18-K/A

FORM 18-K/A

Amendment No. 2

For Foreign Governments and Political Subdivisions Thereof

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

ANNUAL REPORT

of

THE REPUBLIC OF ITALY

(Name of Registrant)

Date of end of last fiscal year: December 31, 2011

SECURITIES REGISTERED*

(As of close of the fiscal year)

Title of Issues	Amounts as to which registration is effective	Names of exchanges on which registered
N/A*	N/A	N/A

Name and address of Authorized Agent of the Registrant in the United States to

receive notices and communications from the Securities and Exchange Commission:

THE HONORABLE CLAUDIO BISOGNIERO

Italian Ambassador to the United States

3000 Whitehaven Street, N.W.

Washington, D.C. 20008

It is requested that copies of notices and communications from the Securities and Exchange Commission be sent to:

MICHAEL S. IMMORDINO

White & Case LLP

5 Old Broad Street

London EC2N 1DW

United Kingdom

* The Republic of Italy files Annual Reports on Form 18-K voluntarily in order for The Republic of Italy to incorporate such Annual Reports into its shelf registration statements. The Republic of Italy is filing this amendment on Form 18-K/A (the “Amendment”) to its Annual Report for the year ended December 31, 2011 voluntarily.

TABLE OF CONTENTS

This Amendment to the annual report of the Republic of Italy on Form 18-K for the year ended December 31, 2011 comprises:

(a) Pages numbered (i) to (iii) consecutively.
(b) The following exhibits:
	Exhibit 1 Recent Developments Update, dated April 9, 2013 and prepared by the Italian Ministry of Economy and Finance
	Exhibit 2 Italy’s Major Structural Reforms—Progress Report December 2011—January 2013, dated January 11, 2013 and published by the Italian Ministry of Economy and Finance
	Exhibit 3 Italy’s Strategy for Growth and Fiscal Consolidation, dated February 7, 2013 and published by the Italian Ministry of Economy and Finance, Treasury Department
	Exhibit 4 Report to Parliament 2013, dated March 21, 2013 and published by the Italian Ministry of Economy and Finance

This Amendment to the annual report is filed subject to the Instructions for Form 18-K for Foreign Governments and Political Subdivisions thereof.

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SIGNATURE

Pursuant to the requirements of the United States Securities Exchange Act of 1934, the registrant Republic of Italy has duly caused this Amendment No. 2 to the annual report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Rome, Italy on the 9^th day of April 2013.

REPUBLIC OF ITALY
By:	/s/ Dott.ssa Maria Cannata
	Name:	Dott.ssa Maria Cannata
	Title:	Director General – Treasury Department – Directorate II Ministry of Economy and Finance

iii

EX-1

Exhibit 1

Recent Developments Update dated April 9, 2013

The information included in this Exhibit 1 replaces and/or supplements the information about the Republic of Italy that is contained in Exhibit 1 to the Republic of Italy’s annual report on Form 18-K, for the fiscal year ended December 31, 2011 (as filed with the Securities and Exchange Commission on December 21, 2012 and amended on Form 18-K/A on January 28, 2013). To the extent that the information included in this Exhibit 1 differs from the information set forth in the annual report, you should rely on the information in this Exhibit 1.

The section of the Annual Report “SUMMARY INFORMATION—Eurocrisis” on pages 1 through 2 of the Annual Report is hereby amended to add the following two paragraphs after the last paragraph of the subsection on page 2 of the Annual Report:

During 2012, several measures have been adopted to relieve the eurocrisis. In February 2012, EU Member States established the European Stability Mechanism (ESM), which has a large lending capacity, to help preserve the financial stability of Europe’s Monetary Union by providing assistance to Eurozone countries. See “The Italian Economy—EU Measures to Address the Eurocrisis—The ESM”. In September 2012, the ECB stated that investors’ fears over the reversibility of the Euro are unfounded because the ECB is strongly committed to maintaining the singleness of the monetary policy among Eurozone countries, including through Outright Monetary Transactions, in order to address severe distortions in government bond markets. The ECB stated that these steps have been and will continue to be taken within the ECB mandate to maintain price stability over the medium term.

In a worst case scenario, if the eurocrisis were to deepen or extend, the EU Member States may determine further reforms in order to manage the crisis. A prolonged crisis in Europe or a new crisis in Italy could make the refinancing of debt by Italy more expensive.

The section “SUMMARY INFORMATION—The Italian Political System” on page 2 of the Annual Report as subsequently amended by Amendment No. 1 to the Annual Report is hereby further amended to add the following new paragraphs and table on page 2 of the Annual Report:

The general Parliamentary elections held in February 2013 resulted in no party or coalition having a majority of both the Chamber of Deputies and the Senate. The center-left coalition, led by Mr. Pier Luigi Bersani, obtained the highest number of votes on a national level for the elections of the Chamber of Deputies and therefore was awarded with the majority of seats in the Chamber of Deputies. No political party or coalition obtained an absolute majority of seats in the Senate. The four principal parties/coalitions in the elections received the following seats in the Chamber of Deputies and the Senate:

Main Political Parties/Coalitions by Number of Seats in the Italian Parliament
Chamber of Deputies		Senate
Party/Coalition led by:	Number of Seats:	Party/Coalition led by:	Number of Seats
Mr. Pier Luigi Bersani	345	Mr. Pier Luigi Bersani	123
Mr. Silvio Berlusconi	125	Mr. Silvio Berlusconi	117
Mr. Giuseppe Piero Grillo	109	Mr. Giuseppe Piero Grillo	54
Mr. Mario Monti	47	Mr. Mario Monti	19

The President of the Republic is required to appoint a Prime Minister to form a new Government in Italy. Any such appointment is subject to an affirmative confidence vote in both the Chamber of Deputies and the Senate, and due to the election results it is unclear whether any of the parties or coalitions will reach an agreement to support a new Government. Since the composition of the new Government is unclear at this time, it is not possible to predict with precision the policy of the Government in the future. It is expected that the policies of the new Government will be substantially in line with the measures taken in 2012 and maintained to date in 2013. If an

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agreement among the parties and coalitions to form a new Government is not reached, the President of the Republic is required to dismiss the two houses of Parliament and to set the date for new general Parliamentary elections. However, because the Italian Constitution does not permit a President of the Republic to dismiss the two houses of Parliament in the last six months of such President’s mandate (known as the “white semester”) and President Mr. Giorgio Napolitano’s mandate will expire on May 15, 2013, the dismissal of the two houses of Parliament can occur only when a new President of the Republic will be appointed. On April 15, 2013, the Parliament will convene to elect the new President of the Republic.

Until a new Government is formed, the current Prime Minister Mr. Mario Monti will continue to perform his duties. For additional information on the policy of and measures taken by the Government to address the Eurocrisis through and into 2013, see “Exhibit 2—Italy’s Major Structural Reforms—Progress Report December 2011 – January 2013, dated January 11, 2013” and “Exhibit 3—Italy’s Strategy for Growth and Fiscal Consolidation, dated February 7, 2013” to this Amendment.

The section “SUMMARY INFORMATION” on page 2 of the Annual Report is hereby supplemented by adding the following new subsection entitled “Ratings of the Republic of Italy’s Indebtedness”.

On March 8, 2013, Fitch Ratings downgraded the Republic of Italy’s long-term credit rating from A- to BBB+ with negative outlook.

The section “REPUBLIC OF ITALY—Area and Population—Geography” on page 3 of the Annual Report is hereby amended to include the following information after the first paragraph of that subsection:

The following is a map of the European Union and the countries, including Italy, within the Euro area.

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The following is a map of Italy.

The section “THE ITALIAN ECONOMY—General” of the Annual Report is hereby amended to include the following information after the third paragraph of that subsection on page 8 of the Annual Report:

The following table sets out key economic indicators (real GDP growth rate, GDP Deflator, EU harmonized consumer price index and unemployment rate) in Italy for the periods indicated.

Key Economic Indicators (2008-2012)

	2008			2009			2010		2011		2012
Real GDP growth rate (%)(1)		(1.3	)		(5.5	)		1.8		0.4		(2.4	)
GDP Deflator		2.5			2.1			0.4		1.3		1.6
EU Harmonized Consumer Price Index		3.5			0.8			1.6		2.9		3.3
Unemployment rate (%)(2)		6.7			7.8			8.4		8.4		10.7

(1) Figures at purchasing power parity with 2005 prices.

(2) Unemployment rate does not include workers paid by Cassa Integrazione Guadagni, or Wage Supplementation Fund, which compensates workers who are temporarily laid off or who have had their hours cut.

Source: Bank of Italy, Istat and Eurostat.

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The section of the Annual Report “THE ITALIAN ECONOMY—General” starting from the table entitled “Annual Per Cent Change in Real GDP (2007-2011)” on page 8 of the Annual Report through and including the third paragraph on page 9 of the Annual Report is hereby replaced in its entirety with the following:

Annual Per Cent Change in Real GDP (2008-2012)

	2008			2009			2010		2011		2012
Italy		(1.3	)		(5.5	)		1.8		0.4		(2.4	)
Euro area(1)		0.4			(4.4	)		2.0		1.4		(0.6	)

⁽¹⁾  The euro area represents the countries participating in the EMU.

Source: Bank of Italy.

In 2008, as a result of the global financial and economic crisis, Italy’s real GDP decreased by 1.3 per cent mainly as a result of a steep decline in exports. Italy also recorded a decrease in domestic private consumption, largely attributable to the stagnation of Italian families’ purchasing power (the rise in nominal salaries was offset by inflation) and increasing propensity to save, and a decrease in gross fixed investments, especially in machinery and equipment and real estate. The uncertainty resulting from the financial crisis and its long term effects seriously affected consumer and business confidence and played a major role in the reduction of spending and investment.

In 2009, Italy’s real GDP decreased by 5.5 per cent, the largest decrease since the Second World War. A moderate recovery began in the second half of the year, mainly because of improved exports. In the same period, the industrial sector returned to moderate growth, the decline in the services sector came to a halt, but the decline in the construction sector continued. Domestic demand remained weak. Spending on capital goods, although increasing slightly in the second half of 2009 in response to tax incentives for purchases of machinery and equipment, was dampened by spare capacity and uncertainty about growth. The decline in consumer spending generally worsened, despite the measures introduced to support purchases of certain durable goods. Signs of an easing in the decline of the real property market appeared towards the end of 2009.

In 2010, the Italian economy grew and real GDP increased by 1.8 per cent compared to 2009. Domestic demand sustained the recovery. Private consumption contributed to the GDP growth by 0.6 per cent, fixed investment contributed to the GDP growth by 0.5 per cent and an increase in inventories contributed to the GDP growth by 0.7 per cent. Net exports provided a negative contribution to GDP growth by 0.4 per cent. The deterioration reflects the position on merchandise trade, which turned negative last year after being broadly in balance in 2009. It was largely due to only two sectors: energy raw materials, whose deficit grew mainly because of the rise in oil prices, and electronic apparatus, where the major factor was the significant increase in imports of photovoltaic cells.

In 2011, Italy’s real GDP grew by 0.4 per cent compared to 2010. Private consumption contributed to GDP growth by 0.1 per cent and net exports contributed to GDP growth by 1.4 per cent while fixed investment negatively contributed to GDP growth by 0.4 per cent. The growth in merchandise exports in 2011 was mainly due to sales to non-EU countries, particularly sales of machinery and equipment, basic metals and other metal products. Good export performances were also recorded by traditional products, pharmaceuticals and electronic products.

In 2012, Italy’s GDP decreased by 2.4 per cent compared to 2011. The decrease in real GDP in 2012 was due to an 8.0 per cent decrease in gross fixed investment, a 3.9 per cent decrease in total consumption and a 7.7 per cent decrease in imports, partly offset by a 2.3 per cent increase in exports.

The section “THE ITALIAN ECONOMY—EU Measures to Address the Eurocrisis—Financial Assistance to EU Member States—Collective Action Clauses” on page 13 of the Annual Report is hereby replaced in its entirety with the following:

Following recommendations of the International Monetary Fund and the release of a draft model form of collective action clause, Italy introduced a form of collective action clause into the documentation of all of its New York law governed bonds issued since June 16, 2003.

The rights of bondholders have generally been individual rather than collective. As a result of each bondholder having individual rights, the restructuring or amending of a bond would legally have to be negotiated with each bondholder individually and any one bondholder that did not agree with restructuring or amendment terms could refuse to accept such terms or “hold out” for better terms thereby delaying the restructuring or amendment process and potentially forcing an issuer into costly litigation. These risks increase as the bondholder base is more geographically dispersed or is comprised of both individual and institutional investors.

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In an effort to minimize these risks, issuers began including so-called collective action clauses into their bond documentation. These collective action clauses are intended to minimize the risk that one or a few “hold out” bondholders delay a restructuring or amendment where a majority of the other bondholders favor the terms of the restructuring or amendment, by permitting a qualified majority of the bondholders to accept the terms and bind the entire bondholder base to such terms.

The treaty instituting the ESM, as revised on February 2, 2012 (and ratified by Italy through Law No. 116 of July 23, 2012) required that all new government debt securities with a maturity of more than one year, issued on or after January 1, 2013, include the same collective action clauses as other countries in the Eurozone (the “EU Collective Action Clauses”). These standardized clauses for all euro area Member States, as set out in the document “Common Terms of Reference” dated February 17, 2012 developed and agreed by the European Economic and Financial Committee (EFC) and published on the EU Commissions website, allow a qualified majority of creditors to agree on certain “reserved matter modifications” to the most important terms and conditions of the bonds of a single series (including the financial terms) that are binding for all the holders of the bonds of that series with either (i) the affirmative vote of the holders of at least 75 per cent represented at a meeting or (ii) a written resolution signed by or on behalf of holders of at least 66 2/3 per cent of the aggregate principal amount of the outstanding bonds of that series and the consent of the Issuer. The EU Collective Action Clauses also include an aggregation clause enabling a majority of bondholders across multiple bond issues to agree on certain “reserved matter modifications” to the most important terms and conditions of all outstanding series of bonds (including the financial terms) that are binding for the holders of all outstanding series of bonds with (1) either (i) the affirmative vote of all holders of at least 75 per cent represented at separate meetings or (ii) a written resolution signed by or on behalf of all holders of at least 66 2/3 per cent of the aggregate principal amount of all outstanding series of bonds (taken in the aggregate) and (2) either (i) the affirmative vote of the holders of more than 66 2/3 per cent represented at a meeting or (ii) a written resolution signed by or on behalf of holders of more than 50 per cent of the aggregate principal amount of each outstanding series of bonds (taken individually) and the consent of the Issuer (so called “Cross Series Modification Clauses”). Italy, as all EU member states, has included the EU Collective Action Clauses and the Cross Series Modification Clauses in the documentation of all new bonds issued since January 1, 2013.

The section “THE ITALIAN ECONOMY” is hereby by amended by adding the following new subsection “THE ITALIAN ECONOMY—Update for the fiscal year ended December 31, 2012” on page 15 of the Annual Report immediately before the subsection “—Role of the Government in the Economy” on page 15 of the Annual Report:

—Update for the fiscal year ended December 31, 2012

—Gross Domestic Product

In 2012, Italy’s nominal GDP amounted to €1,565,916 million (€1,389,948 million in real terms at 2005 prices), a decrease of 0.8 per cent (2.4 per cent in real terms). The decrease in nominal GDP in 2012 was due to a 6.8 per cent decrease (8.0 per cent in real terms) in gross fixed investment, a 1.8 per cent decrease (3.9 per cent in real terms) in total consumption and a 4.9 per cent decrease (7.7 per cent in real terms) in imports, partly offset by a 4.3 per cent increase (2.3 per cent in real terms) in exports.

—Private Sector Consumption

In 2012, private sector consumption in Italy decreased by 4.3 per cent in real terms compared to an increase of 0.1 per cent in real terms in 2011 and represented approximately 58.9 per cent of real GDP.

—Public Sector Consumption

In 2012, public sector consumption in Italy decreased by 2.9 per cent in real terms compared to a decrease of 1.2 per cent in real terms in 2011. In 2012, public sector consumption represented approximately 20.4 per cent of real GDP.

—Gross Fixed Investment

In 2012, gross fixed investment in Italy decreased by 8.0 per cent in real terms (6.8 per cent at current prices) and represented 18.2 per cent of nominal GDP and its decrease negatively contributed to real GDP growth by

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1.6 per cent in nominal terms. The decrease in gross fixed investment in 2012 reflects the decrease in all components of gross fixed investment, particularly the decrease in expenditure for transport means of 12.2 per cent, for machinery of 10.6 per cent and the continued decrease in expenditure for construction of 6.2 per cent.

—Net Exports

In 2012, exports of goods and services grew by 2.3 per cent in volume in real terms, with exports of goods increasing by approximately 2.0 per cent in real terms and exports of services increasing by approximately 4.5 per cent in real terms. In 2012, imports of goods and services decreased sharply by 7.7 per cent in real terms, with imports of goods decreasing by approximately 8.0 per cent in real terms and imports of services decreasing by approximately 5.0 per cent in real terms.

—Principal Sectors of the Economy

In 2012, value added in real terms decreased by 2.0 per cent. The decrease in value added was mainly driven by a decrease in construction of 6.3 per cent in real terms, a decrease in agriculture, fishing and forestry of 4.4 per cent in real terms, a decrease in industry of 3.5 per cent in real terms (of which manufacturing decreased by 3.9 per cent in real terms) and a decrease in services of 1.2 per cent in real terms. The decrease in services was driven by a decrease of 2.0 per cent in real terms in commerce, transport, storage and hotels and restaurants, a decrease of 1.9 per cent in real terms in information and communication services, a decrease of 1.7 per cent in real terms in professional, scientific and technical services and public administration and support services, a decrease of 1.7 per cent in real terms in defense, education, healthcare and other social services, slightly offset by an increase of 1.2 per cent in real terms in arts, entertainment and recreation and repairs of household goods and other services and an increase of 0.3 per cent in real terms in financial and monetary intermediation services.

The section “THE ITALIAN ECONOMY—Employment and Labor—General” on page 20 of the Annual Report is hereby by amended by replacing the first two paragraphs of that subsection in their entirety with the following three paragraphs:

General. Job creation has been and continues to be a key objective of the Government. Employment, as measured by the average number of standard labor units employed during the year, decreased by approximately 0.3 per cent in 2012 after increasing 0.1 per cent in 2011. A standard labor unit is the amount of work undertaken by a full-time employee over the year and is used to measure the amount of work employed to produce goods and services.

The unemployment rate in Italy was 10.7 per cent in 2012, an increase of 2.3 per cent compared to 8.4 per cent 2011. In the euro area, the average unemployment rate was 11.4 per cent in 2012 compared to 10.2 per cent in 2011.

The participation rate (i.e. the rate of employment for the Italian population between the ages of 15 and 64) decreased to 56.8 per cent in 2012 compared to 62.2 per cent in 2011.

The section “THE ITALIAN ECONOMY—Employment and Labor—Employment by sector” on page 20 of the Annual Report is hereby by amended in its entirety by replacing it with the following:

Employment by sector. In 2012, approximately 68.5 per cent were employed in the service sector, 20.12 per cent were employed in the industrial sector (excluding construction), 7.65 per cent were employed in the construction sector and 3.7 per cent were employed in the agriculture, fishing and forestry sector.

The section “THE ITALIAN ECONOMY—Employment and Labor—Employment by geographic area and gender” on page 20 of the Annual Report is hereby by amended in its entirety by replacing it with the following:

Employment by geographic area and gender. In 2012, the unemployment rate in northern Italy was 7.4 per cent, an increase of 1.7 percentage points compared to 2011. In 2012, the unemployment rate in central Italy was 9.5 per cent, an increase of 1.9 percentage points compared to 2011. In 2012, the unemployment rate in southern Italy was 17.2 per cent, an increase of 3.6 percentage points compared to 2011.

In 2012, the unemployment rate of females in Italy was 11.9 per cent, an increase of 2.3 percentage points compared to 2011. In 2012, the unemployment rate of males in Italy was 9.9 per cent, an increase of 2.3 percentage points compared to 2011.

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The section “THE ITALIAN ECONOMY—Employment and Labor” is hereby amended by adding the following new subsection “THE ITALIAN ECONOMY—Employment and Labor—Employment of the population between the ages 15-24” on page 20 of the Annual Report immediately before the subsection “THE ITALIAN ECONOMY—Employment and Labor— Government programs and regulatory framework” on page 20 of the Annual Report:

Employment of the population between the ages 15-24. The unemployment rate of the population in Italy between the ages 15-24 increased steadily from 21.3 per cent in 2008 to 35.3 per cent in 2012 (an increase of 6.2 per cent compared to 2011). The unemployment rate of the population between the ages 15-24 in the euro area increased from 16.0 per cent in 2008 to 23.1 per cent in 2012.

The following table shows the unemployment rate of the population between the ages 15-24 in Italy and the euro area for the periods provided.

Unemployment of the Population aged 15-24 (2008-2012)

	2008		2009		2010		2011		2012
Italy		21.3		25.4		27.8		29.1		35.3
Euro area(1)		16.0		20.3		20.9		20.8		23.1

⁽¹⁾  The euro area represents the countries participating in the EMU, including Italy.

Source: Eurostat and Istat.

The section “MONETARY SYSTEM—Banking Regulation—Capitalization” on pages 31 through 32 of the Annual Report is hereby by amended by adding the following new paragraph as the new last paragraph of the subsection on page 32 of the Annual Report:

On February 28, 2013, in an effort to strengthen the regulatory capital of Banca Monte dei Paschi di Siena, the Ministry of the Economy and Finance subscribed an aggregate amount equal to €4,071,000,000 of new financial instruments (the “New Financial Instruments”) provided for by articles 23-sexies et. seq of Law Decree No. 95 of July 6, 2012, as subsequently amended (“Decree 95/2012”) issued by MPS (of which €1,900,000,000 will replace the so-called Tremonti Bonds previously issued by MPS in 2009 and €171,000,000, having entitlement date on July 1, 2013, as early payment of the interest accrued on the Tremonti Bonds for the financial year 2012). The New Financial Instruments are convertible into ordinary shares of Banca Monte dei Paschi di Siena and can be taken into account in the calculation of its Core Tier 1 capital.

The section of the Annual Report “THE EXTERNAL SECTOR OF THE ECONOMY—Geographic Distribution of Trade” on pages 35 through 36 of the Annual Report is hereby by amended by adding the following new paragraph as the last paragraph of the subsection on page 36 of the Annual Report:

In 2012, Italy recorded an increase in exports of 3.7% over 2011, even though it recorded a decrease in Italian exports to Eurozone countries of 1.5 per cent compared to 2011, in particular exports to Italy’s three largest Eurozone trading partners Germany, France and Spain decreased by 1.1 per cent, 1.0 per cent and 8.1 per cent, respectively in 2012. The increase in Italian exports resulted from a sharp increase in exports to non-EU countries of 9.2 per cent in 2012 compared to 2011 (an increase of 7.8 per cent net of energy exports compared to 2011), in part due to a 24.6 per cent increase in exports to OPEC countries, a 16.8 per cent increase in exports to the United States and a 19.1 per cent increase in exports to Japan.

The section “THE EXTERNAL SECTOR OF THE ECONOMY—Geographic Distribution of Trade” on pages 35 through 36 of the Annual Report is hereby amended by adding the following footnote to the line item “Other” in the tables entitled “Distribution of Trade (cif-fob)—Exports” on page 35 of the Annual Report and “Distribution of Trade (cif-fob)—Imports” on page 36 of the Annual Report:

“Other represents all other countries and/or regions with whom Italy trades; none of which country or region represents a material amount.”

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The section “PUBLIC FINANCE—Measures of Fiscal Balance” on pages 44 through 45 of the Annual Report is hereby amended by adding a new column for the year 2012 to the table entitled “Selected Public Finance Indicators^(*)” on page 44 of the Annual Report as set out below:

	2012
	(€ in millions, except percentages)
General government expenditure		801,094
General government expenditure, as a percentage of GDP		51.2
General government revenues		753,648
General government revenues, as a percentage of GDP		48.1
Net borrowing		(47,446	)
Net borrowing, as a percentage of GDP		(3.0	)
Primary balance		39,271
Primary balance, as a percentage of GDP		2.5
Public debt		1,988,658
Public debt as a percentage of GDP		127.0
GDP (nominal value)		1,565,916

Source: Istat and Bank of Italy.

The section “PUBLIC FINANCE” on page 49 of the Annual Report is hereby amended by adding a new subsection entitled “Report to Parliament 2013” on page 49 of the Annual Report as set out below:

On March 21, 2013, the Prime Minister, Mr. Mario Monti, and the Minister of Economy and Finance, Vittorio Grilli, submitted a report to Parliament to inform and update the Parliament on the revised estimates on macroeconomic outlook and the performance of the public accounts expected in 2013 and 2014. For additional information on these revised estimates, see “Exhibit 4—Report to Parliament 2013, dated March 21, 2013.”

The section “TABLES AND SUPPLEMENTARY INFORMATION” as amended by pages 1 through 3 of Amendment No. 1 to the Annual Report through the addition of the subsection entitled “—External Bonds of the Treasury as of December 31, 2012” is hereby further amended by replacing the subsection “—External Bonds of the Treasury as of December 31, 2012” on pages 1 through 3 of Amendment No. 1 with the following new subsection “—External Bonds of the Treasury as of December 31, 2012”:

External Bonds of the Treasury as of December 31, 2012

The following table shows the external bonds of the Treasury issued and outstanding as of December 31, 2012.

Original Currency Nominal Amount	Interest Rate		Initial Public Offering Price (%)		Date of Issue	Maturity Date	Amount Outstanding		Equivalent in Euro
United States Dollar(1)(*)
$3,500,000,000		6.875%		98.73	September 27, 1993	September 27, 2023	$	3,500,000,000	€	2,652,720,934
$2,000,000,000		4.375%		99.69	February 27, 2003	June 15, 2013	$	2,000,000,000	€	1,515,840,534
$2,000,000,000		5.375%		98.44	February 27, 2003	June 15, 2033	$	2,000,000,000	€	1,515,840,534
$4,000,000,000		4.50%		99.41	January 21, 2005	January 21, 2015	$	4,000,000,000	€	3,031,681,067
$2,000,000,000		4.75%		99.34	January 25, 2006	January 25, 2016	$	2,000,000,000	€	1,515,840,534
$3,000,000,000		5.25%		99.85	September 20, 2006	September 20, 2016	$	3,000,000,000	€	2,273,760,800
$2,000,000,000		5.38%		99.37	June 12, 2007	June 12, 2017	$	2,000,000,000	€	1,515,840,534
$2,500,000,000		3.13%		99.672	January 26, 2010	January 26, 2015	$	2,500,000,000	€	1,894,800,667
$2,000,000,000		2.13%		99.74	September 16, 2010	September 16, 2013	$	2,000,000,000	€	1,515,840,534
							$	24,500,000,000	€	17,432,166,136
Euro(2)
€60,000,000		libor 3m -16 b.p.		99.61	October 8, 1998	October 8, 2018	€	60,000,000	€	60,000,000
€300,000,000		((1+0.86* TEC10) ^0.25)-1; floor3%su86(3) %*TEC10		101.43	October 15, 1998	October 15, 2018	€	300,000,000	€	300,000,000
€1,000,000,000		4.00%		99.95	May 6, 1999	May 6, 2019	€	1,000,000,000	€	1,000,000,000
€1,000,000,000		80%*CMS30Y; floor:4.25%		101.60	June 28, 1999	June 28, 2029	€	905,000,000	€	905,000,000
€1,000,000,000		CMS30Y- 0.91%; Floor:0.00%		100.75	August 30, 1999	August 30, 2019	€	1,000,000,000	€	1,000,000,000
€150,000,000		Zero Coupon		100.00	February 20, 2001	February 19, 2031	€	150,000,000	€	150,000,000
€3,000,000,000		5.750%		100.04	July 25, 2001	July 25, 2016	€	3,000,000,000	€	3,000,000,000
€150,000,000		84.5% CMS 10Y		100.00	April 26, 2004	April 26, 2019	€	150,000,000	€	150,000,000

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Original Currency Nominal Amount	Interest Rate		Initial Public Offering Price (%)		Date of Issue	Maturity Date	Amount Outstanding		Equivalent in Euro
€300,000,000		CMS10Y ;cap:6%(4)		100.00	May 31, 2005	May 31, 2035	€	300,000,000	€	300,000,000
€720,000,000		3.83%		100.00	June 2, 2005	June 2, 2029	€	720,000,000	€	720,000,000
€395,000,000		3.523% (until 2010)( 5 )		100.00	June 2, 2005	June 2, 2030	€	395,000,000	€	395,000,000
€200,000,000		85% *CMS10Y; cap:7,45%		100.00	June 8, 2005	June 8, 2020	€	200,000,000	€	200,000,000
€2,500,000,000		85% *CMS 10Y; floor 2%; cap 7%		100.00	June 15, 2005	June 15, 2020	€	2,500,000,000	€	2,500,000,000
€300,000,000		85.5% *CMS 10Y; floor 2%; cap 7%		100.00	June 28, 2005	June 28, 2021	€	300,000,000	€	300,000,000
€200,000,000		Max {0, Min [10*(CMS10 – CMS2), 6mEuribor + 1.50%)]}		100.00	November 9, 2005	November 9, 2025	€	200,000,000	€	200,000,000
€900,000,000		6m Euribor + 0.04%		99.38	March 17, 2006	March 17, 2021	€	900,000,000	€	900,000,000
€1,000,000,000		6m Euribor + 0.60%		99.85	March 22, 2006	March 22, 2018	€	1,000,000,000	€	1,000,000,000
€192,000,000		Zero Coupon		100.00	March 28, 2006	March 28, 2036	€	192,000,000	€	192,000,000
€300,000,000		6m Euribor + 0.075%		100.00	March 30, 2006	March 29, 2026	€	300,000,000	€	300,000,000
€215,000,000		5.07% / 10y CMS		100.00	May 11, 2006	May 11, 2026	€	215,000,000	€	215,000,000
€1,000,000,000		1.85% Inflation Indexed		99.80	January 5, 2007	September 15, 2057	€	1,107,000,000	€	1,107,000,000
€250,000,000		2.00% Inflation Indexed		99.02	March 30, 2007	September 15, 2062	€	277,000,000	€	277,000,000
€160,000,000		4.49%		99.86	April 5, 2007	April 5, 2027	€	160,000,000	€	160,000,000
€500,000,000		2.20% Inflation Indexed		98.86	January 23, 2008	September 15, 2058	€	544,220,000	€	544,220,000
€258,000,000		5.26%		99.79	March 16, 2009	March 16, 2026	€	258,000,000	€	258,000,000
€300,000,000		3.00%		99,733	May 29, 2009	November 29, 2013	€	300,000,000	€	300,000,000
€250,000,000		4.85%		98.50	June 11, 2010	June 11, 2060	€	250,000,000	€	250,000,000
€125,000,000		4.10%		99.46	September 6, 2010	November 1, 2023	€	125,000,000	€	125,000,000
€125,000,000		4.20%		99.38	September 6, 2010	March 3, 2025	€	125,000,000	€	125,000,000
€250,000,000		2.75%		99.85	November 11, 2010	November 11, 2018	€	250,000,000	€	250,000,000
€125,000,000		2.85%		99.90	November 22, 2010	November 22, 2014	€	125,000,000	€	125,000,000
€250,000,000		3.70%		99.66	November 22, 2010	May 22, 2018	€	250,000,000	€	250,000,000
€125,000,000		3.75%		99.89	November 22, 2010	September 1, 2018	€	125,000,000	€	125,000,000
€150,000,000		3.80%		99.65	December 23, 2010	January 23, 2017	€	150,000,000	€	150,000,000
€150,000,000		4.45%		99.40	December 23, 2010	December 12, 2021	€	150,000,000	€	150,000,000
€517,000,000		2.85% Inflation Indexed		99.482	January 4, 2011	September 1, 2022	€	517,000,000	€	517,000,000
€450,000,000		4.45%		99.59	February 26, 2011	August 24, 2020	€	450,000,000	€	450,000,000
€2,156,000,000		6.58%		100	July 1, 2011	December 31, 2027	€	2,156,000,000	€	2,156,000,000
€250,000,000		5.00%		99.196	September 22, 2011	September 22, 2017	€	250,000,000	€	250,000,000
€230,000,000		4.20% Inflation Indexed		100	February 1, 2012	July 25, 2042	€	230,000,000	€	230,000,000
€437,500,000		3.66%		100	February 13, 2012	December 31, 2026	€	437,500,000	€	437,500,000
€300,000,000		Zero Coupon		99.78	September 25, 2012	January 25, 2013	€	300,000,000	€	300,000,000
€300,000,000		Zero Coupon		99.78	September 25, 2012	January 25, 2013	€	300,000,000	€	300,000,000
€100,000,000		Zero Coupon		99.71	October 10, 2012	February 21, 2013	€	100,000,000	€	100,000,000
							€	22,723,720,000	€	22,723,720,000
Euro Ispa Bonds(6)
€1,000,000,000		4.50%		99.387	February 6, 2004	July 31, 2014	€	1,000,000,000	€	1,000,000,000
€750,000,000		2.25% Inflation Indexed		99.368	February 6, 2004	July 31, 2019	€	900,000,000	€	900,000,000
€3,250,000,000		5.13%		98.934	February 6, 2004	July 31, 2024	€	3,250,000,000	€	3,250,000,000
€2,200,000,000		5.20%		105.125	February 6, 2004	July 31, 2034	€	2,200,000,000	€	2,200,000,000
€850,000,000		Euribor 12 M + spread 0.23% (amortizing)		100	March 4, 2005	July 31, 2045	€	850,000,000	€	850,000,000
€1,000,000,000		Euribor 12 M + spread 0.235% (amortizing)		100	April 25, 2005	July 31, 2045	€	1,000,000,000	€	1,000,000,000
€300,000,000		3.5% (cap at 6.0%)		100	June 30, 2005	July 31, 2035	€	300,000,000	€	300,000,000
€100,000,000		3.5% (cap at 6.1%)		100	June 30, 2005	July 31, 2035	€	100,000,000	€	100,000,000
							€	9,600,000,000	€	9,600,000,000
Swiss Franc(7)(*)
ChF 2,000,000,000		2.50%		100.09	February 2, 2005	March 2, 2015	ChF	2,000,000,000	€	1,656,726,309

9

Original Currency Nominal Amount	Interest Rate		Initial Public Offering Price (%)		Date of Issue	Maturity Date	Amount Outstanding		Equivalent in Euro
ChF 1,000,000,000		2.50%		99.336	January 30, 2006	January 30, 2018	ChF	1,000,000,000	€	828,363,154.4
							ChF	3,000,000,000	€	2,485,089,463
Pound Sterling(8)(*)
£400,000,000		10.50%		100.875	April 28, 1989	April 28, 2014	£	400,000,000	€	490,136,012.7
£1,500,000,000		6.00%		98.565	August 4, 1998	August 4, 2028	£	1,500,000,000	€	1,838,010,048
£250,000,000		5.25%		99.476	July 29, 2004	December 7, 2034	£	250,000,000	€	306,335,008
£300,000,000		3m aGbp Libor + 0,45 bp %		100.00	April 28, 2010	April 28, 2015	£	300,000,000	€	367,602,009.6
							£	2,450,000,000	€	3,002,083,078
Norwegian Kroner(9)(*)
NOK 2,000,000,000		4.34%		100.00	June 23, 2003	June 23, 2015	NOK	2,000,000,000	€	272,171,794.8
							NOK	2,000,000,000	€	272,171,794.8
Japanese Yen(10)(*)
¥125,000,000,000		5.50%		100.00	December 15, 1994	December 15, 2014	¥	125,000,000,000	€	1,100,255,259
¥125,000,000,000		4.50%		100.00	June 8, 1995	June 8, 2015	¥	125,000,000,000	€	1,100,255,259
¥100,000,000,000		3.70%		100.00	November 14, 1996	November 14, 2016	¥	100,000,000,000	€	880,204,207.4
¥100,000,000,000		3.45%		99.80	March 24, 1997	March 24, 2017	¥	100,000,000,000	€	880,204,207.4
¥25,000,000,000		2.87%		100.00	May 18, 2006	May 18, 2036	¥	25,000,000,000	€	220,051,051.8
¥50,000,000,000		3mJpy libor +12 bp%		100.00	April 24, 2008	April 24, 2018	¥	50,000,000,000	€	440,102,103.7
¥30,000,000,000		3m Jpy libor +40 bp%		100.00	July 8, 2009	July 8, 2019	¥	30,000,000,000	€	264,061,262.2
¥30,000,000,000		3m Jpy libor +37 bp%		100.00	September 18, 2009	September 18, 2019	¥	30,000,000,000	€	264,061,262.2
							¥	585,000,000,000	€	5,149,194,613
Czech Koruna(11)(*)
CZK 2,490,000,000		4.36%		100.00	October 3, 2007	October 3, 2017	CZK	2,490,000,000	€	99,002,027.75
CZK 2,490,000,000		4.40%		100.00	October 3, 2007	October 3, 2019	CZK	2,490,000,000	€	99,002,027.75
CZK 2,490,000,000		4.41%		100.00	October 3, 2007	October 3, 2019	CZK	2,490,000,000	€	99,002,027.75
							CZK	7,470,000,000	€	297,006,083.3
TOTAL OUTSTANDING									€	60,961,431,169

(1) U.S. dollar amounts have been converted into euro at $1.3194/€1.00, the exchange rate prevailing at Dec. 31, 2012.

(2) External debt denominated in currencies of countries that have adopted the euro have been converted into euro at the fixed rate at which those currencies were converted into euro upon their issuing countries becoming members of the European Monetary Union.

(3) Starting from 2004 the bonds pay interest at the fixed rate of 3.965%.

(4) 12mEuribor+0.10% from May 2005 to May 2007; CMS10Y from June 2007 to 2035.

(5) After 2010 the bonds will yield a floating rate calculated as follows: 3.523% + 3 * Min [ Max (3.50%—rate swap 20Y; 0.0%); 1.50%]

(6) Bonds issued by Infrastrutture S.p.A.

(7) Swiss Franc amounts have been converted into euro at ChF1.2072/€1.00, the exchange rate prevailing at Dec. 31, 2012.

(8) Pounds Sterling amounts have been converted into euro at £0.81610/€1.00, the exchange rate prevailing at Dec. 31, 2012.

(9) Norwegian Kroner amounts have been converted into euro at NOK7.3483/€1.00, the exchange rate prevailing at Dec. 31, 2012.

(10) Japanese Yen amounts have been converted into euro at ¥113.61/€1.00, the exchange rate prevailing at Dec. 31, 2012.

(11) Czech Koruna amounts have been converted into euro at C25.151/€1.00, the exchange rate prevailing at Dec. 31, 2012.

(*) The above exchange rates are based on the official exchange rates of the Bank of Italy.

Source: Ministry of Economy and Finance

10

EX-2

Exhibit 2

Public finance consolidation

• In December 2011, shortly after coming into office, the Monti government adopted a supplementary fiscal package worth €20.2bn in 2012, €21.3bn in 2013 and €21.4bn in 2014. The package, quickly approved by Parliament, will enable Italy to achieve a balanced budget in structural terms in 2013 and maintain a primary surplus of over 4 per cent of GDP from 2015 onwards.

• In July 2012 the Government approved new measures to strengthen fiscal consolidation and achieve a lasting improvement in the efficiency and quality of spending.

• The 2013-2015 Stability Law aimed at (1) rebalancing revenue and expenditure to favour growth; (2) reducing the tax wedge; (3) supporting the purchasing power of households by leaving the 10 per cent VAT rate unchanged and increasing tax allowances for families with children; (4) enhancing the quality of expenditure; (5) freeing up resources of about €10bn in 2013, €10.7bn in 2014 and €10.1bn in 2015; (6) employing resources for about €12.3bn in 2013, €10.6bn in 2014 and €9.7bn in 2015; (7) confirming the Government’s target of a balanced budget in structural terms for 2013.

Constitutional reform

• In April 2012, Parliament approved a Constitutional amendment that introduces a balanced budget provision. It is to become effective as of 2014. The principle of a balanced budget applies to the whole government sector (i.e. Central Administrations, Regions and Local Governments) in accordance with the European legal framework. It takes into account economic cyclical fluctuations and exceptional circumstances.

• In addition to this, 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 Parliament in charge of monitoring public finances and checking compliance with fiscal rules.

• The Government proposed an amendment to Section V of the Constitutional Law to better ensure legal and economic unity of the Republic. The proposal aims at restoring exclusive control of the State over several areas that in the past were the shared responsibility of the State and Regions, or of disputed jurisdiction. The main areas concerned would be: transport networks, energy transmission and distribution, foreign trade. Tourism, presently under the exclusive competence of Regions, would become a shared competence. The proposed Constitutional reform also aims at bringing local finance firmly under Central Government control.

MINISTERO DELL’ECONOMIA E DELLE FINANZE                    

Spending review and control of public expenditure

• In July 2012, the Government embarked upon the first phase of a spending review that ensured gross savings for €4.6bn in 2012, €10.8bn in 2013, €11.6bn in 2014 and €12.1bn in 2015. In October 2012, the second phase of the spending review was launched.

• The first round of structural expenditure reductions focused primarily on current expenditure, while preserving the quality of public services for citizens. Measures included: changes in public procurement, a reduction in public sector staff and consultancy, the closure of some public entities and a more cost-efficient use of government buildings. The education and health care sectors were required to contribute to the public spending rationalisation effort. Boards of State- owned companies were reduced to a maximum of three or five members, depending on the nature of their business.

• The Government proposed the reorganisation of the Provinces in the first round of the spending review. The proposal would reduce the number of existing Provinces in ordinary Regions from 86 to 51. Major urban agglomerates, so-called ‘metropolitan areas’, would replace Provinces. All boards of Provinces would be eliminated, while the functions of presidents would be delegated to a maximum of three councillors, resulting in savings of almost €40mn per year. The streamlining of Provinces is meant to be part of a wider process involving the Territorial Government Offices as well as the National Motor Vehicle License Organisation.

• The second-round of structural cuts (worth about €3.5bn), contained in the 2013-2015 Stability Law, focused on the purchase of goods and services, particularly in the health sector, and was intended to guarantee a better use of taxpayers’ money.

• Measures contained in the two rounds of the spending review include: (1) ban on local governments, National Health Service entities (NHS) and Independent Authorities buying new buildings unless deemed strictly necessary; (2) limit on furniture expenditure that cannot exceed 20 per cent of the amount spent in 2010-2011, coupled with a strict prohibition on the purchase or leasing of new vehicles; (3) total reduction in NHS spending on goods and services and medical devices of €2.4bn in 2013, €3bn in 2014 and €3.1bn in 2015; (4) further expenditure reductions for Regions and Local Governments of about €6.8bn in 2013, €7.7bn in 2014 and €8.0bn in 2015.

• To keep the compensation of civil servants under control, the Government extended the freeze in recruitment and wages. The effects of these measures are now well visible: since 2007 the number of public employees and their relative compensation have declined by 4.3 per cent and 2.3 per cent respectively. Overall, the related cost of labour in the public sector has decreased by 3.3 per cent in 5 years.

MINISTERO DELL’ECONOMIA E DELLE FINANZE

Tax evasion and tax avoidance

• Several measures are introduced to fight tax evasion and avoidance, notably: (1) legal threshold for cash payments fixed at €1,000; (2) incentive for tax payers to comply with so-called sectoral studies (as softer regimes of control are applied to them); (3) considering cheating on the Revenue Agency a criminal offence; (4) focus on large tax payers and VAT frauds; (5) obligation imposed on banks and all financial intermediaries to send records of entries made on all customers’ accounts to tax authorities; (6) synergies with the Social Security Institute (INPS) in order to crack down on undeclared economic activity; (7) compulsory communication to the Revenue Agency of all transactions involving economic agents located in countries with privileged taxation (the so-called ‘black list’) for operations exceeding €500; (8) compulsory communication on a yearly basis of the entire amount of trade with any given client (it was previously required to communicate only individual transactions exceeding €3,000); (9) reduction in the amount of credits that can be used to directly compensate other taxes (from €10,000 to €5,000); (10) clear definition of abusive schemes with the introduction of a General Anti-Avoidance Rule (GAAR); (11) transparency and responsiveness in identifying and managing ambiguous tax positions; (12) introduction of so-called ‘tutoring’ in order to improve assistance to taxpayers (especially smaller ones) while establishing procedural advantages for tutored contributors; (13) taxpayers’ debt cancelled for amounts below €2,000 (contracted before 1999); (14) improved efficiency of tax disputes, with more chances being given to taxpayers with a dispute below €1,000 to justify their fiscal position.

• Effective 2014, e-payments will be mandatory for transactions between the public administration and businesses, with each administration publishing all relevant banking information on its website.

• Measures regarding the taxation of business income: new tax regime for insolvency proceedings; review of taxation on cross-border transactions; review of deductions and depreciations.

Fiscal simplification and fiscal reform

• The Government’s strategy called for a shift in taxation from labour and income to consumption and real estate property. Measures include: (1) new municipal tax on real estate (IMU), with the tax rate fixed at 0.40 per cent on principal dwellings and 0.76 per cent on others, while industrial warehouses pay a tax rate ranging from 0.76 to 1.06 directly to the State; (2) increase in the ordinary VAT rate from 21 to 22 per cent as of July 2013, while the lower VAT rate remains at 10 per cent; (3) increase in excise duties on petrol, diesel fuel, LPG and natural gas used in motor vehicles; (4) national excise on electric energy in place of different local duties in alignment with European legislation (0.023 per kWh on domestic electricity and 0.012 per kWh on non-domestic electricity); (5) a single tax on waste and municipal services (‘tassa rifiuti e servizi’– TARES) in place of TARSU (‘tassa per lo smaltimento dei rifiuti solidi urbani’) and TIA (‘tariffa di igiene ambientale’); (6) lump sum tax of €34.20 on current accounts owned by Italian residents abroad (IVAFE – ‘imposta sul valore delle attivitŕ finanziarie detenute all’estero’); (7) new tax on foreign

MINISTERO DELL’ECONOMIA E DELLE FINANZE                    

real estate property (IVIE – ‘imposta sul valore degli immobili situati all’estero’); (8) introduction of the Tobin Tax on transactions involving equities with a proportional tax rate paid by buyers of 0.12 per cent (0.22 per cent for over-the-counter financial transactions) in 2013 and 0.1 per cent (0.2 per cent) as of 2014, to be aligned with European legislation once it is decided; different treatment on derivatives (lump sum with a maximum fee of €200 for transactions above €1mn) for both buyers and sellers; (9) increase in the tax rate on insurance companies for life insurance premiums (from the current rate of 0.35 per cent to 0.5 per cent in 2012 and to 0.45 from 2013 on); (10) ceiling of €4,500 for stamp duty on financial products owned by non-physical person; (11) gambling tax (PREU) is increased to 5 per cent.

• Postponement of payment on ‘passive VAT’ to moment of invoice collection for firms with turnover up to €2mn (previous limit was €200,000).

• Reduction in taxation on labour: Effective from 2013, tax deductions for employers on the labour component of the IRAP tax base increase from €4,600 to €7,500. If employers hire women or young people less than 35 years, the deduction is higher and up to €13,500; the deduction further increase for firms located in ‘disadvantaged’ Regions. Small enterprises and self-employed entrepreneurs can rely on a fund worth €0.54bn and €0.25bn, respectively, for IRAP tax exemptions.

• New tax allowances for families with children: Effective 2013, the tax credit from IRPEF for each child under the age of 3 amounts to €1,220 (previously €900), while for each child older than 3 it will amount to €950 (previously €800). For families supporting children with disabilities, the IRPEF tax credit increases to €1,350 and to €1,620 for each child younger than 3.

• A new fund, financed with proceeds from the fight against tax evasion, is introduced to reduce the tax burden on households and firms.

• The Government proposed several actions in order to rationalise the tax system. Measures concern: (1) revision of cadastral values to bring them in line with house market prices (IMU tax base); (2) simplification and rationalisation of indirect taxation; (2) revision of reduced VAT rates; (3) unification of taxation on business and self-employed income; (4) provision of simplified lump-sum payments of IRES, IRAP and VAT for smaller taxpayers; (5) introduction of a carbon tax in line with a revised EU directive on energy taxation (revenues to be used for reducing labour taxation and spurring the green economy).

Pension system

• Effective 2012, the contribution-based regime was extended to all workers and pro rata to those previously subject to earnings-related or mixed regimes.

• A rapid tightening of eligibility requirements for old-age retirement was introduced: (1) effective 2012, the Statutory Retirement Age (SRA) of men (employed in both the public and private sector) and women working in the public sector increased from 65 to 66 years of age ; (2)

MINISTERO DELL’ECONOMIA E DELLE FINANZE

all workers are aligned to the same SRA, with a gradual increase of the SRA for women working in the private sector (currently at 60); (3) for workers hired after 1996, in addition to the age requirement, at least 20 years of contributions and pension benefits equal to at least 1.5 times the social pension are now necessary to be entitled to an old-age pension; (4) all age requirements are linked to changes in life expectancy at 65 as of 2013. From 2019 onwards, such adjustments will be carried out every 2 years instead of every 3 years. As of 2018-2019, the SRA will become 67 years for all workers.

• A rapid tightening of eligibility requirements for early retirement: (1) the contribution period to be eligible for retirement, regardless of age requirement, was increased from 40 to 42 years and 1 month in the case of men and 41 years and 1 month in the case of women, effective 2012. These requirements will increase by 2014, when retirement will be possible with a contribution period of 42 years and 3 months for men and 41 years and 3 months for women; (2) workers employed after 1996 will be entitled to retire at age 63 but must have at least 20 years of contributions and have a pension benefit of at least 2.8 times the minimum amount; (3) for people retiring before the age of 62, benefits related to contributions accrued before 2012 were reduced by 1 percentage point if they retire at age 60 and by 2 percentage points for any additional year beforehand; (4) all requirements, including those related to age and contribution periods, were updated in line with life expectancy at 65 effective 2013. From 2019 onwards, such adjustments will be carried out every 2 years, instead of every 3 years.

• New rules for pension benefits: (1) the transformation coefficients for the derivation of pension benefits are now calculated taking into account the probability of death from the age of 57 up to the age of 70 (65 according to previous legislation); (2) the transformation coefficients will be updated every three years as of 2013 and every 2 years from 2019 onwards; (3) the contribution rates for the self-employed (artisans, shopkeepers and farmers) will be gradually increased from 21.3 per cent in 2012 to 24 per cent in 2018; (4) an indexation freeze was imposed on pension benefits that are 3 times higher the minimum provision in 2012-13.

• The related savings, net of fiscal effects on Italy’s public finances, were estimated at €7.3bn by 2014 and almost €22bn by 2020. The average age at retirement (taking into account both the old-age retirement requirements and the early retirement requirements) will increase from 60-61 in 2006-2010 to about 64 in 2020, 67 in 2040 and then about 68 in 2050.

Measures to reduce public debt

• In July 2012, the Government committed to dismiss real estate assets and privatise State-owned companies to ensure 1pp of GDP per year in debt reduction over the next 3 years. Real estate assets are to be transferred by central and local governments to a devoted real estate Fund (established and controlled by the ‘Societŕ di Gestione del Risparmio’, a real estate management company of the Ministry of Economy and Finance) entrusted to either manage or dismiss assets.

• Some government holdings (in particular Fintecna, SACE and SIMEST), were sold to ‘Cassa Depositi e Prestiti’. In 2012 ‘Cassa Depositi e Prestiti’ paid a total amount of about €8.0bn to the State. Additional payments are expected in 2013. The funds were mainly used to finance the Fund for the Amortisation of Government Bonds and repay debts with SMEs.

MINISTERO DELL’ECONOMIA E DELLE FINANZE                    

• Extra inflows into the Fund for the Amortisation of Government Bonds are expected from: (1) 50% of the proceeds from auctioning CO2 permits within the EU Emission Trading System as of 2016; (2) private donations which are allowed to be deducted from taxable income.

National Health System (NHS) reform

• The Government introduced the following measures to improve efficiency in the health care system: (1) reorganisation of the territorial health care system; (2) introduction of new rules related to the career and professional status of doctors; (3) measures against addiction to gambling and smoking and in favour of healthy sport activity; (4) introduction of electronic heath care records and electronic medical prescriptions.

• 24 hour primary healthcare support will be introduced throughout the country; support units to operate in digital connection with hospitals and other health structures; doctors employed in public hospitals are allowed pursue private professional activities (‘intra-moenia’ medical services) only if digitally connected to NHS administrative units; payments will be recorded electronically via web in order to monitor income from private professional activities; 5 per cent of payments made for ‘intra-moenia’ services are to be transferred to the NHS.

• Regarding pharmaceutical expenditure, obsolete drugs were eliminated from the official NHS list (‘Prontuario Farmaceutico Nazionale’). Moreover, unnecessary medical examinations were limited in order to reduce costs and waiting lists. Voluntary funds are to be set up by doctors and specialised insurance companies to limit professional liability.

Anti-corruption and transparency in the public administration

• Judges and arbitration: new rules for judges will allow them to stay on leave and be on ministerial assignment for a maximum of ten years (with five years between any two assignments). Furthermore, judges will no longer be able to participate in arbitration commissions.

• The Commission for the evaluation, transparency and integrity of the public administration (CIVIT) was identified as the National Anti-Corruption Authority. CIVIT collaborates with international bodies, analyses the causes and factors of corruption and expresses voluntary (or non-mandatory) opinions on compliance of acts and conduct of public officials to the law, codes of conduct, and collective and individual contracts governing public employment. It ensures the implementation and the effectiveness of measures taken by the public administration and compliance with rules governing transparency of administrative activity, reporting annually to Parliament.

MINISTERO DELL’ECONOMIA E DELLE FINANZE

• The Government extended norms ruling candidates’ eligibility, previously only valid for local elections, to those at the national level. In particular, citizens may run for National Parliament or the European Parliament only if they have not been convicted or pleaded guilty in a court of law for serious crimes.

• The Government introduced sounder criteria for determining incompatibility of public employment with other activities. The measures include: identification of regulation activities not compatible with public employment and potential conflicts of interest; guarantee of protection and non- discrimination for whistle-blowers; identification of criteria to ensure rotation of executive managers in sectors most at risk for corruption.

• Transparency: publication on public administration websites of administrative proceedings, including those related to budgets, final accounts and unit costs of construction of public works and production of services provided to citizens. The relevant law went into force in November 2012 and strengthened a former norm requiring the public administration to publish mandatory administrative acts on-line.

• Fighting corruption and extortion crimes: tougher penalties for corruption in the exercise of public functions are introduced. Two new offenses were introduced in the code: (1) ‘extortion by induction’ (concussione per induzione) and (2) ‘traffic of illicit influences’.

• Each Prefecture was required to elaborate a ‘white list’ of businesses, service providers and performers of public works not exposed to Mafia infiltration. With this ‘anti-mafia’ list, the effectiveness of measures against criminal organisations in those areas more at risk was improved.

• The financing of political groups and appointees at the regional level was reduced, as well as the number of regional counsellors. Local political groups must attest and publish all revenues and expenditures. Moreover, Presidents of Regions, Presidents of Regional Councils and Counsellors must make public their revenues and personal wealth on the Region’s website. The Conference of Regions will define a limit to annual benefits members of the regional Government may receive at the end of their mandate. Regional Counsellors’ wages and benefits may not exceed those of the more virtuous Regions. Furthermore, financial controls and sanctions were increased for Regions that do not respect the rules.

• The power of Italy’s Court of Auditors to inspect local finances was reinforced. The Court in particular ensures that Regions respect national and EU budgetary stability rules. Periodically, the Court examines balance sheets of Regions and local entities above 15,000 inhabitants. Excessively indebted Provinces and Municipalities must define a plan to achieve a balanced budget within a period of five years. A special fund was established to support local entities with structural deficits during their process of adjustment.

MINISTERO DELL’ECONOMIA E DELLE FINANZE                    

Liberalisation and competitiveness

• The Antitrust Authority was strengthened by extending the range of administrative acts it can scrutinise and the scope of the binding opinions it can issue; remaining obstacles to the opening of new shops were removed; stronger action was directed towards liberalising the distribution of newspapers and magazines.

• Measures on professional services: abolition of minimum fees for practitioners; easier access to professions through reduction of compulsory traineeship (halved to 18 months); increase in the number of notaries; increase in the number of pharmacies (measures are introduced to facilitate the opening of 5,000 additional pharmacies; the number of drugs which can be sold by quasi- pharmacies is also increased).

• Public transport services were opened to competition; regulation of market access, tariffs, quality standards, and other aspects are to be under the responsibility of a new single independent authority.

• New measures were introduced for in-house assignment of economically relevant local public services so as to comply with European regulation. In case the assignment of local public services is not the result of a publicly-visible competitive procedure, the administration involved must motivate its decision on its website. All assignments already agreed must comply with European regulation by 2013. All assignments must include an explicit expiry date.

• Establishment of a national database on public administrations assigning contracts by means of publicly-visible competitive procedures. The database is under the responsibility of the Authority for the Supervision of Public Contracts and allows firms to be informed on local or national procurement activities.

• The Energy and Gas Authority was put in charge of the regulation of water services. It will define the minimum level of service quality, approve tariffs, and set a new tariff methodology in line with European regulation, following the principles of full cost recovery and ‘polluter-pays’.

• The Antitrust Authority’s supervisory powers over local public services were increased; in particular, procurement without tender or by using fully-controlled captive entities is to become subject to the binding opinion of the Authority.

• Poste Italiane, the national postal-service provider, was allowed to strengthen the range of services it offers under BancoPosta – its banking branch (the regulation of its financial services is now assimilated to that ruling the banking sector). Thus, Poste Italiane was allowed to offer its banking services outside the perimeter of postal offices, even in foreign countries.

• Insurance sector: in order to spot potential frauds, companies will be asked to update information regarding dispute resolutions a in a centralised database maintained by the ‘Istituto per la vigilanza sulle assicurazioni private e di interesse collettivo’ (IVASS). Insurance contracts will no longer be automatically renewed.

MINISTERO DELL’ECONOMIA E DELLE FINANZE

• In order to reduce the transposition deficit, the Government is implementing a large number of European Directives through the approval of the 2011 and 2012 EC Directive Transposition Law. The new legislative framework provides for tighter transposition deadlines.

• Simplified approval procedures for strategic infrastructure projects were introduced. The existing norms on the use of project financing were extended in scope with the aim of attracting private capital. The scope for the use of project bonds for financing public works was extended and a favourable tax treatment on bond yields was introduced (12.5 per cent tax rate, in line with that on government bonds). Strategic infrastructures worth €500mn or more under public – private partnership were financed through tax credits, for up to 50 per cent of the total cost. Other provisions include greater financial independence for port authorities. Financing of the High Speed Train line connecting Lyon to Turin was increased to €0.8bn in 2013-2015, while for 2016-2029 total funding was increased to €2.1bn. Over the period 2013 - 2015 about €0.8bn were allocated to ‘MOSE’, Venice’s dam system to be completed by 2016. New funds were invested in the aerospace industry for an amount of €8.4bn.

• Shortening of administrative procedures for relevant projects: Whenever an authorisation of the ‘Conference of Coordination’ established among Municipalities, Metropolitan cities, Provinces, Regions and the State (so called ‘Conferenza dei Servizi’) is needed and no decision is made after a third round of negotiations, the Government can decide instead.

• Measures to support construction firms include (1) balancing VAT debit with credit made easier for real estate properties sold 5 years after their construction, and (2) enhancement of one-stop- shops for administrative requirements regarding residential constructions.

• Measures for SMEs: with a view to facilitating access to credit, the Government refinanced the Central Guarantee Fund for €400mn per year for the next three years. The Chambers of Commerce of several Provinces will make available about €600mn for the support of local SMEs. Tax incentives for investments in venture capital funds are adopted. New financial instruments were introduced for firms without a credit rating to enable them to access financial markets. These securities were reserved for qualified investors and can be issued with the assistance of a sponsor; yields on securities with more than a 5-year maturity can be linked to profits. Streamlined registration procedures were introduced for network agreements (i.e. stable partnerships among enterprises for strategic targets). These networks were allowed to participate to public tenders. In order to ease credit access for SMEs, the loan guarantee scheme (‘Confidi’) can enhance its financial position by including assets owned by the State, Regions and other public bodies. New measures were introduced to facilitate capital market access by companies not listed.

• Introduction of incentives for on-line commerce involving digital inventions and literary and artistic works through tax credits up to 25 per cent over the period 2013–2015.

• New financing of benefits for small and micro enterprises of Urban Areas (‘Zone Urbane’) included in the Convergence Objective Regions. In order to boost economic development in

MINISTERO DELL’ECONOMIA E DELLE FINANZE                    

these areas, businesses will benefit from exemptions from payment of income tax, business tax, property tax and contributions on salaries of employees for the first 5 years of activity. Resources come from the reorganisation of Structural Funds within the Cohesion Action Plan.

• Measures for Start-ups: (1) IRPEF is capped at 19 per cent for three years on the amount invested in the equity capital of the company; (2) businesses and private entities can deduct 20 per cent of capital invested from IRES taxable income; (3) exemption from usual payments of secretarial duties at time of registration on the commercial registers and from annual fees due to the Chamber of Commerce; (4) possibility of hiring workers on fixed-term contracts for a period between 6 months and 3 years without the obligation to turn them into open ended contracts; (5) tax credit on labour costs up to 35 per cent for high skilled worker employed; (6) variable component of wages can be paid in the form of company shares or using other financial instruments that are subject to favourable tax treatments; (7) eligibility for the use of the Guarantee Fund for SMEs at no charge and through a simplified procedure; (8) free use of ICE and Desk Italia services for the internationalisation of the business; (9) possibility to raise capital through public offers by using funding-portals (i.e. crowd financing).

• New tax framework for businesses (Aid for Economic Growth – ACE): it reduces the tax burden on capital investments by rebalancing taxation of ‘businesses that finance themselves with debt’ and ‘businesses that finance themselves with equity or own capital’.

• A Fund for Sustainable Growth (FSG) was established; at the same time, 43 provisions on business incentives were repealed and related resources were moved to the FSG. Resources were allocated to: (1) promoting R&D and innovation projects, also through merging business R&D centres; (2) strengthening business infrastructures, especially in Southern Italy; (3) promoting the internationalisation of Italian enterprises and attracting FDI (through ICE – Italian Institute for Foreign Trade).

• Establishment of a single contact point to support investors who intend to invest in Italy (so called ‘Desk Italia’– Sportello Unico per l’attrazione di Investimenti Esteri). This contact point provides a wide range of information (e.g. property law, administrative procedures) and works jointly with local Chambers of Commerce and Regions, ICE – Promotion Agency and Invitalia.

• Introduction of a National Strategic Program for Tourism, with a medium term approach (5 years). The program was jointly elaborated by the Ministry of Tourism and local governments and will be updated every two years. The Ministry of Tourism is in charge of monitoring and implementation.

MINISTERO DELL’ECONOMIA E DELLE FINANZE

Simplification and Digital Agenda

• The administrative burden for firms was reduced through the elimination of ex-ante controls, limits, permits, and licenses for start-ups, as well as substantial simplification of administrative procedures for SMEs. A simplified framework for limited liability companies was established.

• Administrative simplification measures included: (1) a single document replacing both the identity and the health care card; (2) national register of resident population aiming at facilitating services to citizens, businesses and other public administrations; (3) wider use of certified electronic mailing in communications between the public administration and citizens (mandatory for businesses) and strengthening of electronic transmission procedures of public administration documents; (4) requirement that public administration contracts be signed digitally; (5) compulsory use of electronic platforms for public procurement.

• A single environmental procedure replaces existing ones (i.e. VIA, VAS and AIA) and the related Commissions were unified.

• The Agency for Digital Italy (‘Agenzia per l’Italia Digitale’) promotes the establishment and development of major strategic projects related to the implementation of the Digital Agenda, notably: (1) introduction of relevant innovative products and services; (2) involvement of industries dealing with ICT in R&D long-term initiatives; (3) National Plan for Smart Cities (‘Piano Nazionale delle Comunità Intelligenti’); (4) reduction of Italy’s digital divide. The Agency devotes 25% of its annual resources to develop relevant strategic projects involving small and medium enterprises as well as networks of enterprises jointly with research centres.

• ‘E-customs regulation’: all administrative procedures related to customs can now be completed on-line, owing to the launch of the electronic portal ‘AIDA’.

• Broaden use of electronic money both for private citizens and public administrations. Paying with digital equivalent cash will be allowed without any surcharge by commercial activities, including for the public administration, even for small transactions. Similarly, local public transport companies are required to introduce electronic tickets.

• The reform of civil justice includes the introduction of courts specialised in company law (‘Tribunale delle imprese’), so as to speed up case-handling of business-related judicial matters; (2) a new bankruptcy procedure similar to ‘Chapter 11’ in the US, together with greater protection for entrepreneurs under strain to help them continue their business (‘Concordato Preventivo’); under ‘Chapter 11’ the payment to creditors of new debt is due for the entire amount and becomes senior with respect to old debt; notices are made according to a standard model and trustees must communicate with creditors through certified electronic mailing; creditors must submit proof of liability online to the trustee; (3) measures by which trials can last no more than 6 years in total, 3 of which in the first stage of judgment, 2 in front of the Appeal Court and 1 in front of the Supreme Court; every additional year over this limit triggers compensation; (4) reorganisation of judicial districts in order to close small courts and reduce public expenditure; (5) introduction of sanctions for non-acceptable appeals as to reduce the number of cases brought to court and thus backlog ; (6) administrative communications by certified electronic mailing to speed up procedures; (7) digitalisation of civil justice proceedings.

MINISTERO DELL’ECONOMIA E DELLE FINANZE                    

• Further simplification was proposed by the Government. All measures were estimated to generate €3.7bn savings for businesses and citizens. Among the measures were: (1) the creation of a simplified on line document regarding health and risks for workers under health monitoring (on line direct transmission between hospitals, doctors and INAIL); (2) documentation regarding the evaluation of risk, so called ‘DUVRI’ (‘Documento unico per la valutazione dei rischi da interferenze’) can be replaced by certification signed by the supervisor of activities; (3) period of validity for the single insurance contribution payment certificate (‘DURC’ – ‘Documento Unificato di Regolaritŕ Contributiva’) increases from 90 to 180 days; (4) commitment by the public administration to either accept or reject applications for building permits in natural or cultural heritage conservation areas (versus previous tacit rejection) within 45 days.

Energy

• Gas sector: the Government undertook the unbundling of the network operator (Snam Rete Gas) from the gas incumbent (ENI). In line with EU principles, this ensures autonomy of the network from vertically-integrated firms operating in the production and supply of gas, thus favouring greater market openness and competition. The Energy and Gas Authority is s in charge of modifying the reference prices for so-called ‘vulnerable clients’, progressively aligning supply costs of gas to prices quoted on the EU spot markets for gas.

• Fuel distribution: service stations are no longer bound to purchase fuel exclusively from the oil company they are linked to (up to 50 per cent of their total supplies can come from other other companies). Service stations also have greater freedom of choice in the products sold in their convenience stores. Self-service stations are encouraged and restrictions on the opening of fuel distributors near supermarkets were eliminated.

• Energy efficiency: tax credits for building renovations aimed at increasing energy efficiency were extended to June 2013; subsidised loans are provided to finance energy-efficiency and environmentally-related projects by firms (i.e. renewables, biofuels and the reduction of hydrogeological and seismic risk).

• Oil: simplified procedures and coordinated controls were introduced for extracting and refining oil, and cleaning up of sites; the central government can grant permission in case relevant Regions do not respond.

• Energy-intensive sectors: subsidies will be set according to the relative weight of energy costs with respect to output (and no longer on the basis of volumes of energy used), thereby ensuring a fairer system of subsidies.

• Renewables: the Government reformed the framework of incentives for renewable energy production, taking into account technological progress, with the aim to contain costs related to new energy installation whilst ensuring the achievement of the Renewable Energy Sources (RES) target as defined by European and national regulation.

MINISTERO DELL’ECONOMIA E DELLE FINANZE

• National Energy Strategy: the Government proposed a new strategic plan for the energy sector. Policy would hinge on seven main priorities: (1) energy efficiency; (2) greater competition in the natural gas market, fully integrated with Europe in order to become a hub for Southern Europe; (3) development of renewable energy sources, going beyond the target of Europe 2020 while containing effects on electricity prices; (4) development of an integrated electricity market aligned to European prices, with the gradual integration of renewable energy production; (5) restructuring of the oil extraction industry and the distribution chain, complying with European quality and competiveness standards; (6) development of the national hydrocarbon industry, in line with high international environmental and security standards; (7) modernisation of the system of governance in the energy sector. By 2020, the Strategy aims at achieving the following results: (1) the alignment of energy wholesale prices to European levels for all sources of energy; (2) reduction of €14bn per year in imported energy, hence decreasing dependence on foreign sources (from 84 to 67 per cent); (3) 19 per cent reduction in greenhouse gas emissions (the EU goal for Italy is a 18 per cent reduction with respect to 2005 emissions); (4) target share of 20 per cent of renewables in terms of gross final consumption (compared to 10 per cent in 2010); (5) a 24 per cent reduction in primary energy consumption compared to baseline trends (- 4 per cent with respect to level in 2010), mostly due to energy efficiency improvements.

Better use of EU Structural Funds

• Italy’s Cohesion Action Plan redirected €3.5bn of Structural Funds towards four priorities: (1) education and professional training; (2) digital agenda; (3) employment; (4) railways. Half of the amount was appropriated for initiatives in favour of young people. The use of Structural Funds over the period 2007-2013 now accounts for 37 per cent of total funding, exceeding the national target by 5.5 percentage points.

• In May 2012, the Cabinet of Ministers approved the second phase of the Cohesion Action Plan and the Social Plan for Southern Italy. Among the priorities set by the Government were: better child and elderly care (funded with €730mn); new opportunities for young people (€220mn); and measures for enterprises and culture (€1bn).

Payments in arrears by the Public Administration

• Commercial payments due by the public administration (including national public entities, Regions, NHS, and Local Governments) must be certified through a swift online procedure. Subsequently, companies may either (1) obtain the clearing of credits owed by reducing that amount from their payables registered on the tax roll as of April 2012 (related to national, regional and local taxes, pensions contributions, and compulsory insurance premium for accidents and industrial diseases), or (2) obtain bank advances in exchange for credits owed. Bank advances can be covered by guarantees worth up to 70 per cent of the Central Guarantee Fund (this percentage can be raised to 80 per cent in case of further contributions by Regions). Alternatively, companies may obtain the conversion of certified credits into treasury bonds.

MINISTERO DELL’ECONOMIA E DELLE FINANZE                    

• In order to facilitate SMEs, starting from January 2013, payments between businesses and the public administration must take place within 30 days (60 days only in exceptional cases). This provision anticipates the term date for implementing the European Directive on this issue (foreseen for March 2013). In the case of late payments, an interest rate of 8 per cent over the rate set by the ECB for lending operations will be applied.

Education and Research

• School evaluation systems: (1) new guidelines designed by the evaluation agency (INVALSI); (2) new common electronic portal for the recording of exam results by Universities to be developed on a national basis; (3) setting-up of an electronic system with information on student careers; (4) issuance of university degree certificates also in English; (5) introduction of e-books.

• The Government allocated a total of €974.3mn to: (1) contribute to raising students’ basic skills and level of knowledge; (2) reduce drop-out rates in areas characterised by significant social and cultural exclusion; (3) improve the design and implementation of school-to-work programmes; (4) improve foreign-language skills; (5) raise the quality of school facilities. To this regard, the Cohesion Action Plan addressed structural human capital weaknesses in Southern Italy, by considering it a national priority. A system of incentives was designed to support excellence in teaching, at both the secondary and tertiary level of education.

• The Government develops simplified procedures to assess R&D and innovation projects eligible for subsidies. For instance, 10 per cent of the Fund for Investments in Scientific and Technological Research (FIRST) was earmarked for researchers under 40. A tax credit for hiring researchers was established, amounting to 35 per cent of expenditure with a €200,000 yearly cap per firm. New researchers should be employed for at least 3 years (failure to comply with this requirement entails loss of the entire financing). As for technological innovation, a steering committee was set up to facilitate the implementation of the Digital Agenda.

• A special fund was designed to favour investments by small and medium enterprises in R&D, using resources previously allocated on a generic basis to firms (the so-called ‘Piano Giavazzi’). The fund will also finance a reduction in the tax wedge and should rely on €800mn.

• Fresh appropriation of funds will support innovation in different fields: (1) ‘smart cities’ and communities (€895mn); (2) interaction between universities and enterprises in the South of Italy (€930mn); (3) creation of high-tech clusters (€408mn); (4) social innovation with projects led by young people living in the South; (5) regional projects to boost cooperation between universities and enterprises.

MINISTERO DELL’ECONOMIA E DELLE FINANZE

Reducing segmentation and increasing productivity in the labour market

• The Government strengthened apprenticeships to allow young people to enter the labour market. Apprenticeships are to have a minimum duration of six months. At the end of this period, companies are encouraged to take on - through open-ended contracts - at least half of the apprentices hired over the previous three-years. Contributions were generally set at 15.8 per cent (employer contributions amount to 10 per cent). In firms with less than 10 employees, the total contribution rate was reduced for the first year to 7.3 per cent (1.5 per cent of which is due by employers), raised in the second year to 8.8 per cent (3.0 per cent of which is due by employers). In 2012 an additional contribution of 1.31 p.p. was established in order to fund the so-called ‘Assicurazione Sociale per l’Impiego’ (ASPI). This scheme represents a new unified regime of unemployment insurance aimed at reducing persistent insider-outsider dualism. It will be implemented by January 2013, and will gradually apply to all dependent workers. In particular, it is designed to cover apprentices and public and private workers previously employed with temporary contracts.

• Once the scheme is fully phased in (as of January 2017), the ASPI will be available for a maximum of 12 months for workers up to 54 years of age and for a maximum of 18 months for workers above 54 (compared to 8 months for workers below 50 years of age and 12 months for workers above 50 years in the current unemployment benefit system). The amount of benefits will depend on the total remuneration received over the previous two years. This will amount to 75 per cent of the last salary if the latter is below €1180 in 2013, plus an additional 25 per cent of the part of income above this threshold, up to a cap of €1119. Both the maximum and the threshold will be updated annually on the basis of the consumer price index. Moreover, ASPI benefits will be reduced by 15 per cent after the first six months, followed by a further 15 per cent reduction after twelve months.

• Unemployed workers with a shorter contribution history will be entitled to benefits for a shorter period of time (so called ‘mini-ASPI’), while non-dependent workers will be entitled to a lump sum benefit. The ASPI is in part funded by the State, with the difference being financed through increased contributions paid by employers which can be reimbursed in case the worker is hired on an open-ended contract.

• The ‘ordinary wage supplementation scheme’ (Cassa Integrazione Guadagni, CIG) for firms with more than 15 employees was extended to sectors previously excluded. It will be financed by employers through a new ‘solidarity fund’ managed by INPS (the National Social Security Institute).

• The scope for using the ‘special wage supplementation scheme’ (Cassa Integrazione Guadagni Straordinaria - CIGS) was reduced by excluding firms that face closing-down procedures. Employees from these firms will to be covered by the general ASPI scheme.

• Flexibility in laying-off procedures was increased. The reform introduced a swift, compulsory, out-of-court settlement procedure at the local level to handle disputed dismissals for economic or other objective reasons. When conciliation fails and a judge rules the objective reasons are ‘clearly non-existent’, the worker is entitled to a maximum compensation equivalent to 12

MINISTERO DELL’ECONOMIA E DELLE FINANZE                    

months of wages and reinstatement. In all other cases, with the exception of those involving clear discrimination, judgement gives rise only to compensation, which is capped at a level equivalent to 24 months of wages. Previous to this reform there were no limits on possible financial compensation. Additional measures concern: greater protection under maternity and paternity leave; new public employment services for unemployed workers within 3, 6 and 12 months from job loss, such as career orientation services and vocational training activities; the establishment of a permanent system for the monitoring and evaluation of outcomes related to the reform.

• Italian trade unions and employers’ associations reached an agreement to help boost labour productivity by providing for labour contracts that better reflect the needs of individual companies.

• Under the ‘Guidelines to increase productivity and competitiveness in Italy’, signed in November 2012, national collective bargaining agreements will continue to reflect economic trends as well as the evolution of specific sectors, without any form of implicit indexation.

• The Guidelines put a stronger emphasis on individual or local-level contracts (accordi di ‘secondo livello’ for small-and-medium size companies), which give employers greater flexibility to set working conditions that reflect their needs and situation. To encourage the change, the Government set aside €2.1bn within the 2013-2015 Stability Law, to cover for reduced taxes on productivity-linked wage increases set at local level. The reduced tax rate will apply to annual gross salaries up to €40,000. A ministerial decree will be adopted by early 2013 to detail the conditions that will give rise to the reduced taxes on productivity-linked wage increases. The resources not entirely used for the fund’s original purpose will be allocated to further support credit to SMEs (‘Confidi’ and State warrantees).

• The Guidelines identify specific aspects, such as regulatory constraints, upon which local collective bargaining shall intervene, as a matter of priority, in order to increase productivity.

• They also pave the way for a better pact between generations allowing for senior workers to stay at work longer by smoothing the transition to retirement and increasing the employment of young workers. Along these lines, a decree of the Ministry of Labour will come into force soon, detailing the criteria by which old employees may move to a part-time regime as new, younger workers are hired under an apprenticeship or a temporary contract. Regions will provide compensation for social contributions owed by the older employees.

• Local collective bargaining was set to become the norm, better reflecting the reality of specific sectors, both nationally and internationally. As such, the deal was an important step in re- launching productivity and increasing the competitiveness of Italy.

MINISTERO DELL’ECONOMIA E DELLE FINANZE

EX-3

EXHIBIT 3

REPUBBLICA ITALIANA

Dipartimento del TESORO

Italy’s Strategy for Growth and Fiscal Consolidation

February 7, 2013

Italian Ministry of Economy and Finance, Treasury Department

Ministero dell’Economia e delle Finanze

THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

Why is Italy’s economy expected to turn around in 2013?

Monetary and credit conditions: interest rate spreads narrowing and credit growth likely to start improving.

Fiscal multiplier effect: 2.8pp fiscal correction in structural terms in 2012, but ‘only’ 0.9pp in 2013 on current projections.

Stabilisation of business and consumer confidence.

Some strengthening in global demand.

No major structural imbalances (aside from high debt/GDP) means that growth can rapidly go back to potential.

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

2

THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

Differentials between gov’t bond yields and sovereign CDS

4,0 3,0 2,0 % 1,0 0,0 -1,0 -2,0

Italy Germany Differential (RHS)

Average (RHS)

5,0 4,5 4,0 3,5 3,0 2,5 % 2,0 1,5 1,0 0,5 0,0

Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

Source: Thomson Reuters

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

3

THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

European sovereign and bank CDSs are closely linked

600 500 400 300 200 100 0

European sovereign 5Y CDS

European bank 5Y CDS

Basis points

Jan-08 Nov-08 Sep-09 Jul-10 May-11 Mar-12 Jan-13

Source: Thomson Reuters Datastream

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

4

THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

Rapid slowdown in credit growth: how soon will it turn?

32 27 22 17 12 7 2 -3 -8 % year-on-year

Euro area Germany

Spain France Italy

Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12

Source: ECB

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

5

THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

Interest rates on loans: is the gap about to narrow?

6 5 4 % 3 2 1

Germany Spain France Italy Euro area

Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12

Source: ECB

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

6

THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

Credit standards are back in line with the EA

Diffusion index

0,6

Loans to non-financial corporations - Italy

0,5

0,4

Loans to non-financial corporations - EA

0,3

0,2

0,1

0,0

-0,1

Diffusion index

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Apr-12

Apr-13

Source: Bank of Italy, ECB

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

7

THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

Rise in deposits has reduced the bank funding gap

€ bn

800

750

700

650

600

550

500

450

400

350

300

MFI Deposits

Nov-07

May-08

Nov-08

May-09

Nov-09

May-10

Nov-10

May-11

Nov-11

May-12

Nov-12

Source: Bank of Italy

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

8

THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

Industrial production: stabilisation and then recovery?

Index

115

110

105

100

95

90

85

80

75

70

15

10

5

0

-5

% year-on-year

-10

-15

-20

-25

-30

Business Confidence in Industry

Industrial Production WDA (RHS)

Jan-01

Jan-03

Jan-05

Jan-07

Jan-09

Jan-11

Jan-13

Source: ISTAT

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

9

THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

Demand is deeply split

Percentage points

6

4

2

0

-2

-4

-6

Domestic demand

Foreign demand

3Q 92

3Q 94

3Q 96

3Q 98

3Q 00

3Q 02

3Q 04

3Q 06

3Q 08

3Q 10

3Q 12

Source: ISTAT

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

10

THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

Contribution of variation in imports turned positive

Percentage point contribution to year-on-year GDP growth

6

4

2

0

-2

-4

-6

-8

Exports

Imports

1Q 93

1Q 95

1Q 97

1Q 99

1Q 01

1Q 03

1Q 05

1Q 07

1Q 09

1Q 11

Source: ISTAT

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

11

THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

Household income and consumption to recover gradually

% year-on-year

9

7

5

3

1

-1

-3

-5

Real disposable income

Real Private Consumption

Saving rate (RHS)

16

14

12

10

8 %

6

4

2

0

3Q 00 3Q 01 3Q 02 3Q 03 3Q 04 3Q 05 3Q 06 3Q 07 3Q 08 3Q 09 3Q 10 3Q 11 3Q 12

Source: ISTAT

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

12

THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

Energy and VAT-induced inflation on the mend

% year - on - year

5,0

4,0

3,0

2,0

1,0

0,0

-1,0

-2,0

Differential

Euro area, HICP

IT, HICP

Feb-07

Aug-07

Feb-08

Aug-08

Feb-09

Aug-09

Feb-10

Aug-10

Feb-11

Aug-11

Feb-12

Aug-12

Feb-13

source: Eurostat, Istat

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

13

THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

Official macroeconomic projections (September 2012)

(% change yoy) 2011 2012 2013 2014 2015

Real GDP 0.4 -2.4 -0.2 1.1 1.3

Domestic demand net of inventories -0.5 -3.6 -0.6 0.7 1.0

Inventories -0.5 -0.9 0.1 0.1 0.0

Net export 1.4 2.3 0.2 0.2 0.2

Nominal GDP 1.7 -1.0 1.2 3.0 3.2

GDP deflator 1.3 1.4 1.4 1.9 1.9

Labour cost 1.2 1.1 0.9 1.2 1.2

Productivity (on GDP) 0.3 -1.2 0.1 0.6 0.7

Unit labour cost (on GDP) 0.9 2.3 0.8 0.5 0.5

Employment (FTE) 0.1 -1.2 -0.3 0.4 0.6

Unemployment rate 8.4 10.8 11.4 11.3 10.9

Current account balance -3.1 -1.4 -1.3 -1.1 -1.0

Source: Update of 2012 Economic and Financial Document, September 20, 2012

Note: National account data for 2011 take into account revisions according to ISTAT’s release on October 4.

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

14

MACROECONOMIC IMBALANCES AND COMPETITIVENESS

No major imbalances (apart from high public debt)

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.

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

15

MACROECONOMIC IMBALANCES AND COMPETITIVENESS

No major macroeconomic imbalances

External imbalances

Internal imbalances

Current account 3 year variation % GDP -4/+6%

Net international investment position % GDP -35%

REER on CPI % GDP +/-5 (EA); +/-11% (Non EA)

Export market share 5 year variation -6%

Nominal ULC 3 year variation +9 (EA); +12% (Non EA)

House price index Year/year Variation 6%

Private credit flow % GDP 15%

Private debt % GDP 160%

Public Debt % GDP 60%

Unemployment rate 3 year level 10%

Financial sector total non-consolidated liabilities Year/year variation 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

Source: MEF elaboration on Alert Mechanism Report 2013 (European Commission, November 2012)

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

16

MACROECONOMIC IMBALANCES AND COMPETITIVENESS

Modest deterioration in competitiveness over time

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%

Source: MEF elaboration on Alert Mechanism Report 2013 (European Commission, November 2012)

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

17

THE INTERNATIONAL CRISIS AND ITALY’S ECONOMY

Real house price: no need for further correction

Indices 2000=100

210

190

170

150

130

110

90

70

Germany

France

Italy

UK

Spain

Ireland

Euro Area

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Note: Data for Germany, France, Italy, UK and the Euro area are available for the first 3 quarters of 2012. Source: OECD

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

18

MACROECONOMIC IMBALANCES AND COMPETITIVENESS

Is competitiveness really deteriorating in line with ULC?

Indices 2000=100

140

130

120

110

100

90

Germany

Ireland

Greece

Spain

France

Italy

Portugal

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: Italian Ministry of Economy and Finance calculation on Eurostat data

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

19

MACROECONOMIC IMBALANCES AND COMPETITIVENESS

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.

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

20

MACROECONOMIC IMBALANCES AND COMPETITIVENESS

Private wage growth likely to ease further

% year-on-year

10

8

6

4

2

0

-2

-4

Total economy Public sector

Private sector

Compensation per employees per full-time equivalent

93

94

95

96

97

98

99

00

01 02 03 04 05 06 07 08

09 10 11 12 13

Source: ISTAT

Note: MEF calculation on 2012 and 2013 data

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

21

MACROECONOMIC IMBALANCES AND COMPETITIVENESS

Sharp improvement in Italy’s trade balance

€ bn

80

60

40

20

0

-20

-40

Total trade balance

Total trade balance excl. energy

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Source: ISTAT. MEF calculation on 2012 total trade balance.

Note: Energy includes oil and natural gas. Total trade balance excl. energy refers to the period January-November 2012.

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

22

MACROECONOMIC IMBALANCES AND COMPETITIVENESS

Current account deficit narrowing fast

% of GDP

2,0

1,5

1,0

0,5

0,0

-0,5

-1,0

-1,5

-2,0

Goods

Services

Incomes

Transfers

Current Account (RHS)

4,0

3,0

2,0

1,0

0,0

-1,0

-2,0

-3,0

-4,0

% of GDP

2000

2001

2002 2003

2004 2005

2006 2007

2008 2009 2010 2011

2012

Source: Bank of Italy Note: 2012 data are estimates as reported in the Update of 2012 Economic and Financial Document, September 20, 2012.

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

23

MACROECONOMIC IMBALANCES AND COMPETITIVENESS

Current account and savings by sector

% of GDP

8

6

4

2

0

-2

-4

-6

-8

Corporate (LHS)

Housholds (LHS)

General Government (LHS)

% of GDP

0,5

0

-0,5

-1

-1,5

-2

-2,5

-3

-3,5

-4

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: ISTAT and Bank of Italy

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

24

MACROECONOMIC IMBALANCES AND COMPETITIVENESS

How much of the adjustment is structural?

% of GDP

2

1

0

-1

-2

-3

-4

-5

Headline vs underlying current account

Underlying Current Account - (EU Commission methodology)

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

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.

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

25

FISCAL CONSOLIDATION

Key public finance projections (September 2012)

% of GDP 2010 2011 2012 2013 2014 2015

Net Borrowing Requirement -4.6 -3.9 -2.6 -1.8 -1.5 -1.3

Cyclically-adjusted NBR -3.6 -3.6 -0.9 0.0 -0.2 -0.4

Change in Cyclically-adjusted NBR -0.4 0.0 -2.8 -0.9 0.3 0.2

Primary Balance 0.1 1.0 2.9 3.8 4.4 4.8

Public Debt 119.2 120.7 126.4 126.1 123.1 119.9

Public Debt (net support to Euro Zone) 118.9 119.9 123.3 122.3 119.3 116.1

Source: Update of 2012 Economic and Financial Document, September 20, 2012

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

26

FISCAL CONSOLIDATION

Primary surplus close to 5% of GDP in 2015

% of GDP

10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 -14

Net borrowing (LHS)

Primary balance (LHS)

Debt/GDP (including aid) (RHS)

Debt/GDP (net of aid) (RHS)

130 125 120 115 110 105 100 95 90 85

% of GDP

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

Source: Update of 2012 Economic and Financial Document, September 20, 2012

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

27

FISCAL CONSOLIDATION

2011-2012 measures: a rebalancing over time

100

Higher net revenues

Lower net expenditure

90

80

70

60

%

50

40

30

20

10

0

2012

2013

2014

2015

Source: MEF estimates

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

28

FISCAL CONSOLIDATION

Moderate increase in interest payments (forward rates)

14

14

Interest payments (LHS)

Average yield at issuance

Average yield as % debt *

12

* Proxied by interest expenditure divided by the debt level of the previous year

12

10

10

8

8

% of GDP

6

6

4

4

%

2

2

0

0

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: Ministry of Economy and Finance. Figures for interest payments in 2012-2015 are official estimates (Update 2012 DEF)

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

29

FISCAL CONSOLIDATION

Lengthened maturity of public debt reduces risks

8

7

Average life

Duration

6

5

years

4

3

2

1

0

1994

1996

1998

2000

2002

2004

2006

2008

2010

Dec-12

Source: Update of 2012 Economic and Financial Document, September 20, 2012

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

30

FISCAL CONSOLIDATION

Italian public debt held by foreign investors

60

55

50

% of annualized GDP

45

40

35

30

2009

2010

2011

2012

Source: Bank of Italy

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

31

FISCAL CONSOLIDATION

Compliance with EU debt rule: not far away

8

7

Debt Isoquants

(BB=Debt benchmark)

Primary balance, % of GDP

6

Compliance

BB – 2016 (116,8)

5

2015

Pb: 4.8%, g-r: -2.0%

4

3

2012

BB – 2018 (111,3)

Pb: 2.8%, g-r: -5.3%

No compliance

2

1

-6

-5

-4

-3

-2

-1

0

Nominal growth - interest rate differential (g-r), %

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

32

FISCAL CONSOLIDATION

According to the EU Commission, no sustainability gap

LTC (% of GDP)

10 S2=0 S2=2 S2=4 S2=6 S2=8 S2=10 S2=12 S2=14

08 06 04 02 00 -02

Sustainability gap S2>0

No Sustainability gap S2<0

Unfavourable long-term projections

Favourable long-term projections

LU BE SI FI MT SK CY

RO AT LT NL CZ

SE DE BG EU DK UK ES

EA PL FR EE HU LV IT

Favorable initial fiscal position

Unfavorable initial fiscal position

LBP (% of GDP)

-08 -06 -04 -02 00 02 04 06

Source: European Commission, Fiscal Sustainability Report 2012, EUROPEAN ECONOMY, 08/2012

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

33

FISCAL CONSOLIDATION

Reduction in the stock of public debt: mapping public assets

Local government debt is only 6% of GDP. However, 54% of real estate assets and stockholdings are at local level.

Very difficult to get a reliable, complete and updated valuation: 1/3 of GDP= tentative estimate of value of recorded assets.

Buildings: Only 53% of administrations have provided detailed information about their assets. 530,000 real estate units for 222mn sqm of which 70% is for institutional use and 9% for residential use (47% in terms of units). 80% of units are owned by local government. Market value is estimated at about 340bn (21.7% of GDP).

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

34

FISCAL CONSOLIDATION

Reduction of the stock of public debt: few marketable assets

Land: 760,000 plots of land for a total of more than 1.3mn ha, 98% held by local government (82% municipalities). Market value is estimated at about 30bn (1.9% of GDP).

Stockholdings: About 7,000 companies of which 80% owned by local government. Market value estimated at about 150bn (9.6% of GDP) of which 85.8bn owned by the Ministry of Economy and Finance (1/2 is National Railways). The three major quoted companies (about 12bn) are perceived as strategic; for others there is no market appetite; moreover quoted companies have far off-peak values.

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

35

FISCAL CONSOLIDATION

Reduction in the stock of public debt: coming soon

€8.0bn 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.

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

36

RECENT BUDGET MEASURES

Going for growth and fiscal consolidation

Freeing up resources of about €10bn in 2013, €10.7bn in 2014 and €10.1bn in 2015 respectively.

Use of resources for about €12.3bn in 2013, €10.6bn in 2014 and €9.7bn in 2015.

Rebalancing revenues/expenditure to favour growth and fiscal consolidation.

Reduction in taxes on labour.

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

37

RECENT BUDGET MEASURES

Key measures for fiscal consolidation

Cut in NHS spending for goods and services and medical devices.

Further cuts in transfers to local governments in 2013-2015.

Introduction of the Tobin Tax on transactions involving equities with a proportional tax rate of 0.1% (0.2% for OTC financial transactions) paid by buyers, to be aligned with European legislation once it is decided; different treatment on derivatives (lump sum with a maximum fee of €200 for transactions above €1Mn) for both buyers and sellers.

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

38

RECENT BUDGET MEASURES

Key measures to support growth (1)

Increase in the ordinary VAT rate from 21 to 22% as of July 2013, while the lower VAT rate remains at 10%.

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 deductions 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.

Dipartimento del TESORO

MEF Ministero dell’Economia e delle Finanze

39

RECENT BUDGET MEASURES

Key measures to support growth (2)

Small enterprises and self-employed entrepreneurs can rely on a new fund for IRAP tax exemptions.

A special fund is designed to favour investments in R&D by SMEs, using resources previously allocated on a generic basis to firms. The fund also finances a reduction in the tax wedge.

A new fund, financed with proceeds from the fight against tax evasion, to reduce the tax burden on households and firms.

Infrastructure projects: additional financing of the Lyon-Turin high-speed train line and ‘MOSE’, the dam system for Venice.

Dipartimento del TESORO

40

MEF Ministero dell’Economia e delle Finanze

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.

Dipartimento del TESORO

41

MEF Ministero dell’Economia e delle Finanze

FISCAL CONSOLIDATION

The Government proposal for a reform of the tax system

Reform of cadastral rents: adequacy between official and actual real estate values.

Fight against tax elusion and avoidance: reshuffling of tax expenditures for small businesses and low income tax payers.

Tax framework for enterprises: changes in the IRAP tax base and a single, combined payment of IRAP, IRES and IVA for small firms.

Sanctions proportional to gravity of violation: more room for judicial settlement procedures, reorganisation in tax collection.

Dipartimento del TESORO

42

MEF Ministero dell’Economia e delle Finanze

FISCAL CONSOLIDATION

Reduction in the cost of doing politics

Reduced financing of political parties as well as appointees at regional level; reduction in the number of regional counselors.

Increased financial controls and sanctions for Regions that do not respect the rules (80% cut in central Government financing, excluding health care and transport funding).

Greater transparency in balance sheets of local political groups and regional politicians’ income and personal wealth. Stricter criteria regarding politicians’ compensation and pension.

Plan to achieve a balance budget within 5 years in case of excessive deficit in provinces and municipalities.

Dipartimento del TESORO

43

MEF Ministero dell’Economia e delle Finanze

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.

Related cost of labour has decreased by 3.3%.

This is the result of 2010 and 2011 policy changes: extension of freeze in turnover and suspension of national wage bargaining.

Dipartimento del TESORO

44

MEF Ministero dell’Economia e delle Finanze

FISCAL CONSOLIDATION

Lower tax wedge on labour

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.

Dipartimento del TESORO

45

MEF Ministero dell’Economia e delle Finanze

PENSION REFORM

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).

Dipartimento del TESORO

46

MEF Ministero dell’Economia e delle Finanze

PENSION REFORM

Major structural savings

About €7.6bn total cumulative savings (net of taxation) in 2014, increasing to almost €22bn in 2020.

In 2012-13, indexation freeze of pension benefits higher than 3 times the minimum provision (€3.1bn savings in 2014).

Overall revision of the pension system, including early retirement schemes (€2.9bn in 2014, up to €15.7bn in 2020).

Higher social contribution rates for farmers and self-employed from 20% to 24% in 2018 (€1.5bn in 2014, up to €3.2bn in 2020).

Dipartimento del TESORO

47

MEF Ministero dell’Economia e delle Finanze

PENSION REFORM

Sizeable effect on pension spending as % of GDP

19%

18%

17%

16%

15%

14%

13%

12%

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

Source: Update of 2012 Economic and Financial Document, September 20, 2012. Demographic projections from ISTAT, central demographic scenario 2012

Dipartimento del TESORO

48

MEF Ministero dell’Economia e delle Finanze

PENSION REFORM

Social adequacy assured

Net replacement rate for old age retirement - males*

100

90

80

70

60

50

40

2010 2020 2030 2040 2050 2060

Employees

Self-employed

Current Legislation

Net replacement rate for old age retirement - females*

100

90

80

70

60

50

40

2010 2020 2030 2040 2050 2060

Employees

Self-employed

Legislation before DL 98/2011

Source: “Medium-long term trends for pension, health and long-term care”, Report no.13, 2012, State Accounting Office (*) Net replacement rates are net of tax and contributions. Assumption on minimum pension requirement: age/contributory years proportional to age of entry in the labour market. For further information please refer to Box 6.1 in “Medium-long term trends for pension, health and long-term care”, Report no.13, 2012, State Accounting Office.

Dipartimento del TESORO

49

MEF Ministero dell’Economia e delle Finanze

PENSION REFORM

A significant lengthening of the retirement age (OECD)

Years

5

4

3

2

1

0

A. Projected increase in the average effective exit age, 2010-2020

Cyprus Luxembourg Latvia Netherlands Ireland Belgium Bulgaria Greece Estonia Sweden United Kingdom Denmark Portugal Lithuania Czech Republic Romania Finland Germany Austria EU27 Malta Slovak Republic Spain Poland France Hungary Slovenia Italy

Years

5

4

3

2

1

0

Percentage Points

20

15

10

5

0

B. Projected increase in the participation rate of 55-64-year-olds, 2010-2020

Bulgaria Romania Sweden Luxembourg Estonia Cyprus Poland Czech Republic Latvia Lithuania Netherlands Slovak Republic Finland United Kingdom Denmark Austria Malta Portugal Germany Ireland Belgium Greece EU27 France Slovenia Hungary Spain Italy

Percentage Points

20

15

10

5

0

Source: OECD

Dipartimento del TESORO

50

MEF Ministero dell’Economia e delle Finanze

SPENDING REVIEW

Towards a leaner and more efficient public administration

In July, the Government adopted measures with savings estimated at €4.6bn in 2012, €10.8bn in 2013, €11.6bn in 2014 and €12.1bn in 2015.

Public procurement will be managed by Consip or regional centralised-purchasing agencies only.

Number of civil servants will decrease by 10% (20% at managerial level).

The majority of rents paid by the Public Administration are frozen until end-2014 and are to be renegotiated with a 15% discount.

Dipartimento del TESORO

51

MEF Ministero dell’Economia e delle Finanze

FIGHT AGAINST CORRUPTION

Rule of law strengthened

Ban from public office for people convicted in final judgment or subjected to judicial measures.

Revision of norms against corruption and introduction of two new legal offenses to contrast acts of preferential treatment by public officials.

Increase in penalties for managers or other corporate stakeholders for doing or omitting acts in contrast with their obligations or loyal duties entailing damages to their company.

More severe penalties, especially in cases of judicial corruption.

Dipartimento del TESORO

52

MEF Ministero dell’Economia e delle Finanze

FIGHT AGAINST CORRUPTION

Rule of law: stricter procedures and more control

The Commission for the evaluation, transparency and integrity of the Public Administration (CIVIT) becomes the National Anti-Corruption Authority.

Creation of a National Anti-Corruption Plan and Anti-mafia list for businesses to prevent and fight corruption at national and international level.

Incompatibility of public employment with external assignment; code of conduct for public employees.

Stricter individuation of eligibility criteria for public positions at central, regional and local level.

Dipartimento del TESORO

53

MEF Ministero dell’Economia e delle Finanze

FIGHT AGAINST TAX EVASION

An aggressive stance in fighting tax evasion

The legal threshold for cash payments is lowered to € 1,000.

A softer regime for controls will apply to tax payers who are compliant with so-called sectoral studies.

Cheating on the Revenue Agency is now a criminal offence.

Focus on large tax payers and VAT frauds.

Synergies with the Social Security Institute (INPS) in order to crack down on undeclared economic activity.

Dipartimento del TESORO

54

MEF Ministero dell’Economia e delle Finanze

FIGHT AGAINST TAX EVASION

Increasing success in the fight against tax evasion

Euro billion

14

12,7

13,0

12

11,0

10

9,1

8

7,0

6,4

6

4,4

4

3,7

2,8

2,5

2,8

2,1

2

0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Source: Ministry of Economy and Finance - Revenue Agency Note: 2012 data are provisional

Dipartimento del TESORO

55

MEF Ministero dell’Economia e delle Finanze

LIBERALISATION, COMPETITION AND COMPETITIVENESS

Greater consumer protection

Liberalisation of opening hours for retailers.

Higher competition and strengthening of consumer protection in the financial sector. Strengthening of Antitrust Authority. Vigilance powers in water and postal sectors given to Energy and Communication Authorities respectively.

Protection from deceptive and aggressive trade practices extended to businesses with less than 10 employees.

Dipartimento del TESORO

56

MEF Ministero dell’Economia e delle Finanze

LIBERALISATION, COMPETITION AND COMPETITIVENESS

Lighter administrative burden and PA payments

Reduction in the administrative burden for firms: elimination of ex-ante controls, limits, permits, licenses for start-ups. Substantial simplification for SMEs.

Possibility of setting up a limited liability company with reduced capital stock and a simplified framework for people under 35.

Commercial payments by the public administration within 30 days (60 days only in exceptional cases). Interest rate on arrears is 8% over the rate set by ECB for lending operations.

Dipartimento del TESORO

57

MEF

Ministero

dell’Economia

e delle Finanze

LIBERALISATION, COMPETITION AND COMPETITIVENESS

Enhanced competition

Local public services: strengthened role of the Antitrust Authority for local public services.

Gas and electricity sector: gradual delinking of prices from the oil market and unbundling of the gas network.

Transport sector: strengthened competition; liberalisation of fuel and non-oil distribution in petrol stations.

Professional services: abolition of minimum fees, easier access to professions with reduction in compulsory traineeship, increase in the number of pharmacies and notaries.

Dipartimento del TESORO

58

MEF

Ministero

dell’Economia

e delle Finanze

LIBERALISATION, COMPETITION AND COMPETITIVENESS

Reforms by sectors

OECD Product Market Regulation

Indicator - Italy

4,0

2008

2012

3,5

3,0

2,5

2,0

1,5

1,0

0,5

0,0

Market Regulation

Total

Gas

Post

Railways

Telecom

Total

Total

Accountants

Architects

Engeneering

Legal

Product

Utilities

Retail

Professions

PMR

Utilities

Retail

Liberal Professions

Dipartimento del TESORO

59

MEF

Ministero

dell’Economia

e delle Finanze

LIBERALISATION, COMPETITION AND COMPETITIVENESS

Mark-up by sector

Index 2000=100, 3-term moving average

108

Agricolture

Industry excluding construction

106

Construction

Retail sales, hotel, transports and communication

Credit, insurance, real estate and other professional services

104

Education, health and other services

102

100

98

96

94

2000-1

2001-1

2002-1

2003-1

2004-1

2005-1 2006-1 2007-1 2008-1 2009-1 2010-1 2011-1 2012-1

Dipartimento del TESORO

60

MEF

Ministero

dell’Economia

e delle Finanze

LIBERALISATION, COMPETITION AND COMPETITIVENESS

Growth Decree 2.0: the Digital Agenda

Digital Agenda for the development of digital services for citizens especially in sectors of education and health care.

Mandatory transmission of documents in electronic form within the Public Administration (PA) and between the PA and private citizens (also for civil justice).

Enhanced powers of the Agency for Digital Italy to promote major strategic projects. The Agency will prepare the National Plan for Smart cities on an annual basis.

Research projects and innovation linked to strategic issues in line with European ‘Horizon 2020’.

Dipartimento del TESORO

61

MEF

Ministero

dell’Economia

e delle Finanze

LIBERALISATION, COMPETITION AND COMPETITIVENESS

Growth Decree 2.0: innovative start-ups

Start-ups must invest at least 30% in R&D, researchers must constitute no less than 1/3 of total employees, or hold a patent to be considered ‘innovative’.

Tax deductions for investors (private and institutional) in innovative start-ups.

Start-ups can hire workers with a fixed-term contract for a period between 6 months and 3 years.

Start-ups operating in Italy can use services provided by ‘ICE’ and ‘Desk Italia’ free of charge .

Dipartimento del TESORO

62

MEF

Ministero

dell’Economia

e delle Finanze

COHESION PLAN

Cohesion funds: 37% used, 5.5pp above target

60

% Expenditure on initial amount

% Expenditure on CAP1* new amount

50

% Expenditure on CAP2* new amount

% Expenditure on CAP3* new amount

Targets**

40

37

34

%

30

31,5

20

10

0

f m a m j j a s o n d j f m a m j j a s o n d j f m a m j j a s o n d j f m a m j j a s o n d

2009 2010

2011 2012

Implementation is measured as % share of certified expenditure at a certain date by the responsible authorities of programmes for the available financial funds.

The new amount results from the reduction in national co-financing during the three phases of the Cohesion Action Plan (interventions described in “http://www.dps.tesoro.it/pac_2012.asp” and in “http://www.coesioneterritoriale.gov.it/fondi/piano-di-azione-coesione/”). ** Targets December 31 fixed by the European Regulation. Targets May 31 and October 31 defined at national level “to speed up and improve the effectiveness of measures”. QSN Committee, 02/27/2012.

Source: MISE

Dipartimento del TESORO

63

MEF

Ministero

dell’Economia

e delle Finanze

NATIONAL HEALTH SYSTEM (NHS)

Towards more efficient public expenditure

Introduction of 24 hour primary healthcare support units digitally connected with hospitals and other health structures.

Doctors employed in public hospitals can pursue private professional activity only if digitally connected to NHS administrative units. This connection is also used to record payments.

Obsolete drugs will be eliminated from the official NHS list and unnecessary medical examinations reduced.

Dipartimento del TESORO

64

MEF

Ministero

dell’Economia

e delle Finanze

JUDICIAL SYSTEM

Making bankruptcy procedure easier

Bankruptcy procedure: adaptation of existing procedures to a system similar to “Chapter 11” in the US. Increasing protection of the entrepreneur under strains (‘concordato preventivo’); payment of creditors due for the entire amount and before other creditors; maturity of credits, covered with collateral on assets, can be extended by one year.

Trial length: trials can last no more than 6 years, of which 3 in the first stage, 2 in Appeal Court and 1 in Supreme Court. Every additional year triggers a compensation between €500 and €1,500.

Dipartimento del TESORO

65

MEF

Ministero

dell’Economia

e delle Finanze

JUDICIAL SYSTEM

Reform of Civil Justice

Reorganisation of judicial districts to close small courts and reduce public expenditure.

Introduction of sanctions for non-acceptable appeals to reduce the backlog of cases brought to court.

Administrative communications by certified electronic mailing to speed up procedures.

Digitalisation of civil justice proceedings.

Dipartimento del TESORO

66

MEF

Ministero

dell’Economia

e delle Finanze

LABOUR MARKET REFORM

A more dynamic and inclusive labour market

More (regulated) flexibility on the hiring side, discouraging the abuse of temporary contracts and making open-ended work contracts more appealing to companies.

More flexibility on the firing side, facilitating more efficient allocation of workers among sectors.

More comprehensive unemployment benefits (ASPI).

More efficient active labour market policies improving services and incentives to work.

Dipartimento del TESORO

67

MEF

Ministero

dell’Economia

e delle Finanze

LABOUR MARKET REFORM

Access to the labour market: apprenticeships

Apprenticeship becomes the preferential channel for young people (up to 29 years old) to enter the labour market.

Employers benefit from fiscal incentives for a 3-year period. In order to hire new apprentices, at least 30% of apprenticeship contracts signed over the previous 3 years must have been transformed into open-ended ones.

Dipartimento del TESORO

68

MEF

Ministero

dell’Economia

e delle Finanze

LABOUR MARKET REFORM

A brand new safety net: ASPI

Eligibility: all workers with ³ 2-year social security contributions and 52 working weeks over the past 2 years.

Duration (effective Jan 2016): 12 months for workers younger than 55 and 18 months for those ³ 55.

Amount: replacement rate is 75% of gross earnings up to €1,180 (annually increased with CPI) +25% on the remaining income up to a cap; 15% reduction after six and twelve months.

Funding: ASPI is partly funded by the State budget and partly through increased contributions paid by employers for non-regular contracts, which can be reimbursed in case of conversion of fixed-term contracts into regular ones.

Dipartimento del TESORO

69

MEF

Ministero

dell’Economia

e delle Finanze

LABOUR MARKET REFORM

Employment protection legislation: big revision

In case of discriminatory dismissals: no change in terms for reintegration of the employee.

For unfair disciplinary dismissals: it is now up to the judge to choose between reintegration (for the most serious cases) or indemnity (from 12 up to 24 months of full salary).

For unfair dismissals for economic reasons, the judge can grant an indemnity (between 12 and 24 monthly payments) or reintegration of the employee in case no fair reasons for dismissal are recognised.

Dipartimento del TESORO

70

MEF

Ministero

dell’Economia

e delle Finanze

LABOUR MARKET REFORM

National agreement to help boost labour productivity

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.

A special fund is designed to cover the reduction in taxes on productivity-linked wage increases set at local level.

A pact between generations is introduced, allowing for senior workers to stay at work longer by smoothing the retirement transition and increasing the employment of young workers.

Dipartimento del TESORO

71

MEF

Ministero

dell’Economia

e delle Finanze

LABOUR AND PRODUCT MARKET REFORMS

1998-2012 progress: Italy outperforms other EU countries

EPL

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.5 1.0 1.5 2.0 2.5 3.0

Spain 2007 Spain 2003 Italy 1998 Spain 1998

France 2007 France 2003 France 1998

Germany 2007 Germany 2003 Germany 1998

Italy 2012 Italy 2007 Italy 2003

UK 2007 UK 2003 UK 1998

EPL – PMR

Main European countries

Source: OECD and MEF

Dipartimento del TESORO

72

MEF

Ministero

dell’Economia

e delle Finanze

The current 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/

Dipartimento del TESORO

73

MEF

Ministero

dell’Economia

e delle Finanze

EX-4

Exhibit 4

Report to Parliament

2013

(pursuant to Art.10bis paragraph 6 of Law No.196/2009)

Submitted by the Prime Minister

Mario Monti

and

by Minister of the Economy and Finance

Vittorio Grilli

To the Cabinet on March 21, 2013

RELAZIONE AL PARLAMENTO 2013

SUMMARY

The purpose of this Government report is to inform Parliament of the updated macroeconomic growth outlook and the performance of public accounts in 2013-2014. The 2013 Economic and Financial Document, to be submitted to Parliament by April 10, will address these issues in greater detail and will provide projections over the entire legislature.

Vigorous efforts have been made over the past two-years to rebalance public accounts in order to achieve a balanced budget. In 2012 Italy achieved a substantial structural improvement in its public accounts and further budget consolidation is expected in 2013. Moreover, in 2012 general government net borrowing as a percentage of GDP (not adjusted for the cycle) was broadly in line with the Commission’s recommendations.

However, the current economic situation, where significant weakness remains evident, requires combining fiscal consolidation and financial stability with further measures to support and stimulate growth and employment.

To this end, the Government intends to go ahead with an urgent package of measures that can inject liquidity into the economy by speeding up payments in arrears owed by general government bodies to their suppliers. They amount to about 20 billion euros in the second half of 2013 and an additional 20 billion euros in 2014.

It is a one-off package, agreed upon with the European authorities, whose purpose is not to fund new expenditure, but to remove hitches preventing payment flows from general government bodies to the private sector.

General government bodies which will receive central government transfers to allow them to pay suppliers will be called on to adopt credible spending-cut plans that can ensure debt repayment over a given time period. This will probably result in future expenditure being rescheduled.

This initiative is in line with fiscal requirements set at EU level. Moreover, in the future, a faster and more solid economic recovery will favourably contribute to the sustainability of Italy’s public finances.

THE MACROECONOMIC SCENARIO

In 2012 GDP declined by 2.4 per cent, in line with forecasts published in the Update of the 2012 Economic and Financial Document. In the final quarter of last year, however, the economy performed worse than expected, with a sudden drop in GDP (- 0.9 per cent over the previous quarter), which led to a one percentage point negative carry-over into 2013. Therefore, forecasts for 2013 had to be revised downwards.

Despite a few initial signs of improvement in the economy, including a recovery of exports and a gradual stabilisation of the financial situation, prospects for the first half of 2013 remain uncertain. A further drop in GDP is expected for the first quarter of 2013. In addition, domestic demand remains very weak, so in the absence of supporting measures any improvement will be slow in emerging.

MINISTERO DELL’ECONOMIA E DELLE FINANZE 2

RELAZIONE AL PARLAMENTO 2013

An immediate injection of liquidity into the economy, achieved by speeding up the payment of general government payables in arrears, could boost demand as early as in the second half of this year.

TABLE 1: MACROECONOMIC SCENARIO

	2011		2012		2013		2014
INTERNATIONAL EXOGENOUS VARIABLES
International trade		6,0		2,8		3,6		5,5
Oil price (Brent FOB dollars/barrel)		111,3		111,6		113,5		106,4
Dollar/euro exchange rate		1,392		1,286		1,350		1,350
ITALIAN MACRO VARIABLES (VOLUMES)
GDP		0,4		-2,4		-1,3		1,3
Imports		0,5		-7,7		-0,3		4,7
Final national consumption		-0,2		-3,9		-1,7		0,9
- Expenditure of resident households		0,1		-4,3		-1,7		1,4
- General government expenditure and NPISH		-1,2		-2,9		-1,7		-0,4
Gross fixed investment		-1,8		-8,0		-2,6		4,1
- Machinery and equipment		-1,0		-9,9		-3,0		5,1
- Construction		-2,6		-6,2		-2,2		3,1
Exports		5,9		2,3		2,2		3,3
memo item: current account balance in % of GDP		-3,1		-0,6		0,1		-0,2
CONTRIBUTION TO GDP GROWTH (*)
Net exports		1,4		3,0		0,7		-0,2
Inventories		-0,5		-0,6		-0,1		0,1
Domestic demand net of stocks		-0,5		-4,8		-1,9		1,4
PRICES
Imports deflator		7,6		3,1		0,7		1,7
Exports deflator		4,1		1,9		1,2		2,1
GDP deflator		1,3		1,6		1,8		1,9
Nominal GDP		1,7		-0,8		0,5		3,2
Consumption deflator		2,9		2,8		2,0		2,0
Inflation (planned)		2,0		1,5		1,5		1,5
HCPI net of imported energy products (**)		2,6		3,0		2,0		1,8
LABOUR MARKET
Labour cost		1,3		1,0		1,0		1,2
Productivity (measured on GDP)		0,2		-1,3		-1,0		0,7
ULC (measured on GDP)		1,0		2,3		2,0		0,5
Employment (FTE)		0,1		-1,1		-0,3		0,6
Unemployment rate		8,4		10,7		11,6		11,8
15-64 Employment rate		56,9		56,7		56,5		56,8
Memo item: nominal GDP (values in millions of euros)		1.578.497		1.565.916		1.573.233		1.624.012

(*) Possible inaccuracies are due to rounding.

(**) Source: ISTAT.

In assessing the impact of this package of measures on the real economy, it has been taken into due consideration that a part of the payments to firms will immediately flow to banks, as a share of the payables portfolio has already been sold to them (pro solvendo or pro soluto). Though this dampens the direct impact the package may have on the economy, it helps to reduce tensions within the banking system, thereby benefiting the economy, albeit indirectly; a drop in interest rates to clients is expected as well as an easing of tensions on credit supply. The part of the liquidity injection which will go directly to firms will be used to step up investment plans or to improve working capital management (including, for example, payment of arrears to staff). In addition, the measure will help reduce the risk of closure for firms, a phenomenon that has grown worse in the last few months. As a result, a clear improvement in the performance of domestic demand and employment is expected with the adoption of such a package, as compared to the current situation.

3 MINISTERO DELL’ECONOMIA E DELLE FINANZE

RELAZIONE AL PARLAMENTO 2013

The GDP growth profile is expected to show some stabilisation in the second quarter before growing again in the second half of the year. However, due to the negative carry-over from 2012 and the expected contraction in the first half of the year, annual GDP growth will likely remain negative at -1.3 per cent. By contrast, in 2014 GDP growth is expected to exceed 1 per cent, substantially above the growth rate that would have been projected without the adoption of the above-mentioned measures.

PUBLIC FINANCE SCENARIO

New public finance estimates for 2013-2014, based on the new macroeconomic scenario, show general government net borrowing worsening by 0.6 and 0.3 per cent of GDP in 2013 and 2014, respectively.

These differences are mainly due to:

a) tax revenues declining by 15,700 million euros in 2013, or 1.0 percentage point of GDP, half of which is due to the carry-over effect of lower revenues recorded in 2012 – and by 10,000 million euros in 2014;

b) debt servicing costs declining by about 5,300 million euros in 2013 and 6,500 million euros in 2014, as a result of lower interest rates compared to that forecasted in the Update of the 2012 Economic and Financial Document;

c) expenditure net of interest payments declining by about 2,400 million euros in both 2013 and 2014, resulting from the carry-over effect of expenditure savings recorded in 2012, compared to forecasts.

Table 2 does not consider effects on the net borrowing requirement derived from the speeding up of payables in arrears (with the exception of interest payments).

Planned measures envisage, inter alia, the payment of debt relating to investment expenditure amounting to 0.5 per cent of GDP (highlighted at the bottom of Table 2), and therefore the projected net borrowing for 2013 is projected at 2.9 per cent of GDP, in line with European budgetary requirements. More details will be provided within the Economic and Financial Document.

MINISTERO DELL’ECONOMIA E DELLE FINANZE 4

RELAZIONE AL PARLAMENTO 2013

TABLE 2: GENERAL GOVERNMENTS ACCOUNTS (in millions and as a percentage of GDP)

	End-of-year				Forecasts				% of GDP
	2011		2012		2013		2014		2010		2011		2012		2013		2014
EXPENDITURE
Compensation of empoyees		169.209		165.366		163.587		161.909		11,1		10,7		10,6		10,4		10,0
- Gross compensation		118.632		115.607		114.364		113.191		7,8		7,5		7,4		7,3		7,0
Social security contributions employer		50.577		49.759		49.223		48.718		3,3		3,2		3,2		3,1		3,0
Intermediate consumption		135.879		132.279		128.561		129.609		8,7		8,6		8,4		8,2		8,0
Welfare benefits		304.262		311.413		319.920		329.790		19,2		19,3		19,9		20,3		20,3
- retirement benefits		243.608		249.471		255.200		262.520		15,3		15,4		15,9		16,2		16,2
- Other welfare benefits		60.654		61.942		64.720		67.270		3,9		3,8		4,0		4,1		4,1
Contributions to production		16.461		17.600		15.483		14.797		1,1		1,0		1,1		1,0		0,9
Direct and indirect taxation		18.856		18.300		18.246		18.386		1,2		1,2		1,2		1,2		1,1
Trasfers to EU budget (fourth resource)		12.658		12.112		13.600		14.000		0,7		0,8		0,8		0,9		0,9
Other current expenditure		12.288		9.538		10.925		9.475		1,0		0,8		0,6		0,7		0,6
Total current expenditure		669.613		666.608		670.322		677.966		43,1		42,4		42,6		42,6		41,7
(net of interest)
interest		78.351		86.717		83.892		88.984		4,6		5,0		5,5		5,3		5,5
Total current expenditure correnti		747.964		753.325		754.214		766.950		47,7		47,4		48,1		47,9		47,2
p.m. health expenditure		111.593		110.842		111.108		113.029		7,3		7,1		7,1		7,1		7,0
Gross fixed investment		32.317		30.409		29.757		29.806		2,2		2,0		1,9		1,9		1,8
Divestments (-)		1.142		1.210		1.500		1.450		0,1		0,1		0,1		0,1		0,1
Contribution to investment		18.507		17.477		18.419		16.302		1,1		1,2		1,1		1,2		1,0
Other capital outlays		-1.566		1.093		1.374		1.772		0,1		-0,1		0,1		0,1		0,1
- of which: Frequency auction		3.827		0								0,2
Total capital expenditure		48.116		47.769		48.050		46.430		3,3		3,0		3,1		3,1		2,9
TOTAL EXPENDITURE		796.080		801.094		802.264		813.380		51,1		50,4		51,2		51,0		50,1
(net of interest)		717.729		714.377		718.372		724.396		46,5		45,5		45,6		45,7		44,6
REVENUES
Tax revenues		448.222		471.482		477.317		492.967		28,6		28,4		30,1		30,3		30,4
- Direct taxation		226.142		237.928		236.136		243.454		14,6		14,3		15,2		15,0		15,0
- Indirect taxation		222.080		233.554		241.181		249.513		14,0		14,1		14,9		15,3		15,4
Social security contribution		216.963		216.669		220.420		225.251		13,7		13,7		13,8		14,0		13,9
- Actual		212.701		212.422		216.106		220.877		13,5		13,5		13,6		13,7		13,6
- Imputed		4.262		4.247		4.314		4.374		0,3		0,3		0,3		0,3		0,3
Other current revenues		59.761		59.155		60.533		61.738		3,8		3,8		3,8		3,8		3,8
Total current revenues		724.946		747.306		758.270		779.956		46,1		45,9		47,7		48,2		48,0
Capital account taxes		6.981		1.375		824		932		0,2		0,4		0,1		0,1		0,1
Other capital taxes		4.353		4.967		4.829		4.096		0,2		0,3		0,3		0,3		0,3
TOTAL REVENUES		736.280		753.648		763.923		784.984		46,6		46,6		48,1		48,6		48,3
Tax burden		42,6		44,0		44,4		44,3
Current balance		-23.018		-6.019		4.056		13.006
as % of GDP		-1,5		-0,4		0,3		0,8
Primary balance		18.551		39.271		45.551		60.588
as % of GDP		1,2		2,5		2,9		3,7
Net borrowing		-59.800		-47.446		-38.341		-28.396
As % of GDP		-3,8		-3,0		-2,4		-1,7
Increase in capital expenditure due to payments of arrears to suppliers and part of EU national cofinancing						7,850		0						0.5		0.0
PIL ( x 1.000 )		1.578,5		1.565,9		1.573,2		1.624,0

5 MINISTERO DELL’ECONOMIA E DELLE FINANZE

RELAZIONE AL PARLAMENTO 2013

MEASURES TO SPEED UP PAYMENT OF ARREARS TO SUPPLIERS

The package of measures that are to be adopted is aimed at injecting liquidity into the economy by accelerating the payment of general government’s payables to private firms and individuals. The entities involved are: central government agencies, local authorities and National Health Service entities. Payments will be made according to different arrangements depending on the type of payables and sectors involved.

More specifically, the measures to accelerate payments will relate to:

• local authorities (Regional and local authorities), through:

• an easing of constraints of the internal stability pact so as to unlock access to any available operating surpluses;

• the exclusion from the stability pact of the Regions of payments made to local authorities on expenditure arrears offset by revenue arrears of municipal and provincial authorities;

• setting up revolving funds to provide liquidity to local authorities (Regional as well as other local authorities) with the requirement that sums be repaid over a fixed (as well as certain and sustainable) period of time;

• waiver of spending in 2013 related to national co-financing of EU structural funds;

• health sector debts, through cash advances to pay debts relating to transactions already recorded in previous accounting periods for the purpose of calculating net borrowing. These will subsequently be repaid on the basis of financially sustainable spending reduction plans.

• past tax refunds owed by the Government, through the use of Treasury cash on hand.

IMPACT ON THE GOVERNMENT BUDGET

The package of measures aimed at accelerating the payment of general government’s payables to private firms and individuals produces a variety of effects depending on the type of payables and the sectors involved. More specifically, the estimated effects on the Government budget result in a worsening of the net balance to be financed, on top of the impact of the new year-on-year scenario. The impact – in terms of net balance to be financed – may be prudentially estimated at 25 billion euros yearly, in both 2013 and 2014.

These effects on the Government budget result, in particular, from the setting up of revolving funds to provide the liquidity needed by local authorities and the health sector to pay off their debts.

MINISTERO DELL’ECONOMIA E DELLE FINANZE 6