Italy incentive spending fails to lift productivity

The finding matters well beyond Rome because Italy remains one of Europe’s weakest large economies on productivity, and that weakness has kept growth subdued, discouraged private investment and left the country more exposed to foreign takeovers and offshoring. The report argues there is no positive correlation across the 27-member European Union between the amount of incentives handed out and gains in productivity or value added, a warning for policymakers who keep returning to subsidies as a default response to industrial stress.

In Italy, incentives reached about €18.3 billion in 2024, or 0.8% of GDP, below France’s 1.2% and Germany’s 1%. But the issue, the report says, is not just the size of the bill. More than half of the mapped instruments are broad-based and absorb roughly 70% of the money, while 39% of 2024 funds went to emergency and stabilization measures. Only €2.9 billion was directed to territorial and sectoral development, €2.5 billion to energy and the environment and €1.6 billion to research and innovation.

That allocation helps explain why the structural picture has barely changed. Industrial production in Italy is down 25% since 2007, and foreign ownership of medium and large companies has risen, with the share of turnover generated by foreign-controlled firms climbing from 29.7% to 34.5% in the past three years, according to the report. It also counted 429 acquisitions of Italian companies by foreign funds or businesses in 2024, worth more than €36 billion, a sign that domestic underinvestment is increasingly leaving strategic assets open to outside buyers.

For investors, the implication is twofold. On one hand, Italy’s subsidy-heavy model has supported liquidity and cushioned shocks for companies that would otherwise struggle in downturns, especially during the pandemic and the energy crisis. On the other, the lack of clear productivity payback means public support has not translated into a stronger earnings base or a more competitive industrial platform, making long-term growth harder to sustain.

The report’s answer is a shift from scattershot aid to selective, multi-year industrial policy with measurable goals and ex ante performance indicators. It proposes a standard protocol for each incentive, including objectives, beneficiaries, timing, responsibilities and evaluation rules, plus a five-year stability clause to limit retroactive changes. Teha says €72 billion of incentives targeted to five strategic areas from 2026 to 2035 could unlock about €109 billion of additional investment and lift annual GDP by as much as €23.4 billion.

The priority areas listed — energy and water, AI and quantum, biotech and advanced materials, robotics and autonomous systems, and defense, space and security — point to where Italy and the wider euro zone may try to redirect scarce public money next. The political challenge is that those bets require discipline, continuity and a willingness to let weaker programs die, something Italy’s fragmented incentive system has struggled to do for decades.