Abstract
This 2012 Article IV Consultation focuses on Italy’s economy, which is expected to continue contracting through the year owing to tight financial conditions, global slowdown, and the needed fiscal consolidation. The government has embarked on wide-ranging structural reforms to boost productivity and potential growth. Executive Directors have commended the Italian authorities for launching an ambitious policy agenda to secure fiscal sustainability and promote growth. Directors have also acknowledged the important steps taken toward deregulating the service sector and making the labor market more flexible and inclusive.
1. This statement provides additional information on policy actions in Italy since the Article IV mission complementing the staff report (SM/12/152). The additional information does not change the thrust of the staff appraisal.
2. Recent macroeconomic developments. Recent macroeconomic data point to continued contraction in Q2 2012, in line with staff’s projections. The unemployment rate came down from 10.2 percent in April to 10.1 percent in May, reflecting a 0.3 percent increase in employment. However, retail sales fell significantly in April, bringing the annual decline to about 7 percent, and business and consumer confidence indicators remained at low levels through June.
3. Bankruptcy and civil justice reforms and other growth measures. A decree law on growth measures entered into effect on June 26. It includes modifications to the bankruptcy regime, such as a new tax provision on deductibility of losses which would facilitate financing of companies in distress. In civil justice, the decree aims to speed up the judicial process by streamlining appeals procedures. In addition, the decree provides for favorable tax treatment for project bonds to promote private-public partnerships, extends tax incentives in infrastructure and construction, amends the VAT regime for real estate leases and sales, and introduces new debt financing instruments for non-listed companies to improve their access to capital markets.
4. Bank recapitalization. On June 26, the Council of Ministers approved measures to increase the capital base of Banca Monte dei Paschi (MPS), Italy’s third largest commercial bank. The state support of up to €3.9 billion, which includes a replacement of €1.9 billion provided in 2009, will help MPS meet the target of 9 percent core Tier 1 ratio as determined by the European Banking Authority (EBA).
5. Labor market reform. On June 27, the parliament approved the labor market reform law, largely in line with the government’s proposal submitted in April. Among the modifications introduced is the extension of tax incentives for firm-level bargaining, a minimum remuneration for some temporary contracts, and some increase in flexibility for firms to use temporary and apprenticeship contracts.