italy’s strategy for growth and fiscal consolidation€¦ · italy’s strategy for growth and...
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Italy’s Strategy for Growth and Fiscal Consolidation Osservatorio Acquisti CartaSi 2013 Report
Milan May 9, 2013
Lorenzo Codogno
Italian Ministry of Economy and Finance, Treasury Department
Why is Italy’s economy expected to recover in 2013?
2
Monetary and credit conditions: interest rate spreads narrowing and credit growth likely to start improving soon.
Fiscal multiplier effect: 2.3pp fiscal correction in structural terms in 2012, but ‘only’ 1.2pp in 2013 on current projections.
Some stabilisation of business and consumer confidence.
No major structural imbalances (aside from high debt/GDP): it means that growth can rapidly go back to potential.
New package of measures aimed at speeding up payments of commercial debts owed by general government bodies for a total of €40bn.
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
3
10y spread between gov’t bond yields and sovereign CDS THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
5,0
-2,0
-1,0
0,0
1,0
2,0
3,0
4,0
Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13
%
%
Italy
Germany
Differential (RHS)
Average (RHS)
Source: Thomson Reuters
4
European sovereign and bank CDSs THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
0
100
200
300
400
500
600
Apr-08 Feb-09 Dec-09 Oct-10 Aug-11 Jun-12 Apr-13
Ba
sis
po
ints
European sovereign 5Y CDS
European banks 5Y CDS
Source: Thomson Reuters Datastream
5
Economic impact of 100 bp spread increase THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
2013 2014 2015 2016 2017 2018
Spread BTP-Bund -1.00 -1.00 -1.00 -1.00 -1.00 -1.00
Lending rates -0.24 -0.28 -0.28 -0.29 -0.29 -0.29
GDP 0.28 0.74 1.02 1.13 1.10 0.98
Private consumption 0.46 1.20 1.76 2.14 2.33 2.39
Gross fixed investment 0.44 1.43 2.28 2.85 3.06 3.01
Gross fixed investment - machinery 0.79 2.43 3.58 4.14 4.11 3.71
Gross fixed investment - construction 0.04 0.30 0.63 0.86 0.96 0.97
Gross fixed investment - dwellings 0.15 0.56 1.18 1.91 2.63 3.27
Exports 0.00 -0.06 -0.23 -0.46 -0.68 -0.85
Imports 0.15 0.93 1.65 2.14 2.43 2.56
Value added price -0.01 0.16 0.57 1.07 1.57 1.99
Source: MEF calculations
6
Contraction in credit growth: when will it turn?
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
-15
-10
-5
0
5
10
15
20
25
30
35
Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
% y
ear
-on
-ye
ar
Euro Area Germany
Spain France
Italy
Source: ECB.
Interest rates on loans: the gap is still widening
7
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
1
2
3
4
5
6
Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13
%
Source: ECB.
Germany Spain France Italy Euro area
Stock market: will Europe catch up?
8
SOLID STOCK MARKET
20
40
60
80
100
120
140
Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13
Ind
ex
Italy Europe US
Source: Thomson Reuters Datastream
Note: FTSE MIB, EUROSTOXX 50, S&P 500
9
Industrial production: stabilisation but not yet recovery THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
-30
-25
-20
-15
-10
-5
0
5
10
15
20
70
75
80
85
90
95
100
105
110
115
Apr-01 Apr-03 Apr-05 Apr-07 Apr-09 Apr-11 Apr-13
% y
ear-
on
-year
Ind
ex
Business Confidence in Industry
Industrial Production WDA (RHS)
Source: ISTAT
10
Foreign orders are resilient THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
70
80
90
100
110
120
130
Feb-08 Oct-08 Jun-09 Feb-10 Oct-10 Jun-11 Feb-12 Oct-12
Ind
ex
(3
te
rms
ma
)
Total orders
Domestic orders
Foreign orders
Source: ISTAT
11
Business survey: not yet recovering THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
0
10
20
30
40
50
60
70
-30
-25
-20
-15
-10
-5
0
5
10
15
20
Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13
Ind
ex
Se
as
on
all
y a
dju
ste
d b
ala
nc
es
Production expectations
Stocks of finished goods
PMI manufacturing (RHS)
Source: ISTAT, Markit
12
Firms’ expectation on employment THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
0
10
20
30
40
50
60
-30
-25
-20
-15
-10
-5
0
5
10
May-03 Apr-04 Mar-05 Feb-06 Jan-07 Dec-07 Nov-08 Oct-09 Sep-10 Aug-11 Jul-12
Ind
ex
Se
as
on
all
y a
dju
ste
d b
ala
nc
es
Employment expectations (services)
Employment expectations (manufacturing)
PMI composite (employment; RHS)
Source: ISTAT, Markit
13
Firms’ expectation on prices THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
-20
-15
-10
-5
0
5
10
15
20
25
0
10
20
30
40
50
60
70
80
May-03 Apr-04 Mar-05 Feb-06 Jan-07 Dec-07 Nov-08 Oct-09 Sep-10 Aug-11 Jul-12
Se
as
on
all
y a
dju
ste
d b
ala
nc
es
Ind
ex
PMI composite (input prices)
PMI composite (output prices)
Selling prices in next 3 months (manufacturing)
Source: ISTAT, Markit
14
Demand is deeply split THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
-6
-4
-2
0
2
4
6
4Q 92 4Q 94 4Q 96 4Q 98 4Q 00 4Q 02 4Q 04 4Q 06 4Q 08 4Q 10 4Q 12
Perc
en
tag
e p
oin
ts
Domestic demand Foreign demand
Source: ISTAT
Contribution to GDP growth
15
Private consumption (% of GDP): same % since EMU THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
90
92
94
96
98
100
102
104
106
108
110
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Ind
ice
s 2
00
0=
10
0
Euro Area Germany Spain France Italy
Source: Eurostat and Ameco
Note: 2012 data for the Euro area, Spain and France are referred to European Commission Autumn Forecasts
2012.
16
Households’ expectations: some stabilisation THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
60
70
80
90
100
110
120
May-03 Apr-04 Mar-05 Feb-06 Jan-07 Dec-07 Nov-08 Oct-09 Sep-10 Aug-11 Jul-12
Ind
ex
Consumer confidence
Current economic climate index
Future economic climate index
Source: ISTAT
17
Household income and consumption to recover gradually THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
0
2
4
6
8
10
12
14
16
-6
-5
-4
-3
-2
-1
0
1
2
3
4
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
%
% y
ea
r-o
n-y
ea
r
Real disposable income
Real private consumption
Saving rate (RHS)
Source: ISTAT
Note: 2013 and 2014 referred to MEF forecasts.
18
Private wage growth likely to ease further
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
-4
-2
0
2
4
6
8
10
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
% y
ea
r-o
n-y
ea
r
Source: ISTAT Note: MEF calculation on 2013 data.
Total economy Private sector
Public sector
Compensation per employees per full-time
19
Energy and VAT-induced inflation on the mend THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
-2,0
-1,0
0,0
1,0
2,0
3,0
4,0
5,0
Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13
%
year
- o
n -
year
Differential Euro area, HICP IT, HICP
Source: Eurostat, Istat
Real house price: no need for further correction
20
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
70
90
110
130
150
170
190
210
230
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Ind
ice
s 2
00
0=
10
0
Germany France Italy UK Spain Ireland Euro Area
Source: OECD
Note: For Italy, 2012 is calculated as average of the first three quarters.
21
Households’ balance sheet is in good shape SOUND PRIVATE SECTOR BALANCE SHEET
Q2 2001 Breakdown of Total Debt
(% of GDP)
Source: Simmons & Simmons,
McKinsey Global Institute
Net wealth of households is 8
times their disposable income (8.2
UK, 8.1 FR, 7.8 JP, and 5.3 US).
Italian households are less
leveraged: 71% of disposable
income (100% FR & GE, 125% US
& JP, and 165% UK). Source: Bank of Italy, Anno XXII, December 13, 2012
Bulletin based on 2010 data.
Private debt remains low
22
SOUND PRIVATE SECTOR BALANCE SHEET
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.01
99
52
00
52
00
92
01
02
01
1
19
95
20
05
20
09
20
10
20
11
19
95
20
05
20
09
20
10
20
11
19
95
20
05
20
09
20
10
20
11
19
95
20
05
20
09
20
10
20
11
19
95
20
05
20
09
20
10
20
11
19
95
20
05
20
09
20
10
20
11
19
95
20
05
20
09
20
10
20
11
19
95
20
05
20
09
20
10
20
11
19
95
20
05
20
09
20
10
20
11
19
95
20
05
20
09
20
10
20
11
19
95
20
05
20
09
20
10
20
11
19
95
20
05
20
09
20
10
20
11
19
95
20
05
20
09
20
10
AT BE DK FI FR DE EL IE IT NL PT UK ES SW
Pe
rce
nta
ge
of
GD
P
Non financial corporation
Households
Source:Our calculations on Eurostat data
23
Italian households’ wealth and its components
SOUND PRIVATE SECTOR BALANCE SHEET
Real
Estate
(62.8 % in 2011)
Financial
Assets
(37.2% in 2011)
Financial
Liabilities
(9.5% in 2011)
Net Wealth Euro
million
Houses
Source: Bank of Italy, Anno XXII, December 13, 2012 Bullettin
24
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
Debt-to-income ratio about the lowest
Source: Eurostat, 2011 data. Note: Data for LU and PO refer to 2009 and 2010 respectively. Gross debt-to-
income ratio of households is defined as loans (AF4), liabilities divided by gross
disposable income (B6G) with the latter being adjusted for the change in the net
equity of households in pension funds reserves (D8net). Non-consolidated figures.
0
50
100
150
200
250
300
SK
SL IT FR
BE
DE
AT
EE
EA
-17 FI
ES
PT
LU IE NL
LT
CZ
PO
HU
LV
UK
SW DE
% o
f D
isp
osab
le i
nco
me
euro area non-euro area
Households
0
200
400
600
800
1000
1200
1400
1600
SK
EE
DE
EL
NL IT AT
EA
-17 FI
SL
ES IE FR
CY
BE
PT
MT
LU LT
PL
RO
CZ
LV
BG
HU
DK
UK
SW
% o
f G
ross o
pera
tin
g s
urp
lus
euro area non-euro area
Non financial corporations
Source: Eurostat., 2011 data Note: Data for LU refer to 2009, while for BG, MT and PO data are
available for 2010. Debt includes loans and securities other than shares.
Non-consolidated figures.
No major imbalances (apart from high public debt)
25
No major macroeconomic imbalances: no major bubbles
in the housing market, low household debt, fundamentally
sound banking system, no major external imbalances.
No increase in discretionary spending during the crisis:
prudent fiscal policy; automatic stabilisers allowed to work.
Competitiveness issues are contained; although
admittedly high public debt/GDP is a major hurdle.
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
26
Economic impact of 100 bp spread increase THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
-4
-3
-2
-1
0
1
2
3
4
5
2013 2014 2015 2016 2017 2018
%
Source: MEF calculations
Spread BTP-Bund Lending ratesGDP Private consumptionGross fixed investment Gross fixed investment - machineryGross fixed investment - construction Gross fixed investment - dwellingsExports ImportsValue added
Official macroeconomic projections (April 2013)
27
Source: September 2012 Update to Economic and Financial Document.
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
Source: 2013 Economic and Financial Document, April 10, 2013
2012 2013 2014 2015 2016 2017
Real GDP -2.4 -1.3 1.3 1.5 1.3 1.4
Domestic demand net of inventories -4.8 -1.9 1.4 1.3 1.2 1.2
Inventories -0.6 -0.11 0.1 0.1 0.0 0.0
Net export 3.0 0.7 -0.2 0.1 0.1 0.1
Nominal GDP -0.8 0.1 2.2 2.9 3.2 3.2
GDP deflator 1.6 1.8 1.9 1.8 1.8 1.8
Labour cost 1.0 1.0 1.2 1.5 1.6 1.6
Productivity (on GDP) -1.3 -1.0 0.7 0.7 0.6 0.5
Unit labour cost (on GDP) 2.3 2.0 0.5 0.8 1.1 1.1
Employment (FTE) -1.1 -0.3 0.6 0.8 0.7 0.8
Unemployment rate 10.7 11.6 11.8 11.6 11.4 10.9
Current account balance -0.6 0.1 -0.2 -0.1 -0.1 -0.1
Higher growth rate with structural reforms
28
Source: September 2012 Update to Economic and Financial Document.
THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY
Source: 2013 Economic and Financial Document, April 10, 2013
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
%
Baseline scenario/EC Scenario - excluding reforms
Scenario - including reforms
29
No major macroeconomic imbalances MACROECONOMIC IMBALANCES AND COMPETITIVENESS
Source: MEF elaboration on Alert Mechanism Report 2013 (European Commission, November 2012)
External imbalances Internal imbalances
Current account
Net international investment
position
REER Export
market share Nominal ULC
House price index
Private credit flow
Private debt Public Debt Unemployme
nt rate
Financial sector total
non-consolidated
liabilities
3 year on CPI
5 year 3 year Year/year 3 year level
Year/year
variation variation variation Variation variation
% GDP % GDP % GDP % GDP % GDP % GDP
-4/+6% -35% +/-5 (EA);
+/-11% (Non EA)
-6% +9 (EA);
+12% (Non EA)
6% 15% 160% 60% 10% 16.5%
BE -0.3 65.7 -0.5 -10.2 6.2 -0.1 11.6 236.0 98.0 7.8 4.7
DE 5.9 32.6 -3.9 -8.4 5.9 1.4 4.8 128.0 81.0 6.9 2.1
IE 0.0 -96.0 -9.1 -12.2 -12.8 -15.2 4.0 310.0 106.0 13.3 -0.6
EL -10.4 -86.1 3.1 -18.7 4.1 -5.1 -5.5 125.0 171.0 13.2 -3.4
ES -4.3 -91.7 -1.3 -7.6 -2.1 -10.0 -4.1 218.0 69.0 19.9 3.7
FR -1.6 -15.9 -3.2 -11.2 6.0 3.8 4.0 160.0 86.0 9.6 7.3
IT -2.9 -20.6 -2.1 -18.4 4.4 -2.0 2.6 129.0 121.0 8.2 3.8
LU 7.5 107.8 0.8 -10.1 12.5 1.5 2.5 326.0 18.0 4.8 11.3
NL 7.5 35.5 -1.6 -8.2 5.8 -4.0 0.7 225.0 66.0 4.2 7.2
AT 2.2 -2.3 -1.0 -12.7 5.9 -8.0 4.1 161.0 72.0 4.4 -0.3
PT -9.1 -105.0 -1.9 -9.5 0.9 -3.6 -3.2 249.0 108.0 11.9 -0.7
FI 0.6 13.1 -1.3 -22.9 9.1 -0.3 4.6 179.0 49.0 8.1 30.8
DK 5.0 24.5 -1.7 -16.9 4.7 -4.9 -2.2 238.0 47.0 7.0 4.7
SE 6.6 -8.3 3.9 -11.6 1.2 1.0 6.3 232.0 38.0 8.1 3.6
UK -2.2 -17.3 -7.1 -24.2 8.1 -5.4 1.0 205.0 85.0 7.8 8.5
Modest deterioration in competitiveness over time
30
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
Source: MEF elaboration on Alert Mechanism Report 2013 (European Commission, November 2012)
Current account
Net international investment
position
REER Export market share
ULC House price
index Private
credit flow Private debt Public debt
Unemployment rate
Financial sector
liabilities
2001 0.4 -5.8 -5.7 -18.5 4.8 5.4 8.4 87.0 108.0 10.0 -3.0
2002 -0.1 -12.4 -2.0 -14.2 7.0 6.5 6.4 90.0 105.0 9.2 3.9
2003 -0.3 -13.6 8.8 -13.4 10.7 7.4 7.0 93.0 104.0 8.6 11.6
2004 -0.5 -15.8 9.9 -7.4 9.8 7.1 8.3 98.0 103.0 8.3 7.2
2005 -0.7 -16.8 6.9 -5.2 8.7 5.2 9.4 104.0 106.0 8.1 12.1
2006 -0.9 -22.2 1.1 -12.5 6.5 3.2 10.9 110.0 106.0 7.5 10.5
2007 -1.2 -24.5 0.7 -9.3 6.1 2.6 13.1 118.0 103.0 6.9 0.5
2008 -1.9 -24.1 3.2 -16.3 8.3 -0.4 6.7 122.0 106.0 6.5 -2.7
2009 -2.0 -25.3 3.9 -17.9 10.5 -0.3 1.3 128.0 116.0 6.9 5.7
2010 -2.8 -24.0 -0.9 -19.2 8.1 -1.5 3.8 129.0 119.0 7.6 1.7
2011 -2.9 -20.6 -2.1 -18.4 4.4 -2.0 2.6 129.0 121.0 8.2 3.8
Threshold +6 %/ -4
% -35%
+/-5 %euro area; +/-11 % non euro
area
-6%
+/-9 % euro area; +/-12 % non euro
area
6% 15% 160% 60% 10% 16.5%
31
Is competitiveness really deteriorating in line with ULC? MACROECONOMIC IMBALANCES AND COMPETITIVENESS
Source: Italian Ministry of Economy and Finance calculation on Eurostat data
Note: Preliminary data for 2012 and Eurostat estimates for 2013 and 2014
90
100
110
120
130
140
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Ind
ice
s 2
00
0=
10
0
Germany Ireland
Greece Spain
France Italy
Portugal
Unit labour costs: key Italian features versus EU partners
Excessive growth in ULC: mainly due to unfavourable
developments in labour productivity.
Limited downward adjustment in wages: not enough to
compensate for poor productivity growth and to address
unemployment challenges.
Wage dynamics: (a) changing composition of employment,
(b) severance payments included in labour costs, (c) time
lag in renewing collective agreements, (d) extended working
life of higher-paid older workers due to pension reforms.
32
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
33
Sharp improvement in Italy’s trade balance MACROECONOMIC IMBALANCES AND COMPETITIVENESS
-40
-20
0
20
40
60
80
100
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
€ b
n
Total trade balance Total trade balance excl. energy
Source: ISTAT
Note: Energy includes oil and natural gas.
Current account deficit narrowing fast
34
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
-4,0
-3,5
-3,0
-2,5
-2,0
-1,5
-1,0
-0,5
0,0
0,5
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
% o
f G
DP
% o
f G
DP
Goods Services Incomes Transfers Current Account (RHS)
Source: Bank of Italy
Current account and savings by sector
35
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
-8
-6
-4
-2
0
2
4
6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
% o
f G
DP
Note: For Households and Corporate 2012 data are estimated. Source: DEF 2013, MEF calculation on ISTAT and Bank of Italy data
General Government Households Corporate Current and capital account
How much of the adjustment is structural?
36
Note: The underlying current account is derived according to the methodology described in: Salto M., A. Turrini,
2010, Comparing alternative methodologies for real exchange rate assessment, European Economy, Economic
Papers, n. 427.
Source: EU Commission, AMECO DATABASE, 2012 Autumn Forecast.
MACROECONOMIC IMBALANCES AND COMPETITIVENESS
-5
-4
-3
-2
-1
0
1
2
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
% o
f G
DP
Headline vs underlying current account
Underlying Current Account - (EU Commission methodology)
Headline Current Account
Key public finance projections: policy scenario (April 2013)
37
FISCAL CONSOLIDATION
(1) Net of one-off measures and cyclically adjusted.
Source: 2013 Economic and Financial Document, April 10, 2013
% of GDP 2012 2013 2014 2015 2016 2017
Net Borrowing Requirement -3.0 -2.9 -1.8 -1.5 -0.9 -0.4
Cumulated change in net borrowing
2015 -2017 0.2 0.4 0.6
Cyclically-adjusted NBR (1) -1.2 0.0 0.4 0.0 0.0 0.0
Change in Cyclically-adjusted NBR -2.3 -1.0 -0.4 0.4 0.0 0.0
Primary Balance 2.5 2.4 3.8 4.3 5.1 5.7
Public Debt 127.0 130.4 129.0 125.5 121.4 117.3
Public Debt (net support to EZ) 124.3 126.9 125.2 121.8 117.8 113.8
38
Primary surplus close to 5% of GDP in 2015
FISCAL CONSOLIDATION
Source: 2013 Economic and Financial Document, April 10, 2013
85
90
95
100
105
110
115
120
125
130
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
% o
f G
DP
% o
f G
DP
Net borrowing (LHS)
Primary balance (LHS)
Debt/GDP gross (including aid, RHS)
Debt/GDP net (excluding aid, RHS)
39
2011-2012 measures: a rebalancing over time
FISCAL CONSOLIDATION
0
10
20
30
40
50
60
70
80
90
100
2012 2013 2014 2015
%
Higher net revenues Lower net expenditure
Source: MEF estimates
40
Moderate increase in interest payments
FISCAL CONSOLIDATION
0
2
4
6
8
10
12
0
2
4
6
8
10
12
141995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
%
% o
f G
DP
Interest payments (RHS) Average yield at issuance
Source: 2013 Economic and Financial Document, April 10, 2013
41
Lengthened maturity of public debt reduces risks
FISCAL CONSOLIDATION
0
1
2
3
4
5
6
7
8
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
ye
ars
Average life Duration
Source: 2013 Economic and Financial Document, April 10, 2013
Italian public debt held by foreign investors: less vulnerable
42
FISCAL CONSOLIDATION
25
27
29
31
33
35
37
39
41
43
45
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
% o
f to
tal d
eb
t
Source: Bank of Italy
According to the EU Commission, no sustainability gap
43
FISCAL CONSOLIDATION
Source: European Commission, Fiscal Sustainability Report 2012, EUROPEAN ECONOMY, 08/2012
Initial budgetary position (IPB % of GDP)
Lo
ng
te
rm C
os
t o
f A
ge
ing
(L
TC
% o
f G
DP
)
44
Reduction in the stock of public debt
€8.9bn from sale to CDP of SACE, SIMEST and Fintecna.
Further payments are expected by early 2013. Proceeds go to
the Public Debt Sinking Fund or to pay off commercial debt.
Real estate assets will be transferred from central and local
government to real estate funds, which have mandates to
create value and/or dismiss assets.
The Government expects proceeds from dismissals to reduce
public debt by at least 1pp of GDP per year. 3-5bn of state-
owned assets ready for 2013; the rest requires strong
cooperation with local government.
FISCAL CONSOLIDATION
Constitutional reform: a new fiscal framework
Balanced budget rule included in the Constitution: it will
enter into force in FY 2014.
In December 2012, Parliament approved the ‘reinforced’ law
defining the mechanism by which the balanced budget will be
achieved and clarifying the functions of the independent body
(established by Constitutional amendment) within the
Parliament in charge of monitoring public finances and
checking compliance with fiscal rules.
45
FISCAL CONSOLIDATION
FISCAL CONSOLIDATION
Public sector shrinking since 2007
Since 2007 the number of public employees and their
compensation has declined by 4.3% and 2.3%,
respectively. Labour cost has decreased by 3.3%.
This is the result of 2010 and 2011 policy changes:
extension of freeze in turnover and national wage
bargaining.
46
Increasing success in the fight against tax evasion
47
Source: Ministry of Economy and Finance - Revenue Agency
FISCAL CONSOLIDATION
0
2
4
6
8
10
12
14
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Eu
ro b
illi
on
Key achievements of the pension reform
Enhances the medium and long-term sustainability of
Italy’s pension system.
Guarantees fairness across and intra generations.
Increases the minimum retirement age and contribution
period required to be entitled to pension benefits.
Links retirement age and contributory periods to changes in
life expectancy.
Improves transparency by merging entities providing
pensions (INPDAP and ENPALS into INPS).
48
FISCAL CONSOLIDATION
49
Sizeable effect on pension spending as % of GDP
Source: Update of 2012 Economic and Financial Document, September 20, 2012. Demographic projections from
ISTAT, central demographic scenario 2012
FISCAL CONSOLIDATION
12%
13%
14%
15%
16%
17%
18%
19%
2007 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2040 2043 2046 2049 2052 2055 2058
Current Legislation Legislation before DL. 201/2011
Legislation before DL. 98/2011 Legislation before DL. 78/2010
Legislation before L. 243/2004
A significant lengthening of the retirement age (OECD)
50
FISCAL CONSOLIDATION
Source: OECD
Lower tax wedge on labour
51
FISCAL CONSOLIDATION
Higher tax allowances for families with children: From
2013 the tax credit is €1,220 (currently €900) for each child
under the age of 3 and €950 (€800) for those older than 3.
Reduction in taxes on labour: effective 2013, tax deduction
for employers on IRAP to increase from €4,600 to €7,500.
Even higher deductions for women, workers under 35, and
firms located in ‘disadvantaged’ Regions.
Structural reforms: some examples
Reduction in the administrative burden for firms: elimination of
ex-ante controls, limits, permits, licenses for start-ups.
Substantial simplification for SMEs.
Professional services: abolition of minimum fees, easier
access to professions with reduction in compulsory traineeship,
increase in the number of pharmacies and notaries.
Reform of Civil Justice: Reorganisation of judicial districts to
reduce public expenditure.
52
LIBERALISATION, COMPETITION AND COMPETITIVENESS
A more dynamic and inclusive labour market
More (regulated) flexibility on the hiring and firing side.
More comprehensive unemployment benefits (ASPI).
More efficient active labour market policies improving
services and incentives to work.
Shared agreement among Italian trade unions and
employers’ associations to help boost labour productivity
by providing for labour contracts that better reflect the
needs of individual companies.
53
LABOUR MARKET REFORM
The presentation as well as a note on reforms are updated
regularly. You can find them at:
http://www.dt.mef.gov.it/en/analisi_programmazione_
economico_finanziaria/strategia_crescita/
54