Italy: 2005 Article IV Consultation—Staff Report; Staff Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Italy

This 2005 Article IV Consultation highlights that despite the better cyclical outlook, medium-term trends for Italy remain troubling: potential growth is estimated at just 1¼ percent, as low productivity growth and high domestic costs have led to a steady erosion of competitiveness and export market share. The 2005 fiscal deficit target of 4.3 percent of GDP is estimated to have been met, thanks in part to measures introduced by the authorities. For 2006, the authorities have committed to a deficit target of 3.5 percent of GDP.


This 2005 Article IV Consultation highlights that despite the better cyclical outlook, medium-term trends for Italy remain troubling: potential growth is estimated at just 1¼ percent, as low productivity growth and high domestic costs have led to a steady erosion of competitiveness and export market share. The 2005 fiscal deficit target of 4.3 percent of GDP is estimated to have been met, thanks in part to measures introduced by the authorities. For 2006, the authorities have committed to a deficit target of 3.5 percent of GDP.

I. Overview and Key Issues

1. Italy’s medium-term prospects remain shackled by slow output and productivity growth, along with high debt and deficits. Potential growth is estimated at only 1¼ percent annually, amid a steady deterioration in productivity and external competitiveness. The fiscal deficit exceeded 4 percent of GDP in 2005 and the public debt-to-GDP ratio—still among the highest in the world even after a decade of declines—is on the rise again, falling prey to high deficits and slow growth.


Real GDP growth

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001

2. Solving Italy’s economic problems will demand determined policy implementation over a number of years. With the primary surplus having fallen steadily since the late 1990s, significant fiscal consolidation will now be needed to ensure sustainability of the public debt, and the restoration of external competitiveness will also likely be a lengthy process. While the staff’s message about the essential need for fiscal consolidation and broad-based structural reform is not new, the critical nature of these policies is accentuated by the heightened fiscal and competitiveness concerns (Box 1).


Gross Debt to GDP Ratio

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001

Implementation of Fund Policy Advice

Fiscal consolidation: Fund calls for significant fiscal consolidation have generally not been heeded. Between 2000 and 2003, the structural primary surplus net of one-off measures fell by about 2½ percent of GDP, with only a small part of this deterioration recovered in 2004–05.

Pension reform: The need for reforms to address the looming fiscal impact of population aging has been a long-standing theme of Article IV consultations. Important reforms have been implemented, most recently in August 2004, when Parliament approved the “framework law” on pension reform. The Fund had supported the reform, which is expected to have a significant impact on pension expenditure from 2008 onwards. A measure establishing a second pillar pension scheme for private sector workers was approved in November 2005, but its implementation has been delayed until 2008. The Fund has supported measures to promote private savings in the past.

Competition, product market reform, and the business environment: Successive Article IV consultations have repeatedly stressed the need for reforms in these areas. A “competitiveness decree” approved by Parliament in 2005 offers some enhancements along the encouraged lines, but progress has generally been slow. A long-pending reform of the bankruptcy law was approved by Parliament in December 2005, along with a reform of civil procedures.

Labor market reforms: Cross-country indicators of employment protection have registered marked improvement in recent years, as has labor market performance more broadly. In June 2003, the government approved a draft decree enacting the first part of a framework law on employment and the labor market, which the Fund had supported. The Fund has called for timely implementation of the second half of the law, but this remains to go forward.

Corporate governance: Legislation that would strengthen corporate governance, the marketing and issuance of corporate bonds, and coordination among regulatory agencies—all of which have been supported by the Fund in previous consultations—was passed by Parliament in December 2005.

II. Background

3. Despite the somber medium-term outlook, short-term prospects have brightened modestly, though uncertainties remain. A strong and broadly-based rebound in 2005: Q2 (quarterly growth of 0.7 percent, seasonally-adjusted) had raised hopes that, following the technical recession at the turn of 2004–05, the long-awaited cyclical recovery was underway. A weaker-than-expected third quarter (0.3 percent, seasonally-adjusted), however, raised questions about the strength and durability of the recovery going forward. Nevertheless, the composition of demand—with consumption and exports performing relatively well, and most of the slowdown arising from a run-down of inventories—was more positive than the headline number.1


Real GDP growth Versus same quarter

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001

4. Inflation has typically exceeded that of the euro area. Sluggish domestic demand has helped contain inflationary pressures arising from high international oil prices, and core inflation has dropped below 2 percent, though it has consistently exceeded the euro-area average. The depreciating euro has led to some relaxation of monetary conditions since mid-year, although they remain very tight relative to the average since monetary union.



Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001

5. The authorities have committed to reduce the fiscal deficit to below 3 percent of GDP by 2007 under the Excessive Deficit Procedure (EDP). A combination of weaker-than-forecasted growth, disappointing asset sales, and Eurostat-mandated reclassifications put the original 2005 target of a 2.7 percent of GDP deficit out of reach.2 A revised deficit target of 4.3 percent of GDP was agreed under the EDP, but the achievement of even this less ambitious objective had proven challenging. Reflecting the high deficit and sizable shortfall in privatization receipts, the debt ratio increased in 2005, to over 108 percent of GDP. The deterioration in fiscal prospects led some agencies to downgrade the outlook for Italy’s sovereign debt rating.3 Spreads relative to German benchmarks have doubled since Fall 2004, but remain very small in absolute terms.


Monetary Conditions Indicator 1/


Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001

1/ Weighted-average of real money market interest rate and real effective exchange rate, using WEO weights.

Spread Versus Benchmark German 10-year Bond

(in basis points)

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001

6. Rigidities and inefficiencies throughout the economic structure are at the heart of Italy’s difficulties. Despite some progress in recent years, measured product market regulation in Italy remains the strongest in the EU-15, distorting incentives and discouraging market entry and innovation (Figure 1). These rigidities have inhibited adjustment to the structural shifts that Italy has confronted due to increased competition from emerging market exports, perpetuating an economic structure dominated by a large number of small firms employing relatively low-tech, low value-added production techniques. Knowledge creation and dissemination (as measured for example by the European Commission’s Summary Innovation Index) and private R&D investment are among the lowest in the EU-15, and rates of firm creation and destruction do not suggest an extensive transformation of the economy is underway.

Figure 1.
Figure 1.

Italy: Market Rigidities

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001

Source: OECD, Eurostat, ISTAT, and Fund staff calculations.

7. The advent of the common currency has brought these structural rigidities into sharper relief. Normal adjustment mechanisms under monetary union have thus far failed to lead to an improvement in Italy’s growth performance. In fact, since 2001 the external sector has sapped a cumulative 2 percentage points from output growth even as domestic demand weakened and foreign demand expanded sizably (Figure 2). The textbook gain in external competitiveness that should have resulted from Italy’s relatively weak cyclical position has not materialized, and the loss in market share since the start of monetary union has persisted. The widening output gap—estimated by the staff at 2½ percent of GDP in 2005—has failed to exercise the necessary dampening effect on prices. In addition, although wage growth has slowed, it has significantly exceeded growth of labor productivity, which actually fell over 2001–04. Real unit labor cost growth has been markedly greater than that of France and especially Germany: since 1998 Italy’s ULC-based REER has appreciated by a cumulative 18 percent, compared to depreciations in Germany and France. Consistent with the divergent experiences of the three largest euro area economies, staff analysis finds that slow productivity growth and domestic rigidities—and not euro strength—were the predominant factors accounting for Italy’s loss of competitiveness.4 The fact that employment growth has been concentrated in sectors less exposed to external competition provides further evidence of competitive weaknesses.

Figure 2.
Figure 2.

Italy: Competitiveness

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001

Source: WEO, Eurostat, and staff calculations.

III. Report on the Discussions

8. Discussions were marked by general agreement on the main requirements to raise potential growth, but emphases differed on the proximate causes of Italy’s problems, and a broad reform consensus has yet to emerge. Staff and the authorities concurred on the need for durable expenditure-based fiscal adjustment and structural reforms in product, services, and labor markets. At the same time, however, there exists a widespread tendency to attribute Italy’s problems to outside forces, be they euro strength or the pressures of globalization, or to an historical legacy, such as the small, family-owned firm structure and the traditional product specialization of Italian exports (centered on low-tech, low-value added sectors), along with a geographical orientation of exports toward slower-growing regions of the world. While staff did not dispute the importance of these factors, it stressed that Italy’s economic problems were fundamentally homegrown, the consequence of rigidities and inefficiencies whose resolution demanded an integrated package of liberalizing reforms. The electoral calendar provided an opportunity to focus the national debate on the medium-term policies required to secure a more competitive Italy and, in meetings with the authorities and the economic representatives of the opposition, staff encouraged the main political coalitions to spell out the details of their economic programs. Some greater definition of electoral commitments has since emerged, but both coalitions are deeply fractured on key reform aspects, and may therefore be ill-equipped to overcome vested interests opposed to change.

A. Economic Outlook: A Timid Recovery Among Risks

9. A mild cyclical recovery appears at hand. The strength—and breadth across demand components—of the 2005: Q2 outturn had surprised most analysts, and was taken as evidence that cyclical conditions had turned the corner after four years of disappointing economic performance. At the time of the mission, most forecasters were therefore projecting annual output growth of about ¼ percent for 2005, although the weaker-than-expected third quarter outcome has since led most of them—and the staff—to reduce their estimates to barely above zero.

10. For 2006, the staff forecasts growth of about 1½ percent, in line with the budget projection and slightly above the consensus forecast of 1.3 percent. This would imply average quarterly growth of about 0.3 percent, equal to the 2005: Q3 outturn.

  • Private consumption is expected to remain resilient, accelerating slightly relative to 2005 but staying within the narrow range posted since 2003.

  • Strong global demand is projected to lead to an improved contribution from net exports, although gains in external competitiveness are not expected, as firms are likely to take advantage of somewhat slower ULC growth to restore margins. Indeed, Italy is projected to continue to lose market share.

  • With indicators of business confidence rising and corporate balance sheets remaining healthy, the improved external contribution is forecast to encourage a recovery of productive investment, which has been languishing.


Private Consumption Growth

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001


Net External Contribution

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001


Gross Fixed Investment Growth

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001

11. Nascent cyclical recoveries have turned into false starts before, however, and downside risks are appreciable. High international oil prices were seen as the main risk to growth, with several interlocutors also concerned about the impact of an increase in interest rates or possible renewed euro strength. Policy slippages could have a negative impact on confidence and on ratings agencies’ evaluations, and the continued benign behavior of spreads cannot be assumed indefinitely in the absence of adjustment and reform.

12. Inflation is expected to remain moderate. As elsewhere in the euro area, there is little evidence that high oil prices have generated significant second-round effects on prices. The large flow of low-priced imports from emerging markets has helped contain inflation, even against the background of some euro weakness, but the already-noted positive inflation differential relative to the euro area despite Italy’s sizable output gap raises concerns about possible underlying inflationary pressures.

B. Fiscal Policy in 2005–06: Living Up to EDP Commitments

13. The 2005 deficit target of 4.3 percent of GDP is likely to have been achieved, but margins were expected to be tight. Despite unfavorable economic conditions, tax revenues had performed relatively well. There were, however, some indications that spending discipline had weakened later in the year. This, and the sizable shortfall in real estate sales (which are recorded as a deficit-reducing item under ESA95), had prompted a budget amendment in October that introduced additional spending cuts and revenue measures amounting to just over 0.1 percent of GDP. The authorities stressed that this underscored their commitment to achieving the target. Though not planned, the budget deficit would also be contained by delays in renewing some public sector wage contracts, which would push their fiscal impact into 2006. Achievement of the deficit target would entail a small improvement in the underlying fiscal position (about ¼ percent of GDP as measured by the change in the cyclically-adjusted primary balance net of one-off measures). Nevertheless, current primary spending was projected to rise by about 0.7 percent of GDP in 2005, testimony to the considerable spending momentum in the public finances.

14. The authorities have repeatedly strengthened the 2006 budget with a view to securing the EDP deficit target of 3.8 percent of GDP. The package of measures included in the original draft 2006 budget, discussed early in the mission, fell far short of what was needed to achieve the EDP target, due also to inflated assumptions about likely real estate asset sales. The authorities agreed that the budget needed to be strengthened and—in a series of amendments during October-December—have done so in various ways (new measures, tighter expenditure control mechanisms, and the channeling of all asset sale proceeds to deficit reduction). The final 2006 budget contains measures that are officially estimated to yield about 1.9 percent of GDP, more than would be needed to compensate for the expiration of one-off measures and for some new spending initiatives, and to achieve the EDP deficit target. Indeed, the authorities now project the 2006 deficit at 3.5 percent of GDP. Such an outturn would also be consistent with the scale of improvement in the structural balance net of one-offs committed to under the EDP.

15. Underlying expenditure dynamics underpin staff concerns about achievement of the 3.8 percent of GDP deficit target in 2006. In particular, with no fundamental spending reforms, staff is less sanguine about the following items:

  • The budget envisions deep cuts in central government current spending, but without changes in underlying determinants these will be difficult to enforce and sustain, especially on the heels of the within-year spending cuts already implemented in 2004 and 2005. Such mid-year cuts have typically resulted in spending rebounds in subsequent years.

  • The budget assumes rigorous expenditure control at the local level, in particular for health care. Success in curbing health care costs was elusive in previous years, and according to available data only mixed progress was made in 2005.

  • The budget calls for deep cuts in current and capital transfers to some state enterprises, notably the state highway agency (ANAS) and the railways, but without meaningful corporate restructuring these could prove unrealistic and generate off-budget liabilities for the government.

  • In addition, the final budget raised revenue estimates—in some cases excessively, in the staff’s view.5

In light of these factors, the staff’s current central forecast is of a deficit of 4.0 percent of GDP in 2006. However, fiscal uncertainties are such as to readily encompass a range of deficit outcomes between 3¾ percent and 4¼ percent of GDP—depending also on the details of the outcome for 2005, which will be assessed in a supplement to this Staff Report.

Italy: Budget and Staff Projections

(in percent of GDP)

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Sources: Ministry of Finance and Fund staff estimates.

Based on staff estimates of the output gap.

16. The authorities believed the risks highlighted by staff were contained and manageable. First, they noted that revenue forecasts in the original budget were conservative. More fundamentally, they believed the expenditure risks highlighted by the mission were overstated. The authorities pointed to refinements they were introducing to the 2005 nominal cap on spending growth, allowing for greater differentiation across spending categories to enhance expenditure control. They also stressed that a number of initiatives had been implemented that would help contain the growth of health care costs, including the introduction of a national health card (tessera sanitaria) to improve controls and reduce fraud, and new mechanisms that would increase accountability among local governments for health spending overruns; since then, sanctions for such overruns have been strengthened, as well. They likewise felt there was limited risk associated with the cut in transfers to state enterprises, as these enterprises would have no option but to adjust their spending accordingly. Furthermore, there was some upside to the cuts in transfers, as they could provide impetus to a number of potential asset sales that were not incorporated in budget projections. In reiterating their commitment to the EDP target, the authorities noted that, as in the past, corrective measures could be introduced over the course of 2006, should they prove necessary.6 Finally, the authorities were also investigating more effective ways to mobilize the state’s considerable asset holdings to reduce the public debt, although details were not available at the time of writing.

C. The Agenda for a More Competitive Italy

Fiscal Policy

17. It was recognized that Italy’s large public debt was an important constraint on potential growth, generating uncertainty about the future course of fiscal policy and diverting resources from more productive uses. Thus, while reducing the deficit to below 3 percent of GDP by 2007 would be difficult, it was acknowledged that this was only the first step in the process of fiscal consolidation. The mission noted in particular that despite a series of important pension reforms over the last decade, bringing the deficit down to the Maastricht ceiling—or even the 1.5 percent of GDP envisioned for 2009 in the latest Stability Program update (December 2005)—would be insufficient to ensure the sustainability of the fiscal accounts, in light of pressures that will arise from population aging (Box 2). Staff simulations show that even assuming some improvement in labor productivity growth and the employment ratio in the coming years, rising aging-related expenditure would lead to explosive debt dynamics in the longer term. By contrast, under an adjustment scenario that envisages declines in the structural deficit of ¾ percent of GDP annually to achieve overall balance by the end of the next legislature in 2010 (with constant non-aging-related spending thereafter), the debt ratio would gradually decline and then stabilize at about 50 percent of GDP in the long term. Staff noted that a commitment to achieve overall balance had once been a regular feature of SGP updates, but the decision to tolerate—rather than correct for—persistent shortfalls in budget performance had pushed this beyond the horizon of recent programs. This remains true of the latest Stability Program update, although within it the authorities do reiterate their general intention to achieve medium-term balance. The authorities assured the mission they would implement the once-every-decade adjustment in pension replacement rates in response to changes in life expectancy by end-2005, as mandated under the 1995 pension reform, but this has not yet occurred.


Deficit Forecasts, 2003–2006

(in percent of GDP)

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001

Fiscal Sustainability

The staff’s baseline scenario assumes current policies are maintained through 2010. Thereafter, revenue and non age-related spending remain constant as percentages of GDP. Age-related (health and pension) expenditure reflects recent demographic projections and the pension reforms introduced since the mid-1990s. The baseline also assumes increases in labor productivity growth (to 1¼ percent annually, above the rate achieved over the last few years) and in the employment ratio (by 5 percentage points). Together, these result in long-run annual real GDP growth of ¾ percent. These assumptions are less optimistic than those underlying official projections, which assume annual productivity growth of 1¾ percent and a cumulative increase in the employment ratio of more than 10 percentage points. The baseline assumption on health care spending (as per the authorities’ “national scenario”) links age-adjusted per capita consumption of health services to growth of GDP per capita. Given recent health care spending trends, this may be optimistic. In the 2005 update of their Stability Program, the authorities used alternative methodologies (death-related costs, etc.) that yield more favorable estimates for Italy. The EC’s Ageing Working Group recommends using a variety of scenarios to project health care costs, including one that links health spending to the growth of GDP per worker, which is more pessimistic than the staff’s scenario.

Under the baseline, the fiscal deficit would decline marginally over the next few years, but would rise thereafter, due to increased aging-related spending and, later, interest payments. The debt ratio would exceed 300 percent of GDP in 2050 (see Table 5).

The staff’s adjustment scenario features annual structural adjustment of 0.7 percent of GDP in 2007–10 through spending cuts, leading to overall structural balance by the end of the decade. In addition, assuming current and future reforms, productivity growth rises by ¼ percentage point relative to the baseline, starting from 2011. Under this scenario, savings on the interest bill finance the increases in aging-related spending, with the debt-to-GDP ratio falling to around 50 percent by 2030 and then stabilizing.

Stress test scenarios, relative to the baseline, include: (i) implementation of the adjustment strategy detailed in the authorities’ Stability Program update, whereby the overall fiscal deficit is reduced to 1½ percent of GDP by 2009; (ii) that same fiscal adjustment path, but with higher productivity growth than in the baseline (matching that in the staff’s adjustment scenario); (iii) a more optimistic productivity growth scenario based on the authorities’ assumptions, but with current fiscal policies; and (iv) failure to implement scheduled adjustments in pension replacement rates in line with life expectancy developments. Each of these scenarios yields a sizable increase in the debt ratio in the long run.

These results underscore the dual importance of reforms to increase potential growth and early action to address fiscal problems.


Fiscal Balance

(in percent of GDP)

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001


Public Debt Dynamics

(in percent of GDP)

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001


Public Debt Dynamics

(in percent of GDP)

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001

Table 5.

Italy Public Sector Debt Sustainability Framework, 2003–2050

(In percent of GDP, unless otherwise indicated)

article image
Sources: ISTAT; Ministry of Economy and Finance, and Fund staff calculations and estimates.

Assumes that the authorities meet the targeted decline in the overall deficit through 2009, but the macroeconomic framework is mat underlying the (staff’s) baseline.

18. The authorities agreed that budget consolidation needed to be based on expenditure containment, particularly given the trend growth of spending since the late 1990s. Over the last several years, primary current spending had risen at an average annual rate of 2 percent in real terms, and Italy had largely squandered the fiscal dividend associated with euro participation. While the nominal cap on expenditure growth was seen to have played a useful restraining role in 2005, staff argued that achieving the required declines in spending would demand a better-targeted approach, focused on expenditure reduction within a medium-term budget framework. Cuts in subsidies to firms, rationalization of public employment, further steps to control health care costs, and reforms to enhance the efficiency of public procurement were likely sources of savings. The authorities noted that the planned nationwide implementation of SIOPE—an integrated data management system to track cash outlays at various levels of government—would provide a powerful tool for monitoring spending and facilitating budgeting.7

19. The ongoing devolution of functions from the central government will remain a source of risk in the absence of a properly-designed system of fiscal federalism. Although a High Commission on fiscal federalism had completed its mandate and issued a report containing options for tax assignments, tax sharing and equalization mechanisms, no major changes were planned ahead of the elections.8 Meanwhile, the internal stability pact governing local government fiscal policies was again changed in the 2006 budget, negatively affecting the predictability of the framework and its ownership by local authorities. Staff observed that fiscal federalism arrangements will remain incomplete until increased spending responsibilities are paired with mechanisms allowing local governments to raise their own taxes and creating incentives for them to be fiscally responsible.

Structural Reforms

20. The mission and its interlocutors agreed on both the nature of Italy’s economic malaise and the broad outlines of the reform agenda. Clearly, protracted slow productivity growth was at the heart of Italy’s poor economic performance, and sustained implementation of a suite of reforms to stimulate greater competition and facilitate entry across domestic markets was essential to accelerate potential growth. While the electoral climate was not conducive to making substantial progress on these fronts in the coming months, the authorities concurred that a number of reforms then before Parliament needed to be approved to set the stage for further progress, and this goal was subsequently achieved.

21. In line with commitments under the reformed Lisbon agenda, a medium-term national action plan had been submitted that touched on many of these topics.9 The plan groups priority initiatives into five broad areas: (i) liberalization of individual and enterprise activity; (ii) research and development; (iii) human capital; (iv) infrastructure; and (v) environment. The mission welcomed the report as a useful contribution to the debate, and suggested that the authorities emphasize the low-cost, high-benefit initiatives in the document—such as liberalization and the implementation of the EU services directive—ahead of other items (e.g., in research and infrastructure) that would involve high budgetary costs and more limited returns.

22. Italy’s poor showing on indicators of product market regulation suggests there is substantial scope to eliminate barriers discouraging market entry and innovation. As a result of these barriers, cumulative cost increases for services in Italy have outstripped those in France and Germany, despite Italy’s lower productivity growth.

Cumulative Cost Increases for Services, 2001–04

(in percent)

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Source: Eurostat
  • A host of rules inhibit competition in the professional services, including by barring nonprofessionals from performing nontechnical services, establishing minimum tariffs for certain activities, and prohibiting advertising. Closed associations (ordini) constitute formidable barriers to entry to professions that remain largely impregnable, as most professional services fall outside antitrust jurisdiction. There was some sympathy for the staff’s call to eliminate these restrictions, though associations and minimum fees were still viewed as necessary to ensure quality and protect consumers. No major initiatives were afoot; indeed, earlier planned reforms to the role of notaries had been scrapped. The issue is nevertheless present in the electoral debate.

  • In retail trade, too, competition-inhibiting restrictions abound, with particular protection afforded to certain sectors (e.g., pharmacies). Competencies for retail trade have largely been devolved to lower levels of government, but staff called for the central government to proactively use its remaining responsibilities to promote competition.

  • Despite considerable divestment, the state still holds controlling shares in many enterprises, some of which play a dominant role in key Italian markets (notably energy and transport), and most local utilities remain public. In this regard, while the authorities plan to abandon their “golden shares” in some of these enterprises (which have come under increasing scrutiny from the EU), they intend to replace them with “poison pill” arrangements that are also aimed at discouraging take-over bids. Staff noted that the continued public presence in some key sectors of the economy reduced incentives to resist cost pressures and innovate, as pointed out by the OECD.10 The authorities asserted the importance of keeping strategic industries in national hands, and noted that similar defensive instruments are used in other industrial countries. They nevertheless planned to continue divestment efforts.

  • While the Antitrust Authority is proactive and well-regarded, regulatory authorities in certain key sectors play an insufficient role in promoting competition. Staff advocated enhanced powers for such authorities, and expressed concern about political influence in nomination procedures, as well as the possible impact of plans to terminate their financing from the budget. Government officials noted, however, that the latter initiative would be phased in gradually, and sought merely to reduce reliance on budgetary resources—to be offset by greater contributions from regulated industries—rather than weaken the capacity of the supervisory entities.

  • In the financial system, as revealed also by the FSAP, greater market contestability—including importantly by foreign contenders—would make the sector more dynamic, yielding significant efficiency gains. Along with measures to increase the size and role of capital markets, it would also likely help reorient a predominantly relationship-based system that tended to favor incumbents over new entrants. On the whole, the authorities thought staff overstated the benefits of a foreign presence which in any case already existed (see ¶27), though they agreed on the desirability of increased competition and efficiency.

23. Cross-country indicators point to a need to improve the business environment, and the authorities were confident that progress was in the offing. Data collected by the World Bank and other international bodies suggest significant problems in this area, including slow legal processes and substantial bureaucratic requirements, though the authorities expressed reservations about applying cross-country data. They noted that an overhaul of the bankruptcy law, designed to simplify procedures and provide debtors with a fresh start, as well as a reform of civil procedures to accelerate legal processes, were in the final stages of legislative approval; the measures were passed by Parliament in December 2005. Staff work illustrates the importance of differences in institutional quality, alongside product market regulation and tax rates, in explaining national and regional growth rates in the EU.11

Italy-Business Environment

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Source: World Bank (2005) Doing Business Indicators.

An overall measure that captures hiring and firing costs, plus rigidity of hours worked. Higher numbers indicate a more rigid environment.

Measures how well collateral and bankruptcy laws facilitate lending. Higher numbers denote a more supportive environment for granting credit.

24. Recent reforms have brought Italy’s level of employment protection close to the advanced economy average, but a more fundamental reform of labor market institutions is only in its initial stages. Historically, strong employment protection legislation has substituted for an adequate social safety net, benefiting insiders but resulting in low participation rates, considerable employment precariousness for outsiders, and disincentives to mobility and risk-taking. The authorities noted that recent reforms had enhanced the system of unemployment compensation, in particular by extending the period over which benefits could be collected. The mission stressed that—in line with the so-called Biagi reform package—this needed to be complemented by a broader overhaul of the employment-related social safety net and further liberalization of employment protection legislation. Despite recent reforms, EPL remains relatively stringent, contributing to still-low employment rates. Labor union representatives, however, argued that reducing employment protection would not lead to the creation of high value-added job openings in profitable firms in the absence of a substantial increase in funding for education and worker training, especially as Italy continued to fall short of the EU average in many measures of human capital.


Employment Rate

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001


Percent of population with upper secondary degree

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001

25. The authorities observed that new forms of contracting had contributed to employment growth. They pointed in particular to the beneficial impact of recent reforms to promote the use of part-time contracts and temporary agencies (“staff leasing”). They recognized, however, that recent work by the statistical agency suggested that as much as three quarters of the rise in employment registered since the start of 2003 had come from increases in the working age population—likely arising from the regularization of immigrants already in Italy—rather than from growth in the employment rate, a point stressed by the trade unions.12 The authorities noted that steps had been taken to link regional databases of job openings, helping to create a more transparent and efficient national labor market. They saw this as an important step to reduce the substantial regional disparities in unemployment rates. Staff’s long-standing call for greater regional wage variation in line with productivity differences—which would address the same end—continued to meet with resistance, however.

D. Financial Sector

26. The 2005 Financial Sector Assessment Program found that Italy’s financial system was generally sound. The banking sector has proven resilient to slow growth, and stress tests indicate little vulnerability to unfavorable macroeconomic shocks (Box 3). Nevertheless, the FSAP found a number of specific issues within the banking system that merited attention, including relatively lenient loan classification standards that complicated the assessment of banks’ financial health, and insufficient regulation of lending to related parties. On the former issue, the Bank of Italy is undertaking measures to align the definition of impaired loans with the standard 90-day past due criterion. On the second issue, broad guidelines on connected lending have recently been approved by an interministerial committee, paving the way for the Bank of Italy to issue more detailed regulations on the matter. Stress tests results suggested some vulnerability to liquidity risk, but the authorities noted that liquidity indicators were broadly in line with those of other European countries. Finally, the revelations concerning financial improprieties in the context of recent takeover attempts, which came after the bulk of the FSAP work was conducted, indicate a need for greater vigilance in enforcing the overall strong supervisory framework.

27. Turning to efficiency considerations, views differed on the extent to which market contestability was a concern. A number of indicators suggest that overall competition in the banking sector is similar to that in other large European economies. However, the price of core banking services remains high and efficiency gains from the common currency have been small (Box 4).13 In addition, European Commission surveys reveal a higher level of dissatisfaction with the quality of banking services than elsewhere in Europe.14 The Bank of Italy cautioned that attention needed to be paid to individual country circumstances when evaluating cross-country indicators. For example, high fees and commissions should be weighed against the relatively large number of interest-bearing and joint accounts in Italy. It also noted that the share of the system owned by foreign entities was already comparatively high (albeit consisting only of minority positions).


Annual Cost of Core Banking Services, in euro, 2005

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001

Source: CapGemini 2005 World Banking Report

Cost of Banking Services adjusted for number of users of accounts and interest earned

Citation: IMF Staff Country Reports 2006, 060; 10.5089/9781451819892.002.A001

source: Mercer Oliver Wyman (2005)

FSAP: Specific Issues

While the financial system is generally sound, a number of specific issues emerged from the FSAP that deserve attention:

  • Market contestability in banking is limited and foreign entry has proven difficult. Further consolidation, including with the participation of strong foreign partners, would help enhance competition and efficiency; this would facilitate lower pricing of banking services.

  • Italian banks exhibit structurally higher nonperforming loans compared to other leading European countries, despite more lenient loan classification standards. The authorities should accelerate the convergence to the standard 90-day past due criterion, which would provide more meaningful information on banks’ financial health. The Bank of Italy is undertaking measures to move to a 180-day (and ultimately to the more standard 90-day) past due criterion.

  • The limited regulation of lending to related parties creates uncertainty about the extent of connected lending in the banking sector. The staff supports current plans for enhancing regulation to permit a careful monitoring of this issue.

  • Liquidity buffers in the banking sector have decreased and stress tests revealed some vulnerability to liquidity risk.

The FSAP also identified several issues related to the Bank of Italy’s governance that are addressed in the main text.

Competition in the Banking Sector

In addition to more traditional indicators of market structure, four main approaches can be used to assess the degree of competition in the banking industry (see the Selected Issues paper for details): (i) indicators of competition based on profitability, including measures of the differential between price and marginal cost (Lerner indices); (ii) measures of banks’ revenue elasticity to input prices (Panzer-Rosse indices); (iii) price (net interest margin) indicators; and (iv) indicators based on costs of services and estimates of switching costs.

Using these four approaches, the selected issues paper finds that:

  • Competition in the Italian banking sector has intensified in loan and deposit markets in recent years, and banks do not seem to face markedly less competition than in other large European countries. Although concentration at the national level has increased with the presence of 83 bank groups, the sharp rise in the number of branches since 1990 has contributed to greater competition in provincial and regional markets. The recent evolution and composition of bank profits also suggest some intensification of competition in the banking industry in the 1980s and 1990s, with some leveling-off in more recent years. Cross-country indicators—based on interest and profit margins as well as on indicators of revenue elasticity—suggest the existence of monopolistic competition in Italy, and find the degree of competition among banks is not dissimilar to that in comparable euro area countries.

  • Competition is not yet reflected in the pricing of core services. According to one international survey, the average price of basic banking services (adjusted for local consumption patterns) appears to be among the highest in Europe.15 Adjusting for joint-ownership of current accounts and the higher implied average balances, another study16 found that the average price of holding a current account in Italy is still some 23 percent higher than the unweighted average for the EU countries surveyed. In addition, the authorities are concerned that high switching costs hamper competition and an investigation is being conducted by the Bank of Italy in cooperation with the anti-trust authority.

28. There was also a divergence of views on the extent to which institutional arrangements were a barrier to greater banking competition. Controversy over the conduct of the Bank of Italy in responding to two cross-border bank takeover bids—culminating in the resignation of the Bank’s governor—had revived public debate on potential conflicts among the central bank’s mandates to maintain financial system stability, enforce antitrust laws, and promote efficiency and competitiveness (though the cases in question did not themselves raise antitrust issues).17 Representatives of the Bank argued that there was no inherent conflict among its mandates, noting that other central banks—notably, the US Federal Reserve—were also jointly entrusted with responsibility for competition and stability (although in the US oversight of competition was shared with the Department of Justice and the Office of the Comptroller of the Currency, with the Fed’s role limited to mergers and acquisitions and activities of bank holding companies). With recent controversies so eroding confidence in institutional arrangements and affecting perceptions of the contestability of the banking system, staff argued that consideration could usefully be given to shifting responsibility for competition to another authority. In mid-December the government amended the savings law in this direction, giving the Bank of Italy and the antitrust authority joint responsibility for bank mergers and acquisitions and transferring responsibility for other anticompetitive behavior fully to the antitrust authority.

29. The savings law includes several essential changes to the Bank of Italy’s governance. The law caps the governor’s lifetime mandate and seeks to increase transparency in the Bank’s decision-making process, such as through the submission of semiannual reports to Parliament and the Government. The Governing Council of the ECB issued a favorable review of the reforms, but recommended additional enhancements, including extending the fixed term of office to all members of the Bank of Italy’s directorate and increasing collegiality in its decision-making. It also stressed that central bank independence should be fully safeguarded in the planned transfer of the Bank’s ownership to the public sector (it is currently majority-owned by private sector banks). The government subsequently introduced amendments to the law to reflect the ECB recommendations, limiting a governor’s tenure to a maximum of two six-year terms, changing procedures for his nomination and dismissal, and instituting collegiality in decision-making.18 It also shelved the planned ownership transfer for three years.

30. The savings law also contains provisions that could enhance the role of non-bank financing in Italy, helping to increase financial sector efficiency and reorient the relationship-based system. The law—a long-pending response to earlier corporate scandals—includes advances in corporate governance, in the marketing and issuance of corporate bonds, and in coordination among regulatory agencies.

31. Amid conflicting pressures, a major reform to encourage private pension savings has been effectively delayed until 2008. The reform, which allows workers to redirect their firm-based severance payment fund contributions toward privately-managed retirement schemes, had long been delayed by concerns over both its fiscal costs (as the government was expected to compensate firms for the loss of low-cost financing they would suffer from the diversion of severance fund contributions) and the extent to which the provisions established a level playing field among prospective private pension plan providers. The measure was passed in late November, but will take effect only in 2008, and further modifications are possible before then. The Italian household sector is marked by both high housing wealth and low debt, and the creation of more flexible financial instruments and products to help them meet their savings and investment needs, including for retirement, could bring significant benefits. It was also recognized that increased private pension saving was essential over the medium term in light of the impact that recent public pension reforms would have on benefits going forward. Staff analysis of fiscal multipliers in an intertemporal setting suggests that the household sector is in fact likely to smooth the future impact of pension reforms through greater asset accumulation.19 A large number of self-employed workers remain without private pension coverage, and the authorities noted that future reforms would be needed to encourage retirement savings among this population.

E. Fiscal Transparency Issues: Despite Progress, Far to Go

32. Staff has repeatedly pointed to the opacity of Italy’s budget presentation. Problems were particularly acute in 2005, when some “non-current policy” items (notably, real estate sales) were initially included in the trend deficit (tendenziale), necessitating a subsequent amendment to make the tendenziale conform to its definition, and the adoption of complementary measures to substitute for the asset sales. In addition, key budget documents are available only with a considerable delay, and up-to-date financial data on some important state enterprises are not widely disseminated. The authorities recognized the shortcomings of the present system, but argued that in many cases problems had more to do with the timely availability of data than with transparency per se. They noted, as well, that joint work by the Ministry of Economy, the Bank of Italy, and the statistical authority had narrowed the historically large unexplained gaps between the cash and accrual deficits, reducing one long-standing transparency concern. Against this background, and in light of repeated fiscal slippages, staff saw a need for improved fiscal governance mechanisms, including by establishing an entity to provide an independent analysis of fiscal developments, building on the work performed by the Court of Auditors (Corte dei Conti) and other bodies. The authorities were reluctant to create yet another independent authority, noting also issues of democratic accountability, but saw scope for enhancing the powers of the Corte dei Conti. Staff considered this a potentially promising avenue, provided the Court’s mandate was explicitly extended to include regular ex ante scrutiny of the budget process and developments (and not solely ex post auditing of outturns) and its staffing strengthened in line with its new duties.

33. Recent initiatives to promote the use of Public-Private Partnerships (PPPs) in infrastructure investment could increase the efficiency of public spending. The mission emphasized, however, that care needs to be taken to ensure transparency in the recording of these operations and associated contingent liabilities, including in budget documents. PPPs—which are still relatively underdeveloped in Italy—should be implemented only when they would result in higher spending efficiency and a balanced allocation of risks, and not to evade budgetary restrictions.20

F. Other Issues

34. The authorities expressed their commitment to reducing barriers to international trade through a multilateral approach. Italian textile firms had been severely affected by the elimination of export quotas under the Multi-Fiber Agreement, and the authorities welcomed accords that would provide additional breathing space for domestic firms to adjust to the new rules. They noted that losses to Italian firms from counterfeiting were sizable.

35. Official development assistance remains low, but was projected to rise in 2005. The authorities estimated that ODA could reach 0.3 percent of GNI in 2005, about double the 2004 ratio. Italy has committed to “make every effort” to reach a level of 0.5 percent of GNI for ODA in 2010, as an intermediate objective toward the medium- to long-term goal of 0.7 percent of GNI.

IV. Staff Appraisal

36. Past policy failings have left Italy in a difficult position. Repeated fiscal slippages, and the practice of allowing one-off measures to substitute for fundamental reforms, have produced a deficit now appreciably above the 3 percent of GDP ceiling under the SGP, inhibiting a rapid reduction in the massive public debt, which is in fact on the rise again. In addition, while important labor market reforms have facilitated a significant increase in employment in recent years, a failure to liberalize product and services markets with the same vigor has contributed to economic stagnation and perpetuated a rigid productive structure. As a result, Italy is increasingly unable to compete in a world where its long-standing advantage in relatively low-tech products has been eroded both by the rise of emerging market economies and by steady increases in domestic costs. The improving short-term outlook, with growth expected to rise to about 1½ percent in 2006, cannot obscure the serious medium-term challenges Italy faces. Early, decisive progress toward the resolution of these challenges must be the key economic priority of the next government.

37. There is no alternative to reform. Italy may continue to resist change, with insiders defending the dwindling economic rents they accrue from current levels of protection, while excessive deficits and spending overruns continue to perpetuate policy uncertainty. The likely impact of such policies—until they eventually prove unsustainable—is a continuation of the recent period of slow growth, fading competitiveness, and growing debt. The only economically viable option is to embark on broad-based structural reforms and medium-term fiscal consolidation aimed at creating a more robust, flexible, and dynamic economy. Such a transformation will be neither easy nor rapid, but holds out the prospect of faster potential growth and an economy better able to prosper in a globalized world. Reforms must start from a recognition that Italy’s economic problems are fundamentally “made in Italy,” and that their resolution can only be found there as well.

38. Having succeeded in passing various long-pending structural reforms before the end of the legislative session, the government will now need to ensure observance of its fiscal commitments. The measures approved in December are an important “down payment” on needed further reforms. The overhaul of the bankruptcy code will bring welcome improvements to the present antiquated law. New and accelerated civil procedures should also promote efficiency and entrepreneurial activity. The savings law—a long-overdue response to corporate scandals—contains advances in corporate governance, in the marketing and issuance of corporate bonds, and in coordination among regulatory agencies, and introduces changes in their respective responsibilities. It also contains important initiatives to improve the Bank of Italy’s governance and increase its accountability, which was not commensurate with its appropriately high degree of autonomy (which must, of course, continue to be fully safeguarded). In the period leading up to the election, the authorities now need to ensure that the fiscal targets agreed under the Excessive Deficit Procedure are secured, without recourse to one-off measures.

39. Recent initiatives by the government have demonstrated its commitment to the agreed fiscal targets. The package of expenditure cuts and revenue measures for 2005 gives reasonable confidence that the deficit target of 4.3 percent of GDP was achieved, although with tight margins. The 2006 budget has also been appreciably strengthened since its initial presentation. More generally, the fact that the 2006 budget is based on a realistic macroeconomic scenario and calls for adjustment mainly via expenditure containment rather than tax increases or significant one-off measures is welcome.

40. Nevertheless, underlying expenditure dynamics stand to compromise achievement of this year’s EDP deficit target of 3.8 percent of GDP. Deep cuts in spending at the central and local government levels could prove difficult to implement, especially for health care. Reductions in transfers to state enterprises will be unsustainable absent credible corporate restructuring. Against this background, firm execution of spending and careful monitoring of outcomes will be of the essence, and recent steps to strengthen expenditure control are welcome. The nationwide rollout of SIOPE should also contribute meaningfully to expenditure monitoring, and should continue to be fully supported. Finally, if developments were to indicate slippages from the target, corrective measures should be taken in a timely manner, notwithstanding the electoral calendar.

41. Looking beyond the elections, the next government must make an unequivocal commitment to reforms that enhance competition, reduce price mark-ups, and promote freedom of choice for consumers. The main focus should be on product and services markets, complementing existing labor market reforms. In the professions, the array of rules that inhibit competition should be eliminated. Rapid implementation of the EU services directive, when finalized, would also stimulate competition and efficiency. In retail trade, while competencies have been devolved to lower levels of government, the state should use its remaining responsibilities to promote consumer welfare through greater competition. Further deregulation in network sectors, a move away from instruments such as “golden shares” and “poison pills,” and enhanced powers for the antitrust and sectoral authorities are also called for. Reforms to improve the business environment would contribute to faster growth, as well. Many of these reforms have low budgetary costs, and can be pursued regardless of the tight fiscal position. Product market reforms that increase domestic competition can also help shield the impact of continued wage moderation—which will be essential to restore competitiveness—on workers’ real incomes.

42. Despite commendable progress in labor markets, there is scope for further reforms to raise Italy’s very low employment rate. Past reforms to reduce employment protection and introduce new, more flexible forms of contracting have supported employment growth. Recent initiatives to improve the unemployment compensation system are a positive development. These should be seen as the first step toward a more thorough overhaul of the system, offering better and properly conditional unemployment support in concert with a further relaxation of employment protection legislation. Such reforms can facilitate the movement of labor to more productive uses, allowing the economy to respond more fluidly to the structural shifts it confronts. Furthermore, greater variation of wages in line with productivity differences remains critical to redress competitiveness losses in the short term, while more fundamental reforms take hold. Progress in enhancing human capital is needed, as well.

43. Restoring the sustainability of the fiscal accounts is also necessary. The targeted reduction of the deficit to below 3 percent of GDP by 2007 is insufficient to ensure sustainability of the public debt, especially in light of pressures that will arise from population aging. Repeated fiscal slippages over the last several years have led to the abandonment of the commitment to achieve overall fiscal balance within the period covered by Stability Program updates. This objective should be reasserted through the establishment of a path of medium-term deficit reduction sufficient to achieve overall balance by 2010, before the end of the next legislature. To be credible, such an adjustment should be centered on expenditure containment, especially since the steady rise of primary current spending lies at the heart of Italy’s current fiscal fragility. Reversing this trend will require an ambitious and targeted approach to expenditure rationalization within a medium-term budget framework. It will also require the adjustment of pension replacement rates every decade in line with developments in life expectancy, as mandated under the 1995 reform. Current delays in doing so are therefore of concern.

44. Italy’s budget presentation falls well short of international best practices for transparency and is in urgent need of improvement. Recent work by the statistical authority, the Bank of Italy, and the Ministry of Economy to narrow the gap between the cash and accrual deficits has reduced an important element of uncertainty, and reconciliation efforts should continue. However, the use of a non-transparent tendenziale as the budget baseline means that fiscal planning gets off to a murky start. Moreover, the timeliness of information is unsatisfactory, with key details of underlying budgetary plans available only with a lag and up-to-date information on the financial position of some important state enterprises unavailable. Given the depth of the country’s fiscal challenges, the authorities should seek an institutional mechanism able to provide regular, independent evaluations of budget proposals and trends at the behest of Parliament, whether via a new entity or a reinforcement of existing institutions.

45. A competitive financial sector is also critical to support a more vibrant economy. The FSAP reports Italy’s financial system to be generally sound, although it also points to some structural weaknesses that constrain the system’s role in promoting growth, including limited market contestability (notably for foreign contenders); high operational costs, fees and commissions; undersized corporate bond and equity markets; and a relationship-based orientation that favors incumbents. The authorities have taken steps to address some of the specific issues that emerged from the FSAP, and should move promptly on the others.

46. Institutional reforms to assign banking competition issues to the antitrust authority address concerns about the potential conflict between stability and competition in the previous arrangement. Preparatory efforts to transfer expertise and resources to the antitrust authority will be essential, however. It will also be important that its high level of independence be maintained, and that the division of responsibility between it and the Bank of Italy be established along clear lines with distinct accountability. The envisaged changes to the Bank of Italy’s governance structure, in line with the recommendations of the ECB, are welcome.

47. The authorities should resist pressures for increased trade protection, particularly for textiles, apparel and footwear. Italy’s commitment to raise its relatively low ODA is welcome.

48. Economic statistics have remained broadly adequate for surveillance. As noted above, however, there is a glaring need to improve the transparency and timeliness of fiscal data and documentation.

49. It is proposed that the next Article IV consultation take place on the standard 12-month cycle.

Table 1.

Selected Economic and Social Indicators

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Sources: Italian authorities; IMF, International Financial Statistics ; World Bank, World Development Indicators; Bloomberg; Eurostat; and Fund staff estimates and projections.

Staff estimates and projections, unless otherwise noted.

Twelve-month credit growth, adjusted for securitizations. Data for 2005 refer to April.

Excludes currency in circulation held by non-bank private sector. 2005 data refers to July.

Data for 2005 refer to November.

Data for 2005 refer to December.

Based on CPI.

Table 2.

Italy: General Government Accounts, 2001–06

(In percent of GDP)

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Sources: ISTAT; Ministry of Economy and Finance, and Fund staff calculations and estimates.

For temporal consistency, the numbers do not include recent (deficit-neutral) updates made in the new Stability Program, in line with EU regulation 1500/2000.

In percent of potential GDP, assumes staff’s output gap.

Staff estimates, unless otherwise indicated.

Table 3.

Italy: Financial Soundness Indicators

(In percent, unless otherwise noted)

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Source: Bank of Italy, Eurostat, Fund staff calculations.
Table 4.

Italy: Selected Indicators of Vulnerability 1/

(In percent of GDP, unless otherwise indicated)

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Sources: Bank of Italy, Economic Bulletin and Statistical Bulletin ; data provided by the authorities; IMF, International Financial Statistics and Balance of Payments Statistics Yearbook; and Fund staff estimates and projections.

The interpretation of some indicators is affected by the launch of monetary union in 1999.

Reserves and foreign liabilities refer to the Bank of Italy, both before and after EMU; excluding gold.

Definition of M3 from 1999 onwards excludes currency held by the public.

Data refer to banks, including cooperative and mutual banks.

Appendix I: Italy: Fund Relations

(As of November 30, 2005)

I. Membership Status: Joined 3/27/47; Article VIII.

II. General Resources Account:

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III. SDR Department

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IV. Outstanding Purchases and Loans: None

V. Financial Arrangements: None

VI. Projected Obligations to Fund (SDR million; based on existing use of resources and present holdings of SDRs):

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VII. Exchange Rate Arrangement: Italy entered the final stage of European Economic and Monetary Union on January 1, 1999, at a rate of 1,936.27 Italian lire per 1 euro.

Italy maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions, except for the exchange restrictions imposed by Italy solely for the preservation of national or international security that have been notified to the Fund pursuant to Executive Board Decision No. 144-(52/51). Those exchange restrictions are contained in the following legal instruments:

  • Council Regulation (EC) No. 2488/2000 of 10 November 2000, as amended, maintaining a freeze of funds in respect of Mr. Slobadan Milosevic and people associated with him.

  • Council Regulation (EC) No. 1763/2004 of 11 October 2004, as amended, imposing certain restrictive measures in support of effective implementation of the mandate of the International Criminal Tribunal for the Former Yugoslavia.

  • Council Regulation (EC) No. 2580/2001 of 27 December 2001, as amended, on specific restrictive measures directed against certain persons and entities with a view to combating terrorism.

  • Council Regulation (EC) No. 881/2002 of 27 May 2002, as amended, imposing certain restrictive measures directed against certain persons and entities associated with Osama bin Laden, the Taliban and the Al-Qaida network

  • Council Regulation (EC) No. 1210/2003 of 7 July 2003, as amended, concerning certain specific restrict