2021
(latest year)
Treatable mortality per 100 000 population (mortality avoidable through optimal
66.5 64.9 63.7 66.5 NA 91.7 (2020)
quality healthcare)
Cancer mortality per 100 000 population 237.9 234.7 230.9 227.0 NA 242.2 (2020)
Current expenditure on health, % GDP 8.7 8.7 8.7 9.6 NA 10.9 (2020)
Public share of health expenditure, % of current health expenditure 73.7 73.9 73.7 76.1 NA 81.2 (2020)
Spending on prevention, % of current health expenditure 4.4 4.7 4.7 5.5 NA 3.4 (2020)
Acute care beds per 100 000 population 262 259 260 266 NA 387.4 (2019)
Doctors per 1 000 population * 4.0 4.0 4.1 4.0 4.1 3.9 (2020)
Nurses per 1 000 population * 5.8 5.8 6.2 6.3 6.3 8.3 (2020)
Consumption of antibacterials for systemic use in the community, daily defined
19.0 19.5 19.8 16.5 16.0 14.5 (2021)
dose per 1 000 inhabitants per day (total consumption for CY and CZ) **
Note: The EU average is weighted for all indicators, except for (*) and (**), for which the EU simple average is used. The simple
average for (*) uses data for 2020 or most recent year if former not available. Doctors' density data refer to practising doctors in
all countries except EL, PT (licensed to practice) and SK (professionally active). Nurses' density data refer to practising nurses in all
countries except FR, PT, SK (professionally active) and EL (nurses working in hospitals only).
Source: Eurostat; except: ** ECDC
staff were exacerbated during the COVID-19 Italy is carrying out an ambitious plan for
pandemic, especially in intensive care and investing in the effective digital transition of
emergency care, but also in primary care and long- health systems. The plan aims to update the
term care. A mix of measures and allocation of medical equipment stock of health and care
extra funding has alleviated acute pressures on facilities. There are three main strands to the
healthcare facilities. In the long term, appropriate investment: modernising large healthcare
staffing policies can be expected to mitigate equipment, digitising the processes of emergency
territorial health inequalities in access to care, and rooms, and increasing the number of beds in
migration of patients across regions. This is intensive and semi-intensive care units. Approving
particularly important in regions with telemedicine guidelines is the first step in the
higher-than-average rates of comorbidities and large-scale adoption of telemedicine solutions (to
non-communicable diseases. increase their uptake in home care), supported by
investments in setting up territorial coordination
Italy’s recovery and resilience plan (RRP) centres. These centres aim to ensure the
contains both healthcare reforms and coordination of various territorial, social-health
healthcare investments (representing around and hospital services, and the emergency network.
8.5% of the RRP’s total value). As part of the
ongoing reform of the organisational model of the
territorial healthcare assistance network, a
regulatory framework was developed. This
framework identifies structural, technological and
organisational standards for specialised care
structures (such as community houses, community
hospitals, and territorial coordination centres). The
ambitious reform of the healthcare network is
supported by a significant set of investments. The
Ministry of Health has entered into contracts with
regions for major investments in the identified
specialised structures. These contracts are
expected to create the administrative framework
for investments (with operational plans laying
down the scope, objectives, operational indications,
time schedule, and evaluation and monitoring
criteria of individual investments). The RRP also
includes reforms and investments to improve the
health system's cost-effectiveness and fiscal
sustainability.
72
ANNEX 17: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL
This Annex showcases the economic and significantly (+6.3%). Basilicata was characterised
social regional dynamics in Italy, providing an by a GDP growth of+0.4% and a population
update on economic, social and territorial cohesion decline of 5.3% over the period 2011-2020.
in Italy and the main economic recovery
challenges for the regions. Labour productivity decreased in real terms
nearly everywhere in Italy. The fall in labour
There are two main divergences affecting the productivity (103% of the EU-27 average in 2020,
Italian economy: an emerging EU-Italy gap down from 133% in 2000 and 116% in 2010)
and a persistent North-South divide. Italy’s concerned all the Italian regions except Basilicata
GDP per capita (in purchasing power standard (Table A17.1). Productivity per worker declined
(PPS)) was 93.6% of the EU average in 2020, despite the fall in the number of employed
following a steady decline (it was 109 in 2007), persons in the southern regions, including the two
which affected all regions except the autonomous islands, and in Umbria, Marche, Piemonte, Valle
province of Bolzano/Bozen. Also thanks to the d’Aosta and Liguria. However, the number of
measures to mitigate the effect of the COVID employed persons increased in Lombardia, Lazio,
pandemic, Italy’s GDP per capita moved up to 95% Emilia Romagna, Trento and Bolzano/Bozen.
of the EU average in 2021. However, the structural
or temporary nature of the rebound should be duly In the southern regions and the two islands,
assessed once the relief measures will be the fall in employment levels was a direct
completely phase out and new data will be result of weak business activity, characterised
available. In 2021, 6 out of 21 regions had a GDP by a very high number of micro-enterprises,
per capita below 75% of the EU average (Table irregular work, a limited share of permanent
A17.1): Calabria and Sicilia were the least contracts and poor innovation dynamics.
developed regions, with GDP per capita below 60%
of the EU average, closely followed by Campania The employment rate mirrors fundamental
and Puglia (only just above 60%). regional gaps (Table A17.1). The employment
rate rose from 66% in 2002 to 73.1% in 2021 in
Graph A17.1: GDP growth (x-axis) and population the EU27 and from 59.2% to 62.7% in Italy, but it
growth (y-axis) (2011-2020) – Italy was stationary in the south, from 48.6% to 48.9%,
8.0 and the islands, from 47.5% to 47.7%. In 2021
6.0
Bozen the employment rate in the north was only slightly
below the EU-27 (73.1%) while it was around 25
Lazio
4.0
percentage points lower in the southern and
Italian average
2.0
EU average
insular regions. Campania, Calabria, Sicilia and
0.0 Puglia were among the 15 worst performing
regions in the EU, with employment rates below
-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0
-2.0
50%.
-4.0
Basilicata
-6.0
Molise
-8.0
Source: Eurostat, DG REGIO elaboration
GDP and population growth offer insights
into increasing regional inequalities
following the financial crises of the past
decade. Both the GDP and the population of
Lombardia, Emilia Romagna, Veneto, Trento,
Bolzano/Bozen and Toscana grew faster than the
national average in 2011-20, while southern and
insular regions, Marche and Umbria lost population
and their GDP growth was below the national
average (Graph A17.1 and table A17.1). Lazio is an
outlier since its GDP grew more slowly than the
national average but its population grew
73
Table A17.1: Selected indicators at regional level in Italy
Productivity Population aged 30- R&D expenditure
Employment in Quality of
Population (GVA (PPS) per Real productivity Employment rate, 34 with high Early school in the business
Region GDP per head (PPS) GDP growth high-technology Government Index
growth person growth ages 20-65 educational leavers enterprise sector
sectors (QoG)
employed) attainment (BERD)
Index - values range
Average annuale Average annuale Index, EU27 = Average annuale % of population % of population aged 30- % of population % of total
Index, EU27 = 100; 2021 % of GDP; 2019 between 0 and 100;
growth 2011-20 growth 2011-20 100; 2021 growth 2011-20 aged 20-64; 2021 34; 2021 aged 18-24; 2021 employment; 2021
2021
European Union 100 0,7 1,7 100 0,2 73,1 41,6 9,7 1,5 4,8 48,6
Italia 95.0 -0.7 0.7 104.3 -0.8 62.7 26.8 12.7 0.9 4.0
Nord-Ovest 118.0 -0.7 1.7 117.5 -0.8 70.8 29.8 11.5 1.2 4.9
Nord-Est 113.0 -0.3 1.6 109.6 -0.7 72.3 31.3 9.6 1.2 3.2
Centro 101.0 -0.9 3.0 102.6 -1.1 67.2 30.0 9.8 0.8 5.7
Sud 64.0 -1.0 -2.0 86.3 -0.8 48.9 21.6 15.3 0.5 2.4
Isole 61.0 -1.5 -1.8 86.8 -0.9 47.7 18.7 19.5 0.3 2.2
Piemonte 101.0 -0.8 -1.4 107.1 -0.7 69.8 27.4 11.4 1.8 3.9 37.0
Valle d’Aosta 121.0 -1.6 -2.1 115.3 -1.1 71.6 27.7 0.3 36.9
Liguria 101.0 -1.3 -2.5 107.0 -1.2 68.0 26.2 12.9 0.9 3.1 34.5
Lombardia 128.0 -0.5 3.7 123.0 -0.9 71.6 31.3 11.3 1.0 5.5 30.4
Abruzzo 81.0 -0.9 -1.2 93.9 -0.6 62.1 27.1 8.0 0.5 3.0 23.7
Molise 69.0 -1.6 -6.0 89.5 -1.0 55.9 33.1 7.6 0.8 2.0 21.2
Campania 62.0 -1.1 -1.4 87.1 -0.9 45.0 21.2 16.4 0.7 2.8 5.2
Puglia 63.0 -0.9 -1.7 83.4 -1.0 50.5 19.1 17.6 0.4 2.1 18.3
Basilicata 76.0 0.4 -5.3 94.4 0.3 56.7 24.7 8.7 0.2 2.1 16.3
Calabria 56.0 -1.7 -3.5 80.7 -0.7 45.5 21.6 14.0 0.2 1.6 1.7
Sicilia 58.0 -1.6 -1.7 86.9 -0.9 44.5 17.8 21.2 0.3 2.2 18.0
Sardegna 70.0 -1.2 -2.1 86.4 -0.9 57.0 21.8 13.2 0.1 2.0 20.1
Provincia Autonoma Bozen 151.0 0.6 6.5 124.4 -0.2 75.8 24.7 12.9 0.5 1.7 43.0
Provincia Autonoma Trento 126.0 0.0 3.2 118.8 -0.4 72.5 33.7 8.8 0.6 3.7 48.9
Veneto 107.0 -0.5 0.8 105.5 -0.9 70.8 30.8 9.3 1.0 3.1 45.3
Friuli-Venezia Giulia 103.0 -0.5 -1.2 105.7 -0.6 72.3 26.0 8.6 0.9 3.0 47.3
Emilia-Romagna 116.0 -0.3 2.5 111.8 -0.6 73.5 33.6 9.9 1.6 3.5 40.0
Toscana 98.0 -0.6 1.4 100.4 -0.7 70.5 29.0 11.1 1.0 3.7 40.5
Umbria 84.0 -1.4 -1.2 91.4 -1.2 69.3 33.9 12.0 0.5 3.0 32.1
Marche 90.0 -1.0 -2.5 94.6 -0.8 68.9 28.9 7.9 0.7 2.8 31.9
Lazio 109.0 -1.0 6.3 107.5 -1.3 64.4 30.3 9.2 0.8 8.2 21.5
Source: EUROSTAT
Graph A17.2: GDP per capita (PPS) in 2021 and was significantly lower than the EU-27 average of
population with high level of education 42.0% and the gap was wider with the southern
45
regions, where the share was below 25%. Lower
levels of educational attainment go hand in hand
40
EU27 average with lower levels of GDP per capita (Graph A17.2).
35
Boosting innovation systems remains a
major challenge for Italy and for the
30 southern regions in particular. The Italian
Italian average business sector's expenditure on R&D (0.9% of
25 GDP) remained significantly below the EU-27
average of 1.5%, but in the southern and insular
20 regions it was less than a third of the EU-27
average (Table A17.1). Huge regional disparities
15
0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0
are also reflected in the 2022 edition of the
regional competitiveness index. Compared to the
Source: Eurostat, DG REGIO elaboration. GDP per capita (PPS)
(EU-27 = 100; 2021) (x-axis) and percentage of the
EU average (score 100), all the Italian regions
population aged 30-34 with a high level of educational performed significantly worse, with southern and
attainment (EU-27 average = 41.6%; in 2021) (y-axis) insular regions (scores lower than 70) lagging
behind compared to the rest of Italy (scores
Sectoral specialisation and human capital between 70 and 100). Lombardia is the only
are important causes of the regional gaps in exception (103.2). During the 2021-27
productivity and employment. In 2020, the programming period, Italy has the opportunity to
proportion of the workforce employed in high frame industrial policy interventions by combining
technology sectors in the northern and central research and development activities with a major
regions was broadly aligned to the EU-27 average, involvement of businesses in innovation and
while in southern and insular regions it was less enhanced skills for the industrial transition.
than half. The high number of early school leavers
also contributes to constraining the economic and Italy's demographic dynamics are a cause for
social potential of the south, with a peak in Sicilia major concern regarding its economic
that records a rate twice as high as the EU-27 growth, social cohesion and territorial
average (21.2% against 9.7%). In 2022, the share disparities. Between 2011 and 2020, population
of the population aged 25-34 with higher growth was limited to just seven regions in the
education attainment in Italy as a whole (29.2%) north and centre (Lombardia, Veneto, Emilia-
74
Romagna, Toscana, Lazio, and the autonomous and selection) took 246 days in the southern and
provinces of Trento and Bolzano/Bozen). On the insular regions – compared with 189 days in the
other hand, the population has fallen in all the northern and central regions. The next phase (i.e.
southern and insular regions over the past decade. the awarding of public works contracts) took
This limits the economic potential, particularly in 88 days on average in the southern and insular
the light of the limited number of applications to regions – compared with 66 days in the northern
study at universities in the southern regions, and and central regions. Finally, the actual execution of
the more limited human resources available to public works took on average 492 days in the
private undertakings and the public sector. This southern and insular regions – compared with 408
demographic trend also threatens social cohesion days in the northern and central regions (138). This,
because it makes it harder to meet the needs of in turn, explains the gap in terms of both the
an ageing population (as shown by the current number of awards of public works (21 602 in the
staff shortages in the public health and care southern and insular regions compared with
services). 72 928 in the northern and central regions) and
their monetary value (EUR 15 608 million in the
The quality of institutions varies southern and insular regions compared with
dramatically between the north and the EUR 47 194 million in the northern and central
south. In 2021, the quality of government index regions).
for Italy as a whole was 29 points out of 100 (the
EU-27 average was 49). The northern and central The COVID-19 pandemic affected all regions,
regions scored on average around 37 – more than but to different degrees. The average excess
twice the average score for the southern and mortality in 2020-2021 was higher than in 2015-
insular regions, which is 15. 2019 in all regions, but it varied considerably
between regions. It was highest in the north-
The quality of public services is generally western regions at an average of 21% (with a
lower in the southern regions. This concerns peak of 25% in Lombardia), followed by the north-
not only services managed at the regional and eastern regions at 15%, while it averaged around
local levels (e.g. transport, water, waste and risk 10% in the central, southern and insular regions.
prevention) but also services managed by
ministries at the national level (e.g. education and
justice).
Regional gaps in the provision of water
services are particularly significant.
Wastewater services are absent in 296
municipalities with a combined population of
1.3 million inhabitants and 68% of these
municipalities are located in the southern regions
(particularly Sicilia, Campania and Calabria). At the
national level, 42.2% of distributed water was lost
in 2020 (42% in 2018) and the loss was higher
than the national average in the hydrographic
districts of the central Apennine territories and in
the southern and insular regions (137). The
reorganisation of the water service has begun in
the worst affected southern regions but is still
only in the initial phase.
Varying levels of administrative and
technical capacities mean that public works
take longer in the southern regions. In 2012-
2020, the first project phase of public works (i.e.
the preparatory phases for projects’ preparation
(138) Source: Banca d’Italia, Rapporti annuali regionali sul 2021,
( ) https://www.istat.it/it/archivio/279363
137
BDAP e Open ANAC
75
MACROECONOMIC STABILITY
ANNEX 18: KEY FINANCIAL SECTOR DEVELOPMENTS
Italy has a predominantly bank-based slowdown in economic growth, banking-
financial sector, with banks being the most sector resilience has been safeguarded. The
important providers of financial services to capital adequacy ratio for Italian banking sector
households and companies. The banking sector stood at 18.4% in Q3-2022, marginally lower than
is primarily domestically owned (domestically in 2021 and below the EU average. This was due
owned banks account for roughly 92% of total to the gradual phasing in of IFRS9, the payment of
banking-sector assets), with the five largest dividends, and the share buy-back programmes of
banking groups accounting for 52% of banking- some banks. Asset quality has improved further,
sector assets. The largest banking groups (Intesa due to: (i) banks’ efforts to dispose of non-
Sanpaolo and UniCredit) have substantial performing loans (NPLs); and (ii) the support
international operations, in particular in central, provided by the State-guarantee schemes and
eastern and south-eastern Europe. Following loan moratorium, which was in place until the end
reforms implemented in the cooperative sector of 2021. The gross NPL ratio declined to 3.0% in
since 2015, the fragmentation of the banking Q3-2022, albeit still above the EU average of
sector has gradually reduced. These reforms have 1.8%. (Table 18-1) Banking-sector profitability
also led to a steady decline in the number of rebounded, with return on equity reaching 5.7% in
branches and employees, which has increased 2021 and improved further to 8.6% in the third
efficiency. Despite efforts to diversify non-bank quarter of 2022 (above the EU average of 6.1%).
financing and facilitate the access of companies to Banks have continued their efforts to increase
capital markets, the market-funding ratio stood efficiency and rationalise their branch network,
slightly below 38% in 2021, the highest level since which led to a decrease in the cost-to-income ratio
2017, but lower than the EU average of 51%. to 59.8% at the end of Q2-2022, below the EU
Sustainable financing expanded markedly in 2021, average of 60.6%. The liquidity position has
helped by an increase in the issuance of green, remained comfortable, with the liquidity coverage
social and sustainable bonds. The volume of ratio (LCR) increasing to roughly 204%. However,
green-bond issuance increased by almost four Italian banks have made extensive use of the ECB
times compared to 2020 and reached refinancing operations, and central bank liquidity
EUR 22.2 billion in 2021. The issuance of the first amounted to 10.8% of total bank liabilities at the
green bond by the Italian treasury (EUR 8.5 billion) end of Q3-2022.
in September 2021 contributed substantially to
the increase in green-bond issuance in 2021. In spite of the resilience of the banking
sector, several vulnerabilities warrant closer
Despite the challenges posed by the COVID- oversight. The Italian banking sector has the
19 pandemic and, more recently, by the second largest exposure to Russia of all EU
Member States. The bulk of this exposure is
Table A18.1:Financial Soundness Indicators
(1) Last data: Q3 2022.
(2) Data is annualised.
Source: ECB, Eurostat, S&P Global Capital IQ Pro.
76
concentrated in the two largest Italian banking the average lending rate reaching 2.96% in
groups. The exposure of Italian banks to Russian November 2022, up from 2.17% in November
counterparts amounted to EUR 22.8 billion 2021. According to data from the Italian Banking
(European Banking Authority data) or 30.3% of the Association, the lending rate increased the most
EU’s total EU exposure to Russian counterparts by for new loans granted to non-financial
end-March 2022. This exposure has been corporations. This rate stood at 3.11% at the end
manageable from a capital perspective, but of November 2022, roughly 2 percentage points
further second-round effects and reputational higher than in November 2021. Private sector debt
risks cannot be excluded. Meanwhile, high energy decreased by roughly 5 percentage points in 2021
prices have put strain on the more energy- compared with 2020 and stood at 113.5% of GDP,
intensive sectors of the economy and are likely to still markedly higher than in 2019.
impact banks’ asset quality and business more
broadly. Although Italian banks have continued the Graph A18.1: Evolution of credit activity
process of NPL disposal, loans that are unlikely to 15 %
be repaid have remained a matter of concern.
More than half of the NPL stock in Italy is made up 10
of unlikely-to-pay (UTP) loans, which may become
defaulted as the increase in interest rates and the 5
erosion of disposable income could negatively
0
affect the debt-servicing capacity of borrowers.
The extensive guarantee schemes to support -5
corporate lending put in place after the onset of
the COVID-19 pandemic by authorities have -10
further deepened the already strong nexus Total private NFC HH
-15
between banks and the Italian sovereign. The 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
exposure of Italian banks to sovereign debt
amounted to roughly 11.5% of total assets at the Adjusted loans for sales and securitisations.
end of December 2022. To shield their capital Source: ECB.
base from adverse market developments, banks
have reshuffled their sovereign bond portfolios Real-estate prices continued to increase in
and booked an increasing part of these portfolios the first half of 2022, and at a faster pace
(roughly 72%) in the amortised cost portfolio (i.e. than in the second half of 2021. In spite of
HTC - held to collect), which does not impact bank increasing real-estate prices, developments in
capital. The pricing of future minimum Italy’s real-estate market have been less worrying
requirement for own funds and eligible liabilities than in other EU Member States. Demand
(MREL) issuances and the gradual phasing out of remained high in the first half of 2022 and during
the ECB’s targeted longer-term refinancing the summer of 2022, as inflation did not weigh
operations may impact banks’ cost of funding. significantly on the disposable income of
households. This favourable backdrop led to
Lending to households and corporates increases in sales of residential real estate.
remained robust in 2022. Partly supported by Meanwhile, the decline in prices of commercial
the State-guaranteed loans granted through the real estate continued, albeit at a slower pace than
SME Guarantee Fund, lending to corporates in 2021. While oversight of the real-estate market
remained strong in the first half of 2022 and in Italy remains warranted, market developments
accelerated further during the summer months of do not suggest an overvaluation of real-estate
2022, on the back of higher demand for credit by prices, which would require a tightening of the
larger firms. Loans to households have also current macro-prudential policy stance. The Bank
continued to grow despite the tightening in credit of Italy, Italy’s central bank, has maintained the
standards. The erosion of disposable income countercyclical capital buffer at zero.
coupled with a further tightening of credit
standards led to a slowdown in lending to
households – in particular mortgage lending – in
the last quarter of 2022. The normalisation of
monetary policy has also led to an increase in the
cost of lending to households and companies, with
77
ANNEX 19: TAXATION
This Annex provides an indicator-based addressing several longstanding weaknesses of
overview of Italy’s tax system. It includes Italy’s tax system, has not been approved by the
information on Italy’s tax structure (the types of Parliament.
tax that Italy derives most revenue from), the tax
burden on workers, as well as the progressivity Italy’s labour tax burden is relatively
and redistributive effects of the tax system. It also progressive also thanks to the current
provides information on tax collection and structure of tax brackets. Graph A19.2 shows
compliance. that the labour tax wedge for Italy in 2022 was
higher than the EU average for single persons at
Italy’s tax revenues in relation to GDP are different wage levels (50%, 67%, 100% and
relatively high, with the largest contribution 167% of the average wage). Second earners at a
coming from labour taxation. Table A19.1 wage level of 67% of the average wage, whose
shows that Italy’s tax revenues as a percentage of spouses earn the average wage, also faced a tax
GDP were above the EU aggregate in 2021 and wedge higher than the EU average. While the
have been on an increasing trend in recent years. changes to personal income taxation introduced in
The shares of labour and environmental taxes as a 2022 may have reduced the tax burden for low
share of GDP were above the EU aggregate. and medium income earners, the tax wedge
Revenues from consumption taxes are close to the remained above the EU average. A lower labour
EU aggregate, both as a share of GDP and of total tax wedge could markedly support labour
taxation (see Graph A19.1), despite relatively low participation, as EUROMOD simulations suggest
VAT revenues due to a wide use of reduced VAT (see Chapter 3). Regarding corporate taxation, the
rates. Revenues from recurrent taxes on property, average forward-looking effective corporate
which are among the taxes least detrimental to income tax rates were considerably above the EU-
growth, were above the EU aggregate as a 27 average in 2021.
percentage of GDP. However, first residences are
exempt for almost all property classes, and the Several measures have been enacted in
values used for property taxation are outdated. A recent years to encourage tax compliance,
revision of outdated cadastral values to bring but tax evasion remains very high. Recent
them closer to market values has not taken place. measures included the compulsory use of
More broadly, the enabling law tabled in October electronic invoicing and government incentives to
2021, which provided for a general tax reform encourage the use of electronic payments. As a
Table A19.1: Taxation indicators
Italy EU-27
2010 2019 2020 2021 2022 2010 2019 2020 2021 2022
Total taxes (including compulsory actual social contributions) (% of
41.2 42.2 42.5 43.3 37.9 39.9 40.0 40.6
GDP)
Labour taxes (as % of GDP) 21.5 21.5 22.3 22.0 20.0 20.7 21.3 20.9
Consumption taxes (as % of GDP) 10.6 11.2 10.6 11.3 10.8 11.1 10.7 11.2
Tax structure
Capital taxes (as % of GDP) 9.2 9.5 9.7 9.9 7.1 8.1 8.0 8.5
Total property taxes (as % of GDP) 1.8 2.4 2.4 2.5 1.9 2.2 2.2 2.2
Recurrent taxes on immovable property (as % of GDP) 0.6 1.4 1.5 1.4 1.1 1.2 1.2 1.1
Environmental taxes as % of GDP 2.8 3.2 3.0 3.0 2.4 2.4 2.2 2.2
Tax wedge at 50% of average wage (Single person) (*) 40.7 36.4 36.3 35.6 34.7 33.9 32.3 31.9 32.1 31.7
Tax wedge at 100% of average wage (Single person) (*) 47.2 47.9 46.9 45.4 45.9 41.0 40.1 39.9 39.6 39.7
Progressivity &
Corporate income tax - effective average tax rates (1) (*) 20.9 21.3 21.3 19.5 19.4 19.1
fairness
Difference in Gini coefficient before and after taxes and cash social
5.9 6.5 6.6 8.0 8.6 7.7 8.1 7.8
transfers (pensions excluded from social transfers) (2) (*)
Outstanding tax arrears: total year-end tax debt (including debt
Tax administration & 200.7 213.6 31.6 40.7
considered not collectable) / total revenue (in %) (*)
compliance
VAT Gap (% of VAT total tax liability, VTTL) 21.8 20.8 11.0 9.1
(1) Forward-looking effective tax rate (OECD)
(2) A higher value indicates stronger redistributive impact of taxation
(*) EU-27 simple average
For more data on tax revenues as well as the methodology applied, see European Commission, Directorate-General for Taxation
and Customs Union, Taxation trends in the European Union: data for the EU Member States, Iceland, Norway and United Kingdom:
2021 edition, Publications Office, 2021, https://data.europa.eu/doi/10.2778/843047 and the ‘Data on Taxation’ webpage (data
https://ec.europa.eu/taxation_customs/taxation-1/economic-analysis-taxation/data-taxation_en). For more details on the VAT gap,
see European Commission, Directorate-General for Taxation and Customs Union, ‘VAT gap in the EU: report 2022’, Publications
Office, 2022, https://data.europa.eu/doi/10.2778/109823
Source: European Commission, OECD.
78
Graph A19.1: Tax revenues from different tax types as % of total taxation
Tax revenue shares in 2021, Italy (outer ring) Environmental and property taxation as % of
and the EU (inner ring) total tax revenue, Italy and the EU
8 0.07
7
22.94 6 1.38 0.19
5 1.00 2.45
4 2.75
3 5.47
21.01 2 4.32
3.34 2.64
1
51.43 50.88 0
27.54 Italy - EU - Italy - property EU - property
environmental environmental taxation taxation
26.18 taxation taxation
Energy taxes Transport taxes
Resource/pollution taxes Recurrent property taxes
Taxes on labour Taxes on consumption Taxes on capital Other property taxes
Note: Values for EU are GDP-weighted EU averages (EU aggregates)
Source: European Commission
result, the VAT gap (the gap between revenues Graph A19.2: Tax wedge for single and second
actually collected and the theoretical tax liability) earners as a % of total labour costs, 2022
continued to decrease and reached 20.8% in 60
2020, although it remains well above the EU-wide
Tax wedge, % of total labour costs
55
53.8
gap of 9.1%. Important additional measures 50
against tax evasion have been implemented in 45
42.5 45.9
2022 as part of the RRP, and are expected to
40
40.1
35 34.7
further improve tax compliance and support 30
government revenues. They include better 25
targeting of audits and controls, the extension of 20
50 100 150
electronic invoicing to self-employed workers in Earnings in % of the average wage
simplified regimes and sanctions for the refusal of Single earner - IT Single earner - EU average
electronic payments. At the same time, measures Second earner - IT Second earner - EU average
equivalent to tax amnesties that were introduced
Note: Second earner tax wedge assumes first earner at 100%
with the 2023 budget, together with the increase of the average wage and no children. For the methodology of
of the legal threshold for cash payments from EUR the tax wedge for second earners see OECD (2016) “Taxing
2 000 to EUR 5 000, risk having a negative impact Wages 2014-2015”.
on tax compliance. Outstanding tax arrears have Source: European Commission
increased slightly by 12.9 pps. to 213.6% of total
net revenue for 2021 and remained significantly
above the EU-27 average. However, the high
amount of tax arrears is mostly related to national
accounting rules which prevent writing-off arrears
considered not collectable, while the share of
‘collectable arrears’ is very low in Italy. (139) The
RRP also includes measures to further develop the
digitalisation of the tax administration, such as the
launch of pre-filled VAT tax returns, which is
expected to further reduce compliance costs and
tax arrears.
(139) See OECD (2023) “Tax Administration 2022, Comparative
Information on OECD and other Advanced and Emerging
Economies” (1e797131-en.pdf (oecd-ilibrary.org))
79
ANNEX 20: TABLE WITH ECONOMIC AND FINANCIAL INDICATORS
Table A20.1: Key economic and financial indicators
forecast
2004-07 2008-12 2013-19 2020 2021 2022 2023 2024
Real GDP (y-o-y) 1.4 -1.4 0.5 -9.0 7.0 3.7 1.2 1.1
Potential growth (y-o-y) 0.7 -0.2 0.0 -0.1 0.1 0.9 0.8 0.9
Private consumption (y-o-y) 1.2 -1.1 0.5 -10.4 4.7 4.6 0.1 1.2
Public consumption (y-o-y) 0.3 -0.4 -0.3 0.0 1.5 0.0 0.4 -1.3
Gross fixed capital formation (y-o-y) 1.8 -4.9 0.6 -7.9 18.6 9.4 2.6 1.4
Exports of goods and services (y-o-y) 5.9 -0.9 2.6 -13.5 14.0 9.4 2.3 3.1
Imports of goods and services (y-o-y) 5.3 -2.9 2.8 -12.1 15.2 11.8 0.8 2.3
Contribution to GDP growth:
Domestic demand (y-o-y) 1.2 -1.7 0.3 -7.6 6.4 4.6 0.7 0.8
Inventories (y-o-y) 0.1 -0.2 0.1 -0.5 0.4 -0.4 0.0 0.0
Net exports (y-o-y) 0.1 0.6 0.0 -0.8 0.2 -0.5 0.6 0.3
Contribution to potential GDP growth:
Total Labour (hours) (y-o-y) 0.3 -0.3 0.0 -0.4 -0.5 0.3 0.1 0.1
Capital accumulation (y-o-y) 0.6 0.3 -0.1 -0.1 0.2 0.4 0.4 0.4
Total factor productivity (y-o-y) -0.2 -0.1 0.1 0.4 0.3 0.3 0.3 0.4
Output gap 2.2 -1.1 -2.1 -8.3 -2.0 0.7 1.1 1.3
Unemployment rate 7.3 8.5 11.5 9.3 9.5 8.1 7.8 7.7
GDP deflator (y-o-y) 2.3 1.5 1.0 1.6 0.6 3.0 5.9 2.7
Harmonised index of consumer prices (HICP, y-o-y) 2.2 2.4 0.7 -0.1 1.9 8.7 6.1 2.9
HICP excluding energy and unprocessed food (y-o-y) 2.0 2.1 0.8 0.5 0.8 4.0 5.8 3.1
Nominal compensation per employee (y-o-y) 2.6 1.1 0.8 -4.1 5.9 4.8 3.9 4.1
Labour productivity (real, hours worked, y-o-y) 0.2 0.0 0.3 3.1 -1.0 -0.3 0.2 0.7
Unit labour costs (ULC, whole economy, y-o-y) 2.3 2.1 0.8 3.1 -0.4 2.8 3.1 3.1
Real unit labour costs (y-o-y) 0.0 0.5 -0.2 1.5 -1.0 -0.2 -2.6 0.4
Real effective exchange rate (ULC, y-o-y) 0.9 0.3 -0.5 -2.2 0.3 -0.8 -2.7 -0.5
Real effective exchange rate (HICP, y-o-y) 0.6 -0.4 -0.1 0.3 -0.2 -1.4 . .
Net savings rate of households (net saving as percentage of net disposable
income) 8.6 4.6 2.9 10.2 7.6 2.1 . .
Private credit flow, consolidated (% of GDP) 9.9 2.9 -0.1 4.0 3.5 . . .
Private sector debt, consolidated (% of GDP) 99.7 121.3 113.3 118.4 113.5 . . .
of which household debt, consolidated (% of GDP) 34.1 42.4 41.6 44.9 43.3 . . .
of which non-financial corporate debt, consolidated (% of GDP) 65.5 78.9 71.7 73.5 70.2 . . .
Gross non-performing debt (% of total debt instruments and total loans and 4.4 8.3 10.6 3.5 2.7 . . .
advances) (1)
Corporations, net lending (+) or net borrowing (-) (% of GDP) -0.2 0.6 3.0 6.2 6.2 5.1 5.4 5.5
Corporations, gross operating surplus (% of GDP) 23.0 21.3 21.4 21.2 21.2 22.2 22.7 22.6
Households, net lending (+) or net borrowing (-) (% of GDP) 2.4 0.9 1.7 7.4 6.0 2.1 -0.9 -0.6
Deflated house price index (y-o-y) 3.7 -1.6 -3.0 1.8 1.0 -3.4 . .
Residential investment (% of GDP) 5.5 5.4 4.2 4.0 5.3 5.8 . .
Current account balance (% of GDP), balance of payments -1.1 -2.2 2.2 3.9 3.1 -1.3 0.0 1.3
Trade balance (% of GDP), balance of payments -0.2 -0.7 2.9 3.6 2.3 -1.5 . .
Terms of trade of goods and services (y-o-y) -1.4 -1.0 1.2 3.6 -4.7 -8.7 3.6 1.8
Capital account balance (% of GDP) 0.1 0.1 0.1 0.1 0.1 0.5 . .
Net international investment position (% of GDP) -17.9 -21.0 -12.9 1.5 8.3 3.9 . .
NENDI - NIIP excluding non-defaultable instruments (% of GDP) (2) -9.4 -22.4 -12.4 1.0 6.2 1.7 . .
IIP liabilities excluding non-defaultable instruments (% of GDP) (2) 94.5 113.9 122.5 139.3 137.0 128.6 . .
Export performance vs. advanced countries (% change over 5 years) -0.5 -12.4 -6.5 -2.3 -1.6 . . .
Export market share, goods and services (y-o-y) -2.6 -5.8 -0.2 -2.8 -0.4 5.3 -0.3 -0.7
Net FDI flows (% of GDP) 0.8 1.0 -0.1 1.1 1.7 -1.1 . .
General government balance (% of GDP) -3.1 -3.7 -2.4 -9.7 -9.0 -8.0 -4.5 -3.7
Structural budget balance (% of GDP) -4.7 -3.4 -1.4 -5.2 -8.4 -8.6 -5.3 -4.5
General government gross debt (% of GDP) 105.6 117.6 134.4 154.9 149.9 144.4 140.4 140.3
(1) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-
controlled branches.
(2) Net international investment position (NIIP) excluding direct investment and portfolio equity shares.
Source: Eurostat and ECB as of 2 May 2023, where available; European Commission for forecast figures (Spring forecast 2023).
80
ANNEX 21: DEBT SUSTAINABILITY ANALYSIS
This Annex assesses fiscal sustainability until 2033 are overall affected by an unfavourable
risks for Italy over the short, medium and snowball effect, driven by the tightening of
long term. It follows the same multi-dimensional financing conditions, though the impact of Next
approach as the European Commission’s 2022 Generation EU is expected to support real GDP
Debt Sustainability Monitor, updated based on the growth at around 0.5% over 2025-2033.
Commission’s 2023 spring forecast. Government gross financing needs are expected to
remain large over the projection period, reaching
1 - Short-term risks to fiscal sustainability around 28% of GDP in 2033, above the level
are low overall. The Commission’s early- forecast for 2024 (Table A21.1).
detection indicator (S0) does not signal major
short-term fiscal risks (Table A21.2). (140) Gross The baseline projections are stress tested
financing needs are expected to remain large at against four alternative scenarios to assess
around 24% of GDP in the short term (i.e. over the impact of changes in key assumptions
2023-2024), although declining compared with (Graph 1). For Italy, reverting to historical fiscal
the recent peak in 2020 (Table A21.1). Financial trajectories under the ‘historical structural primary
markets’ perceptions of sovereign risk are positive, balance (SPB)’ scenario would lead to a
as confirmed by the ratings of the main agencies. significantly lower government debt ratio. If the
SPB gradually converged to a surplus of 1.4% of
2 - Medium-term risks to fiscal sustainability GDP (its historical 15-year average), the projected
are high overall. debt-to-GDP ratio would be around 12 pps. lower
compared to the baseline in 2033. A permanent
The DSA for Italy shows that, under the worsening of the macro-financial conditions, as
baseline, the government debt ratio is reflected under the ‘adverse interest-growth rate
projected to remain at a high level over the differential’ scenario (i.e. 1 pp. higher than the
medium term (at 156.5% of GDP in 2033) baseline) would result in a persistently higher
(Graph 1). (141), (142) The assumed structural government debt-to-GDP ratio, by around 13.5
primary balance (a deficit of 0.3% of GDP) pps. of GDP by 2033, as compared with the
contributes to these developments. It appears baseline. A temporary worsening of financial
plausible compared with past fiscal performance, conditions, as reflected in the ‘financial stress
indicating that the country has room for corrective ‘scenario (i.e. temporary increase of interest rates
action. At the same time, the baseline projections by 3.2 pps.), would lead to a higher public debt-to-
GDP ratio by 2033 (about +5 pps. of GDP)
compared with the baseline. The ‘lower structural
(140) The S0 is a composite indicator of short-term risk of fiscal primary balance (SPB)’ scenario (i.e. SPB level
stress. It is based on a wide range of macro-financial and permanently reduced by half of the cumulated
fiscal variables that have proven to perform well in the past forecast change), would also lead to a significantly
in detecting situations of upcoming fiscal stress.
higher government debt-to-GDP ratio by 2033
(141) The assumptions underlying the Commission’s ‘no-fiscal (around +21.5 pps. of GDP) compared with the
policy change’ baseline notably comprise: (i) a structural
baseline.
primary deficit, before ageing costs, of 0.3% of GDP as of
2024; (ii) inflation converging linearly towards the 10-year
forward inflation-linked swap rate 10 years ahead (which Additionally, stochastic debt projections
refers to the 10-year inflation expectations 10 years from indicate high risk (Graph 2). (143) These
now); (iii) the nominal short- and long-term interest rates on
new and rolled over debt converging linearly from current
stochastic simulations point to 47% probability of
values to market-based forward nominal rates by T+10 (as the debt ratio in 2027 being greater than in 2022,
for all Member States); (iv) real GDP growth rates from the entailing high risk given the initial high level of
Commission 2023 spring forecast until 2024, followed by debt. In addition, such shocks point to high
EPC/OGWG ‘T+10 methodology projections between T+3 and
T+10, i.e. for 2025-2033 (on average 0.5%); (v) ageing costs
uncertainty (i.e., the difference between the 10th
in line with the 2021 Ageing Report (European Commission, and 90th debt distribution percentiles) surrounding
Institutional Paper 148, May 2021). For information on the the government debt baseline projections.
methodology, see the 2022 Debt Sustainability Monitor
(European Commission, Institutional Paper 199, April 2023).
(142) Table 1 shows the baseline debt projections and its (143) These projections show the impact on debt of 2000 different
breakdown into the primary balance, the snowball effect (the shocks affecting the government’s primary balance,
combined impact of interest payments and nominal GDP economic growth, interest rates and exchange rates. The
growth on the debt dynamics) and the stock-flow cone covers 80% of all simulated debt paths, therefore
adjustment. excluding tail events
81
3 - Long-term risks to fiscal sustainability COVID-19 crisis related state guarantees. On the
are medium overall. (144) other-hand, risk-mitigating factors include the
lengthening of debt maturity in recent years,
The S2 sustainability gap indicator (at 0.5 pp. relatively stable financing sources (with a
of GDP) points to low risk, suggesting that diversified and large investor base) and the
Italy would only need a limited improvement positive net international investment position. In
in its structural primary balance to ensure addition, the structural reforms under the
debt stabilisation over the long term. This NGEU/RRF, if fully implemented, could have a
result is mostly underpinned by the projected further positive impact on GDP growth in the
decrease of pension spending (-1.7 pps. of GDP) coming years, and therefore help to mitigate debt
over the long term, which is offset by an sustainability risks.
unfavourable initial budgetary position (+0.9 pp. of
GDP) and the projected increase of health care and
long-term care spending (+0.8 pp. of GDP
respectively; Table A21.1). A number of
investments and reforms in the RRP contribute to
supporting the efficiency of the Italian health care
system, and it will be important to carefully
monitor their implementation.
Yet, combined with debt vulnerabilities, as
highlighted by the S1 indicator, overall long-
term risks are assessed as medium. Indeed,
the S1 sustainability gap indicator signals that a
consolidation effort of 3.5 pps. of GDP would be
needed to reduce debt to 60% of GDP by 2070.
This result is mainly driven by the high level of the
Italian government debt ratio (contribution of 1.6
pps. of GDP), the contribution of ageing costs (1
pp. of GDP) and an unfavourable initial budgetary
position (contribution by 0.8 pp. of GDP) (Table
A21.1).
Finally, several additional risk factors need
to be considered in the assessment. On the
one hand, risk-increasing factors are related to the
recent increase of interest rates, the share of
short-term government debt and to contingent
liability risks stemming from the private sector,
including via the possible materialisation of
(144) The S2 fiscal sustainability gap indicator measures the
permanent fiscal effort (SPB adjustment) in 2024 that would
be required to stabilise public debt over the long term. It is
complemented by the S1 fiscal sustainability gap indicator,
which measures the permanent fiscal effort required in 2024
to bring the debt-to-GDP ratio to 60% in the long term (by
2070). For both the S1 and S2 indicators, the risk
assessment depends on the amount of fiscal consolidation
needed: ‘high risk’ if the required effort exceeds 6 pps. of
GDP, ‘medium risk’ if it lies between 2 pps. and 6 pps. of
GDP, and ‘low risk’ if the effort is negative or below 2 pps. of
GDP. The overall long-term risk classification brings together
the risk categories derived from S1 and S2. S1 may notch up
the risk category derived from S2 when it signals a higher
risk than S2. See the 2022 Debt Sustainability Monitor for
further details.
82
Table A21.1: Debt sustainability analysis - Italy
Table 1. Baseline debt projections 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Gross debt ratio (% of GDP) 154.9 149.9 144.4 140.4 140.3 140.2 140.8 142.1 143.3 145.0 147.3 150.0 153.2 156.5
Changes in the ratio 20.8 -5.0 -5.5 -4.0 -0.1 -0.1 0.6 1.3 1.2 1.7 2.3 2.7 3.2 3.2
of which
Primary deficit 6.2 5.5 3.6 0.5 -0.5 0.0 0.4 0.8 1.0 1.2 1.5 1.7 1.9 2.0
Snowball effect 14.4 -7.4 -5.2 -5.7 -1.0 0.0 0.2 0.5 0.2 0.5 0.8 1.1 1.3 1.2
Stock-flow adjustments 0.2 -3.1 -3.9 1.2 1.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Gross financing needs (% of GDP) 29.9 25.5 23.0 23.9 23.4 22.7 23.4 24.1 24.6 25.2 25.9 26.7 27.5 28.3
% of GDP Graph 1. Deterministic debt projections % of GDP Graph 2. Stochastic debt projections 2023-2027
200 175
165 p90
180 155 p80
145 p60
160 135 p40
p20
125 p10
140
115
120 105
95
100 85
75
80 65
55
60 45
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2020 2021 2022 2023 2024 2025 2026 2027
Historical SPB scenario Lower SPB scenario
Financial stress scenario Adverse 'r-g' scenario Median Baseline
Baseline
Table 2. Breakdown of the S1 and S2 sustainability gap indicators
S1 S2
Overall index (pps. of GDP) 3.5 0.5
of which
Initial budgetary position 0.8 0.9
Debt requirement 1.6
Ageing costs 1.0 -0.3
of which Pensions 0.0 -1.7
Health care 0.7 0.8
Long-term care 0.6 0.8
Others -0.2 -0.3
Source: Commission services.
Table A21.2: Heat map of fiscal sustainability risks - Italy
Short term Medium term - Debt sustainability analysis (DSA) Long term
Deterministic scenarios
Overall Stochastic Overall
Overall Historical Lower Adverse Financial S2 S1
(S0) Baseline projections (S1 + S2)
SPB SPB 'r-g' stress
Overall HIGH HIGH HIGH HIGH HIGH HIGH
Debt level (2033), % GDP 156.5 144.3 178.0 169.9 161.3
LOW HIGH Debt peak year 2033 2022 2033 2033 2033 LOW MEDIUM MEDIUM
Fiscal consolidation space 63% 46% 74% 63% 63%
Probability of debt ratio exceeding in 2027 its 2022 level 47%
Difference between 90th and 10th percentiles (pps. GDP) 43.2
(1) Debt level in 2033. Green: below 60% of GDP. Yellow: between 60% and 90%. Red: above 90%. (2) The debt peak year indicates whether debt is projected to increase overall over the next decade.
Green: debt peaks early. Yellow: peak towards the middle of the projection period. Red: late peak. (3) Fiscal consolidtation space measures the share of past fiscal positions in the country that were more
stringent than the one assumed in the baseline. Green: high value, i.e. the assumed fiscal position is plausible by historical standards and leaves room for corrective measures if needed. Yellow:
intermediate. Red: low. (4) Probability of debt ratio exceeding in 2027 its 2022 level . Green: low probability. Yellow: intermediate. Red: high (also reflecting the initial debt level). (5) the difference
between the 90th and 10th percentiles measures uncertainty, based on the debt distribution under 2000 different shocks. Green, yellow and red cells indicate increasing uncertainty.
Source: Commission services.
83
ANNEX 22: MACROECONOMIC IMBALANCE PROCEDURE ASSESSMENT MATRIX
The Macroeconomic Imbalance Procedure and increasing interest rates may further
matrix presents the main elements of the in- strengthen bank profitability. The corporate-
depth review undertaken for Italy (145). Italy sovereign-bank nexus has been intensified by the
was selected for an in-depth review in the 2023 wide use of public guarantee schemes.
Alert Mechanism Report. This in-depth review on
the prevention and correction of macroeconomic Some recent reforms may reduce
imbalances presents the main findings on the macroeconomic imbalances, contingent on
gravity and evolution of the challenges identified, full implementation, while policy needs
as well as policy responses and potential policy remain. The government has started to
needs. Findings cover all areas of vulnerability implement yearly spending reviews and is
assessed in the in-depth review. progressing with actions to improve tax collection.
Reforms and investments are set to gradually
While there have been some improvements, boost productivity and growth. The major steps in
Italy continues to face vulnerabilities with 2021 were followed by efforts in 2022, including
cross-border relevance, relating to the high the implementation of the reforms in the judicial
government debt and weak productivity and education systems, as well as the reform to
growth, in a context of labour market improve the management of public employment,
fragilities and some weaknesses in the coupled with major investments, such as to
financial sector. Italy’s public debt ratio further support digitalisation of firms. In 2022, measures
were also taken to improve the business
declined in 2022 along with the economic
environment, including public procurement and the
recovery, but it remains high, above pre-pandemic
annual competition law. The government also
levels and constitutes a risk for fiscal
enhanced and extended active labour market
sustainability and financial sector stability. Since
policies. The new insolvency framework entered
the COVID-19 pandemic, volatile productivity
into force in July 2022 and is expected to prevent
growth has masked structural shortcomings that
the accumulation of new non-performing loans.
led to a virtual stagnation of GDP per hour worked
Challenges in the areas of pension expenditure,
over almost two decades. While employment rates
taxation, fiscal framework, demographic trends,
are still low, youth unemployment still high, and
and energy call for further policy measures that
regional as well as gender disparities persist, there
are not or only partially envisaged in the RRP.
have been improvements recently. Visible
improvements have also been made in reducing
Based on this assessment, the Commission
NPLs, while the corporate-sovereign-bank nexus
considered in its communication European
remains a challenge in a macroeconomic
environment with increasing interest rates. Semester – 2023 Spring Package (COM(2023)
600 final) that Italy continues to experience
Going forward, Italy’s long-standing excessive imbalances.
vulnerabilities are not expected to unwind
quickly. While the public debt ratio is forecast to
further decline by next year, it is set to remain
high. Rising funding costs dampen capital
deepening. Productivity is nonetheless expected to
gradually improve, as a result of implemented
reforms and investment included in Italy’s RRP.
The labour market proved to be resilient during the
pandemic crisis, including due to the public policies
support, however, structural challenges remain.
Banks’ asset quality may be negatively impacted
by the energy crisis and increasing financing costs.
The banking system is in relatively good shape,
(145) European Commission (2023), In-Depth Review for Italy,
Commission staff working document (COM(2023) 634 final),
in accordance with Article 5 of Regulation (EU) No
1176/2011 on the prevention and correction of
macroeconomic imbalances.
84
Table A22.1: Assessment of macroeconomic imbalances matrix
Gravity of the challenge Evolution and prospects Policy response
Unsustainable trends, vulnerabilities and associated risks
Public debt Italy’s public debt ratio remains high in a After the public debt ratio reached its peak Recent policy measures help reduce the
euro area comparison, at 144.4% of GDP of 154.9% in 2020, on the back of policies public debt ratio, but more actions are
in 2022. The high public debt is a major tackling the Covid crisis and the drop in needed. New measures of around 1% of
source of vulnerability for the economy. economic activity, it declined markedly in GDP weigh on the 2023 deficit, including
High debt servicing costs crowd out 2021 and 2022, also in part due to the temporary ones to counter the social and
productive public expenditure. High economic recovery. It is projected to economic impact of high energy prices.
rollover needs entail refinancing risks. further decline to 140.3% by 2024 thanks Temporary early retirement schemes since
Prolonged increases in sovereign yields to improving primary balances. The 2019, partly extended to 2023, increase
may have adverse economic effects also withdrawal of energy support measures is pension expenditure in the medium term
through the exposure of domestic also expected to reduce the budget deficit, and worsen the public spending bias
financial institutions to public debt, which albeit it is projected to remain above 3% towards them. Policies against tax evasion
hamper their lending activity. of GDP in 2024. Sovereign yields started to bear fruit and RRP measures in
increased in 2021 and further in 2022, 2022 may underpin it. The Finance
amid tighter financing conditions. Debt Ministry’s reinforced role following the
sustainability analysis suggests that fiscal RRP is expected to raise the effectiveness
sustainability risks are low in the short of spending reviews, for which the 2023
term, but high in the medium term and budget set savings targets. A revenue-
medium in the long term. neutral tax shift from labour to less
growth detrimental sources would help
closing remaining policy gaps.
Productivity and Weak productivity growth is a long- From 2019 to 2022, labour productivity Recent RRP measures to improve the
competitiveness standing challenge. Growth in real labour grew by 0.6% per year, slightly above the business environment, including those on
productivity (per hour worked) averaged weak trend growth of the past decade. public procurement and the 2022 annual
0.4% during 2009-2019 after stagnating This average annual growth masks strong competition law, may simplify and speed
in the decade before (EU: 1.2% in both annual fluctuations since 2020. Productiv- up bureaucratic procedures as well as
decades). Weak productivity growth is ity grew sizeably by 3.1% in 2020, as the improve sectoral regulations. The
largely due to low investment and drop in hours worked largely exceeded the government further implemented the
innovation, barriers to competition, fall in economic output. With rising hours judicial system reforms launched in 2021
weaknesses in the public administration worked, productivity dropped by 1% in to increase the efficiency of courts. In
paired with a non-supportive business 2021, followed by a 0.3% decline in 2022. 2022, measures were also adopted to
environment and skill gaps in the labour Going forward, rising capital costs dampen improve administrative capacity and the
force. Productivity growth is critical to investments, while the green transition, management of public employment.
sustain competitiveness and GDP growth, supply chain reorganisations and reforms Productivity would benefit from additional
which is crucial to substantially reduce the that improve the business environment policy efforts beyond the RRP, notably in
public debt ratio. might lift productivity in the medium term. the areas of demography, labour market
Labour market The labour market continues to face low The unemployment rate averaged 8.1% in Somenergy.
and policies addressed labour market
participation and participation rates, particularly for women, 2022, down from 9.5% in 2021. On the vulnerabilities. The 2021 labour market
unemployment young people and in the South. The youth back of renewed dynamism in recruitment reform and the RRP’s strengthening of
unemployment rate and the share of of permanent employees, the labour work-based skill formation facilitate job
young people not in employment, demand outlook stays positive despite matching and transitions. The RRP
education or training are among the slowing output growth. Both long-term supports vocational training, notably at
highest in the EU. The supply of tertiary and youth unemployment dropped tertiary level, adult learning and the dual
and vocational graduates is well below significantly in 2022, to well below pre- system. Their balanced sectoral and
the level of peer countries and falls short crisis levels. RRP measures are expected geographical distribution may reduce
of available job vacancies. to address some of the labour market’s territorial divides. Expanded child care
structural challenges in the medium term. facilities may encourage female labour
market participation. Implementation of
RRP measures to reduce undeclared work,
improve labour activation and enhance
workers’ skills is pending.
Financial Sector Substantial progress was made in the A dynamic market for securitizations and Important policies tackled financial sector
reduction of NPLs. The gross NPL ratio asset disposal allowed considerable imbalances. The insolvency reform
declined from 16.5% in 2014 to 2.9% in improvements in the reduction of NPLs. entered into force in 2022. The new out-of-
Q3-2022. However, risks are concentrated However, the slowdown of economic court settlement is now operational and
in less significant institutions and in activity, inflation and increasing financing may facilitate an earlier restructuring of
southern regions where NPL ratios and and refinancing costs weigh on borrowers’ distressed companies. Liquidity schemes
borrowing costs are higher. ability to repay loans and may negatively were extended for energy intensive
The policy response to the pandemic affect asset quality. This is also relevant sectors and prudent capital endowment
intensified the corporate-sovereign-bank for public guaranteed loans which account has been built up for potential losses on
nexus, which remains a challenge for the for more than 35% of loans to non- public guaranteed exposure. The budget
banking sector. Italian banks remain financial corporations. As regards to law 2023 offered the option for low-
highly capitalized with a CET1 ratio of funding, banks are expected to be able to income households to switch from a
14.7% in Q3-2022 and a rising trend in cope with the challenges posed by the variable to fixed interest rate mortgage.
profitability driven by the increase of net phasing out of the TLTRO loans. The GACS scheme expired in 2022 but a
interest income (+9% yoy). revised version is under consideration. To
lower risks from the corporate-sovereign-
bank nexus, further public debt reduction
would be supportive.
Source: European Commission
85
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