OECD review of the Italian Parliamentary Budget Office

4. In focus: The new EU framework

The EU’s fiscal rules have undergone their most significant reform since the global financial crisis. In 2024, a new economic governance framework came into force, replacing the previous Stability and Growth Pact, which was widely seen as complex, rigid and procyclical. The reform aims to strengthen national ownership, simplify oversight and place greater emphasis on long-term debt sustainability.

At the core of the new system is a shift to medium-term planning. Member States must prepare country-specific plans anchored by a single operational indicator – net expenditure – supported by a risk-based approach to debt sustainability. This section explains the main features of the new framework and what they mean for Italy, including the implications for the UPB’s role and capacity.

4.1. The new EU Framework and an enhanced role of IFIs

The new framework focuses on net expenditure and medium-term fiscal plans. These plans are supported by risk-based debt sustainability assessments and require Member States to demonstrate credible adjustment paths. While the “front-end” appears simpler, the underlying methodology is complex, involving scenario analysis and probabilistic debt projections.

Table 2. Overview of IFI’s tasks in the new EU fiscal framework

	Tasks explicitly assigned to IFIs		Implicit tasks
	Macro forecasting	Monitoring public finances
Regulations	Opinions on official macroeconomic forecasts underpinning net expenditure paths presented in medium-term plans	Opinions on net expenditure paths presented in the Annual Progress Report Report on the measures taken to correct the excessive deficit	Assessment of substantial contingent liabilities
Directive	Producing, assessing or endorsing annual and multiannual macro forecasts	Monitoring compliance with country-specific numerical fiscal rules Assessing the relevance, coherence, and effectiveness of the national fiscal framework Participating in hearings at the national Parliament	Assessment of the macro-fiscal risks from climate change Ex post evaluation of the macro and budgetary forecasts

IFIs like the UPB are central to ensuring credibility. Their role expands beyond compliance checks to include assessing the appropriateness of national frameworks and monitoring medium-term plans. EU regulations and the amended directive strengthen IFIs’ responsibilities, requiring opinions on macroeconomic forecasts, evaluations of fiscal frameworks, and ex post assessments of forecasts. This shift elevates IFIs from technical validators to strategic actors in fiscal governance. These powers come in two reformed EU regulations, which are binding legislative acts, and an amended directive.1 They modify the SGP and the national fiscal frameworks directive.

The reforms significantly increase both the complexity and strategic importance of the IFI’s role. As detailed in Table 2, these new responsibilities can be categorised into “direct tasks” – those explicitly mandated by the new regulations – and “implicit tasks”, which arise from new obligations on Member States that require independent assessment. In some case, this expanded remit may put additional pressure on IFI resources.

4.2. Transposing the new requirements in Italy

Implementing the new EU fiscal framework will require Italy to update its public finance laws to align with Directive 2024/1265. This means amending Law 243/2012, which sets fiscal rules and established the UPB, and Law 196/2009, which governs the budget process. The changes must ensure that Italy’s medium-term plans are credible, risk-based, and consistent with the EU’s new operational indicator: the net expenditure path. The legislative review is already underway, led by Parliament with technical input from the Ministry of Economy and Finance and opinions by the UPB and other institutions (Court of Auditors, Bank of Italy and Istat). The quality and timeliness of these amendments will be critical to the credibility of Italy’s fiscal framework under the new regime.

Several issues merit particular attention:

4.2.1. Numerical fiscal rules

Italy’s current rules on budget balance, debt and expenditure apply to both general and local government. Introduced in 2014, they set targets that do not fully align with the new EU approach, for example, equilibrium defined in structural terms.

4.2.2. Ex post evaluation of forecasts

The amended directive also requires that ex post evaluation of macroeconomic and budgetary forecasts be carried out by an independent body. Confirming this as a responsibility of the UPB would help safeguard the integrity of Italy’s fiscal planning and ensure compliance with EU requirements.

4.2.3. Independence safeguards

The UPB’s founding legislation provides strong independence protections and already meets most EU requirements. However, two gaps remain: the law does not mandate regular external evaluations, and it should explicitly include the prohibition on taking instructions.2 Moreover, as illustrated in Section 3, some issues should be resolved in terms of access to information.

4.2.4. Comply or explain

The new EU rules strengthen the “comply-or-explain” principle, requiring responses within two months. This applies to existing and new IFI tasks, including assessing the relevance and effectiveness of the national fiscal framework. To date, this mechanism has been rarely activated. Currently, an explanation by the government is only required if requested by one-third of the Budget Committee in either chamber. This establishes the UPB’s analysis as a technical instrument in the political dialogue between Parliament (also a minority of it) and the government rather than requiring the UPB to engage directly with the executive. The transposition process offers an opportunity to make this obligation more frequent and clarify Parliament’s role.

4.3. How the role of the UPB will need to evolve

The reform of the EU’s economic governance framework fundamentally changes the UPB’s operating environment, creating both opportunities and challenges. The UPB begins from a position of strength: its mandate is among the broadest in the EU, ranking first in the European Commission’s Scope of IFI index. This breadth provides room for the UPB to take a more proactive role in promoting fiscal transparency and supporting national ownership of the new framework. However, the expansion of the UPB’s role to encompass the appropriateness of national frameworks alongside medium-term plans and annual compliance checks will require it to adapt its analytical tools, processes, and engagement strategy.

Meeting the new requirements means some broadening of priorities and potentially a need for additional resources, while respecting the statutory cap provided for by legislation. While the UPB has strong capacity in macroeconomic forecasting and public policy and fiscal assessment, further consolidation and streamlining of its modelling framework must be paired with active reprioritisation of the work programme to free up resources for emerging tasks.

Longer-term analysis is a critical area. To provide meaningful oversight, the UPB cannot rely solely on debt sustainability assessments from the European Commission or the Italian Government. It should develop projections beyond the current 10-year horizon to capture costs associated with ageing. Using alternative approaches alongside the Commission’s methodology would help avoid uniform thinking and provide deeper, nationally tailored insights. Similarly, the UPB should expand its work on fiscal risks and contingent liabilities. It has already begun analysis in these areas and enjoys a reputation for objectivity. Furthermore, a dynamic long-term microsimulation model is nearing completion. Building on these foundations will be essential to meet EU expectations.

Operational adjustments will also be necessary. Effective monitoring depends on timely access to granular government data. The UPB should review and update its Memoranda of Understanding with the Ministry of Economy and Finance and the National Statistics Institute to guarantee access to detailed information, including on net expenditure and its components (notably discretionary revenue measures, expenditure financed by EU transfers, temporary expenditures, and national co-financing of EU programmes). Strengthening the “comply-or-explain” principle is another priority. The new framework reinforces this mechanism, which in Italy has rarely been activated. The UPB should systematically track government measures, similar to Spain’s interactive Recommendations Observatory and the European Commission’s CeSaR tool (Box 2). This makes non-compliance visible and raises accountability.

Finally, the reform introduces a visibility challenge. Under the old rules, endorsement of macroeconomic forecasts for the Stability Programme was a high-profile annual event. Under the new system, endorsement of medium-term plans will occur only once every five years, and Annual Progress Reports do not require endorsement. However, in the new regime, the UPB was asked by the Ministry of Finance to extend its endorsement of the macroeconomic forecasts, given that the endorsement horizon is now full, whereas previously it was limited to year T+1 (one year ahead) in the October planning document. To maintain its influence, the UPB must complement endorsement-driven visibility with a more active role in monitoring public finances and advocating for fiscal sustainability. This will require a stronger communications strategy and a clear focus on long-term risks.

Box 2. Best practices for tracking comply or explain recommendations

Effective oversight requires more than just issuing opinions. It demands a rigorous follow-up mechanism to ensure those opinions are heard and acted upon. Systematically tracking the most relevant assessments can be an important operational backbone to the “comply or explain” principle – one that transforms abstract legal requirements into visible accountability.

By making non-compliance visible, institutions can increase reputational pressure on governments to act. Two notable examples of this practice include:

• The European Commission CeSaR tool: To track the Country Specific Recommendations issued under the European Semester, the Commission uses a Country Specific Recommendations Database (the CeSaR tool). This is a database that records the specific policy measures taken by Member States in response to recommendations and assigns a qualitative assessment to the progress achieved.

• Spain’s Recommendations Observatory: The Spanish Independent Authority for Fiscal Responsibility (AIReF) maintains a public, interactive “Recommendations Observatory.” This tool catalogues every recommendation issued by the authority, tracking and monitoring the specific government response as well as the ongoing implementation status.

By adopting similar tracking mechanisms, IFIs can close the feedback loop, ensuring that the “explain” component of the framework is as robust as the “comply” component.

4.4. Conclusion

The reform of the EU’s economic governance framework represents both a challenge and an opportunity for Italy and the UPB. For Italy, successfully transposing the amended directive will require legislative changes that align fiscal rules with the new methodology, a strengthening of independence safeguards for the UPB, and an embedding of mechanisms such as the strengthened “comply-or-explain” and ex post evaluation of forecasts. These steps are essential to ensure credibility and compliance under the new regime.

For the UPB, the shift to medium-term planning and risk-based oversight will expand its responsibilities and potentially strengthen its visibility. The endorsement of macroeconomic forecasts – a high-profile semi-annual task – will likely remain unchanged. The UPB can additionally move toward more proactive work advocating for sustainable public finances. Operational adjustments, such as securing timely access to granular data and adopting systematic tracking of government responses, will also strengthen accountability and impact.

With these changes, the UPB can move beyond its traditional compliance role to become a central actor in shaping Italy’s fiscal strategy. By leveraging its broad mandate, technical capacity, and independence, and by adopting a more strategic communications approach, the UPB can ensure that fiscal sustainability remains at the heart of Italy’s policy debate under the new EU framework.

Notes

← 1.  See EU regulations 2024/1263 and 2024/1264 and the amended directive 2024/1265.

← 2.  Article 8a(4)a of the amending directive.