Tomorrow, the European Commission will publish its country-specific recommendations for Italy, urging the government in Rome to adopt a comprehensive industrial strategy, overhaul its tax system, and deepen its capital markets. The document, seen by European Pulse, reflects a broader push by Commission President Ursula von der Leyen to strengthen European competitiveness amid global uncertainty.
Since taking office, von der Leyen has made competitiveness a central pillar of her agenda, pressing member states to accelerate structural reforms. Italy, the eurozone’s third-largest economy, has long struggled with sluggish productivity and stark territorial imbalances. The Commission’s recommendations aim to address these persistent weaknesses.
A 'Weak' Industrial Strategy
The Commission’s draft sharply criticises the absence of a coherent industrial policy, pointing to excessive fragmentation of incentives, a lack of prioritisation of strategic sectors, and weak coordination among industrial, infrastructure, and research policies. “Stagnant productivity continues to characterise Italy, while also reflecting wide gaps between the northern and southern regions,” the document states, adding that infrastructural deficits are among the main factors limiting competitiveness.
Although the government of Prime Minister Giorgia Meloni presented a White Book titled “Made in Italy 2030” outlining an industrial vision, the Commission notes that it lacks “clear policy actions and a governance structure for industrial policy.” The recommendations call for a more focused approach to reduce territorial disparities and boost productivity.
To support industrial renewal, the Commission recommends promoting the mobilisation of savings, expanding capital markets, and encouraging firm growth and aggregation. A deeper capital market could provide the financing needed for Italian businesses to scale up and invest in innovation, an area where Italy lags behind peers like Germany and France.
Sharp Criticism on Taxation
The Commission’s critique extends to Italy’s tax regime, which it describes as too heavily reliant on labour. “Further shifting the tax burden from labour to other underused sources of revenue, which are less detrimental to growth, would help to raise economic potential,” the document recommends. This aligns with broader EU calls for tax reforms that favour investment and employment.
Brussels also takes aim at the flat-tax regime for the self-employed, arguing it makes the system “highly complex” by weakening progressivity and eroding the tax base, resulting in significant revenue loss. The Commission recommends making the tax system more conducive to sustainable growth while ensuring fairness, including by fighting tax evasion and reducing tax expenditures related to value added tax and environmentally harmful subsidies.
Italy’s high public debt, at around 140% of GDP, leaves little fiscal room for manoeuvre, making efficiency gains in tax collection and spending all the more critical. The Commission’s recommendations come as Rome also seeks to redirect EU defence loans to combat rising energy costs, a move that underscores the competing pressures on the Italian budget.
The recommendations are part of the European Semester, the EU’s annual cycle of economic and fiscal coordination. While not legally binding, they carry political weight and can influence the disbursement of EU funds, including those from the Recovery and Resilience Facility. Italy is the largest beneficiary of the EU’s post-pandemic recovery fund, with over €190 billion in grants and loans, making compliance with Commission guidance particularly consequential.
For an informed European audience, the Commission’s push highlights the ongoing tension between national sovereignty and EU-level coordination. Italy’s ability to implement these reforms will be closely watched, not least because of its size and systemic importance to the eurozone. The country’s persistent regional disparities also serve as a reminder of the broader challenges facing the EU’s cohesion agenda.
