Measures have been taken, according to Review of progress on the implementation of reforms. But «outcomes remain uncertain»
by Emanuele Bonini
Reform momentum at government level has picked up but progress is uneven, said the European Commission in the Review of progress on policy measures relevant for the correction of macroeconomic imbalances. «Several ambitious reform packages that could represent a step-change still await full adoption or further implementing decrees and outcomes thus remain uncertain». Loooking more in detail, «significant uncertainty surrounds the spending review, which is key for financing important measures in the coming years». The programme is lagging behind initial plans announced in 2013 and a recent change in approach «may lower the quality of the cuts», while the implementation of the privatisation plan in 2014 «has incurred a delay». Furthermore the implementation of the enabling law to reform the tax system is progressing, but «progress in the important areas of tax expenditure revision and environmental taxation is still limited». Italy is doing not well, according to the EU Commission report. Not a good new for the country, since the implementation of structural reforms is crucial to avoid Macroeconomic imbalances procedure (Mip). Italy remains under control, according to the European Commission. «Progress in the coming months will be crucial to evaluate Italy's success in implementing measures to address its imbalances». Looking at the state of play of MIP relevant reforms, Italy still has a lot to do.
Public debt reduction. Italy's very high government debt is an important burden for the economy and a serious source of vulnerability, in particular in the current low growth and inflation context. The large stock of public debt implies substantial refinancing risk and makes the country vulnerable to sudden rises in sovereign yields and financial-market volatility in periods of increased risk aversion, with potential spill-over effects towards other countries.
Spending review. There is significant uncertainty around the spending review which is expected to finance several key reforms in the
coming years. In order to ensure full ownership of the expenditure savings to be accomplished, but in contrast with the spending review's initial approach, all Ministries have recently been asked to propose short-term spending cuts themselves. This approach may however negatively affect the quality of the spending cuts and jeopardize the objective of preserving growth-enhancing items and improving economic efficiency. The uncertainty around the spending review raises concerns given that the expected-savings are supposed to finance several measures, including the extension of reduction in the labour tax wedge to 2015 and other growth-enhancing measures.
Privatisation. Italy's privatisation programme is incurring implementation delays. Operations that could be implemented in the short term are the sale of the Ministry of Economy and Finance's (MEF) stake in the holding STH which controls STMicroelectronics and possibly 5% of ENEL shares (out of the 31.24% owned by the MEF). The privatisations of Poste Italiane (up to 40%) and ENAV (up to 49%) have been postponed and could take place in 2015.
Productivity. Persistently sluggish productivity growth – rooted in structural weaknesses – negatively affects Italy's external competitiveness and public debt sustainability. Italy's chronically weak productivity growth is rooted in numerous structural weaknesses.
Reform of labour market. Whether the envisaged reform of the labour market will improve the functioning of the labour market will depend on the design of the needed implementing decrees. Overall, the proposed actions, if adopted as a coherent and comprehensive package, appear adequate to address Italy's labour market challenges, but the effectiveness of the reform will depend much on the design of the constituent measures and their subsequent implementation on the ground.
Simplification. Business environment simplification measures have been numerous but piecemeal, while significant implementation gaps reduce the potential benefits. Several simplification packages were adopted since 2012, but important implementation gaps persist and ambition appears to remain limited. In addition, the frequent piecemeal legislative approach increases further the risk of inconsistencies and hampers the stability and clarity of the legal environment for economic actors.
Public administration. Measures have recently been taken to reform and modernise Italy's public administration, but there is still a long way to go.
Justice. Italy has undertaken important reform efforts to improve the functioning of civil, commercial, and administrative justice, and a more ambitious package has been launched, but it is important that the full operationalisation of all reforms is ensured and that their impact on judicial efficiency is systematically recorded, in particular with regard to disposition time.
EU funds management. Italy has taken steps to strengthen its management of EU structural funds, but implementation is slow and some concerns remain. In particular, the operationalisation of the Territorial Cohesion Agency set up in 2013 is slowly progressing: a Director has been recruited in July 2014 and the Agency's statute was approved in August 2014, but its staff is not yet complete.
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| Pier Carlo Padoan |
Reform momentum at government level has picked up but progress is uneven, said the European Commission in the Review of progress on policy measures relevant for the correction of macroeconomic imbalances. «Several ambitious reform packages that could represent a step-change still await full adoption or further implementing decrees and outcomes thus remain uncertain». Loooking more in detail, «significant uncertainty surrounds the spending review, which is key for financing important measures in the coming years». The programme is lagging behind initial plans announced in 2013 and a recent change in approach «may lower the quality of the cuts», while the implementation of the privatisation plan in 2014 «has incurred a delay». Furthermore the implementation of the enabling law to reform the tax system is progressing, but «progress in the important areas of tax expenditure revision and environmental taxation is still limited». Italy is doing not well, according to the EU Commission report. Not a good new for the country, since the implementation of structural reforms is crucial to avoid Macroeconomic imbalances procedure (Mip). Italy remains under control, according to the European Commission. «Progress in the coming months will be crucial to evaluate Italy's success in implementing measures to address its imbalances». Looking at the state of play of MIP relevant reforms, Italy still has a lot to do.
Public debt reduction. Italy's very high government debt is an important burden for the economy and a serious source of vulnerability, in particular in the current low growth and inflation context. The large stock of public debt implies substantial refinancing risk and makes the country vulnerable to sudden rises in sovereign yields and financial-market volatility in periods of increased risk aversion, with potential spill-over effects towards other countries.
Spending review. There is significant uncertainty around the spending review which is expected to finance several key reforms in the
coming years. In order to ensure full ownership of the expenditure savings to be accomplished, but in contrast with the spending review's initial approach, all Ministries have recently been asked to propose short-term spending cuts themselves. This approach may however negatively affect the quality of the spending cuts and jeopardize the objective of preserving growth-enhancing items and improving economic efficiency. The uncertainty around the spending review raises concerns given that the expected-savings are supposed to finance several measures, including the extension of reduction in the labour tax wedge to 2015 and other growth-enhancing measures.
Privatisation. Italy's privatisation programme is incurring implementation delays. Operations that could be implemented in the short term are the sale of the Ministry of Economy and Finance's (MEF) stake in the holding STH which controls STMicroelectronics and possibly 5% of ENEL shares (out of the 31.24% owned by the MEF). The privatisations of Poste Italiane (up to 40%) and ENAV (up to 49%) have been postponed and could take place in 2015.
Productivity. Persistently sluggish productivity growth – rooted in structural weaknesses – negatively affects Italy's external competitiveness and public debt sustainability. Italy's chronically weak productivity growth is rooted in numerous structural weaknesses.
Reform of labour market. Whether the envisaged reform of the labour market will improve the functioning of the labour market will depend on the design of the needed implementing decrees. Overall, the proposed actions, if adopted as a coherent and comprehensive package, appear adequate to address Italy's labour market challenges, but the effectiveness of the reform will depend much on the design of the constituent measures and their subsequent implementation on the ground.
Simplification. Business environment simplification measures have been numerous but piecemeal, while significant implementation gaps reduce the potential benefits. Several simplification packages were adopted since 2012, but important implementation gaps persist and ambition appears to remain limited. In addition, the frequent piecemeal legislative approach increases further the risk of inconsistencies and hampers the stability and clarity of the legal environment for economic actors.
Public administration. Measures have recently been taken to reform and modernise Italy's public administration, but there is still a long way to go.
Justice. Italy has undertaken important reform efforts to improve the functioning of civil, commercial, and administrative justice, and a more ambitious package has been launched, but it is important that the full operationalisation of all reforms is ensured and that their impact on judicial efficiency is systematically recorded, in particular with regard to disposition time.
EU funds management. Italy has taken steps to strengthen its management of EU structural funds, but implementation is slow and some concerns remain. In particular, the operationalisation of the Territorial Cohesion Agency set up in 2013 is slowly progressing: a Director has been recruited in July 2014 and the Agency's statute was approved in August 2014, but its staff is not yet complete.
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