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Legal reform needed to fan the flames of Italian recovery

Against the backdrop of news that Italy is now officially pulling out of recession, lawyers are warning of the importance of judicial reform to ensure that the embers of these early signs of economic recovery can be fanned into flames.

Per Bengtsson

One year ago, the International Monetary Fund published a working paper entitled ‘Judicial System Reform in Italy – A Key to Growth’, citing the inefficiency of the Italian judicial system as one of the main reasons for reduced investments, slow growth, and a difficult business environment. Since then, the Italian government has shown determination in addressing controversial issues such as the labour market. Indeed, the recent Italian Jobs Act has greatly simplified Italy's labour system, by introducing clearer rules on hiring and firing and a simplified employment protection system, with protection increasing with length of service. Investment opportunities in the Italian market are significant, as many see Italy as the jurisdiction within the Eurozone with the best ‘rebound potential’. But have the government’s legal reforms gone far enough to encourage, rather than discourage, foreign investment in Italy?

I am optimistic. The Italian government has taken up the gauntlet to tackle the inefficiencies of the civil justice system, which have dissuaded many foreign businesses from investing in the country. It is well reported that these inefficiencies are the main reason that Italy has traditionally been at the lower end of international rankings measuring business friendliness. There is certainly no silver bullet to substantially reduce the length of proceedings, which still drag on for too many years. However, the measures adopted by the Renzi government thus far have already succeeded in reducing the backlog of cases, with a shortening of the average length of proceedings and a separate track for out-of-court settlement of small cases and certain family law matters. Other provisions are on their way, which I hope will prove equally effective. This new attention by the government is further marked by the fact that the Italian Minister of Justice, Andrea Orlando, went on a roadshow to present the latest measures in New York, Frankfurt and London.

It is also expected that the tax reforms will simplify the relationship between tax authorities and foreign investors and the recently announced tax cuts have been warmly welcomed. And if these include cuts to corporation and income tax over the next few years, we will soon return to being a much more business-friendly country.

Alberto Saravalle is a partner at Italian-based international law firm BonelliErede,

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17 November 2015

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