Italy will include prostitution and illegal drug sales in the gross domestic product calculation this year, a boost for its chronically stagnant economy and Prime Minister Matteo Renzi’s effort to meet deficit targets. 
 
 Drugs, prostitution and smuggling will be part of GDP as of 2014 and prior-year figures will be adjusted to reflect the change in methodology, the Istat national statistics office said today. The revision was made to comply with European Union rules, it said. 
 
 Renzi, 39, is committed to narrowing Italy’s deficit to 2.6 percent of GDP this year, a task that’s easier if output is boosted by portions of the underground economy that previously went uncounted. Four recessions in the last 13 years left Italy’s GDP at 1.56 trillion euros ($2.13 trillion) last year, 2 percent lower than in 2001 after adjusting for inflation. 
 
 “Even if the impact is hard to quantify, it’s obvious it will have a positive impact on GDP,” said Giuseppe Di Taranto, economist and professor of financial history at Rome’s Luiss University. “Therefore Renzi will have a greater margin this year to spend” without breaching the deficit limit, he said. 
 
 A spokesman for the Finance Ministry declined to comment on the new system. 
 
 The change in methodology will also bring research and development and arms into the GDP calculation. R&D, now considered investment spending, was previously excluded because it was classified as an intermediate cost. 
 
 To contact the reporters on this story: Andrew Frye in Rome at afrye@bloomberg.net; Chiara Vasarri in Rome at cvasarri@bloomberg.net 
 
 To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net; Jerrold Colten at jcolten@bloomberg.net Andrew Langley, James Kraus ||||| The economic value of prostitution, illegal drug sales, and trafficking in contraband cigarettes and alcohol will all be measured by Italy's national statistical agency Istat as it calculates the country's 2014 gross domestic production (GDP), it announced Thursday. 
 
 Istat said that starting in September, its 2014 economic measurements will include those three areas of illegal activities, in line with methodology being applied in measuring national accounts within the European Union. 
 
 The move updates the previous system of national account measures implemented in 1995, Istat said in a news release. Eurostat, the EU's statistical agency, has provided guidelines that will include an estimate of accounts for illegal activities including prostitution, contraband cigarettes and alcohol, and illegal drug trafficking. 
 
 Istat said it will be difficult to measure the illegal activities. 
 
 Expanding its measure of GDP to include these elements of the underground economy will likely add as much as 1% to 2% to Italian GDP, the agency said. 
 
 Measurements that increase the size of the country's GDP could be good news for the national government, for example when it calculates the ratio of the deficit to GDP. ||||| 1 of 2. Italian Prime Minister Mario Monti speaks during a news conference on the new austerity package in Rome, December 4, 2011. Monti accelerated plans on Sunday to approve a 20 billion-euro austerity package aimed at shoring up Italy's strained finances and stemming a crisis that threatens to overwhelm the euro zone. 
 
 ROME (Reuters) - Italy risked a Greek-style economic collapse which could threaten the future of the euro without the austerity package approved by the government, Prime Minister Mario Monti said on Monday, calling on European partners to do their part. 
 
 Monti's announcement of the plan on Sunday kicked off one of the most crucial weeks since the launch of the euro more than a decade ago, ending with a summit of European leaders in Brussels on Thursday and Friday to seek a wider set of crisis measures. 
 
 "If Italy were not capable of reversing the negative spiral of growth in debt and restoring confidence to international markets, there would be dramatic consequences, which could go as far as putting the survival of the common currency at risk," Monti told parliament. 
 
 "Italy is ready to do what it has to do but Europe must not fail to do its part," he said. 
 
 The package, dubbed a "Save Italy" decree by Monti, aims to raise more than 10 billion euros ($13.4 billion) from a property tax, impose a new levy on luxury items like yachts, raise value added tax, crack down on tax evasion and increase the pension age. 
 
 "Without this package, we think that Italy would have collapsed, that Italy would go into a situation similar to that of Greece," Monti told foreign journalists before heading to parliament to present the package to lawmakers. 
 
 He acknowledged the package would weigh on Italy's fragile economy which most analysts say is already in recession, but said without action the consequences would have been much worse. 
 
 The package, packed into an emergency decree that takes effect before formal parliamentary approval, is expected to gain the backing of most parties, with the exception of the regional pro-devolution Northern League party. 
 
 Italy, the euro zone's third-largest economy, has been at the centre of the crisis since mid-year, when its borrowing costs began to approach the levels that forced Ireland, Greece and Portugal to seek an international bailout. 
 
 Markets welcomed the measures, which analysts said should be enough to persuade the European Central Bank to continue to hold down borrowing costs by buying Italian bonds on the market. 
 
 Yields on 10-year Italian bonds dropped to just over 6 percent, around a full percentage point lower than last week, while the risk premium over benchmark German Bunds fell below 400 basis points, levels last seen in October. 
 
 International reaction was also positive, with Dutch Prime Minister Mark Rutte, who met Monti in Rome on Monday morning, the European Commission and the head of the Organisation for Economic Cooperation and Development all welcoming the package. 
 
 MEASURES IN EFFECT IMMEDIATELY 
 
 Monti, whose sober style contrasts markedly with his flamboyant predecessor Silvio Berlusconi, said Italy wanted to play a full part in Europe and said no country could act alone. 
 
 "There's no country so strong that could have an advantage in isolating itself or separating itself from weaker countries," he told foreign reporters. 
 
 He said his government's austerity measures would contribute to a solution involving the euro zone's bailout fund, the International Monetary Fund and the ECB and he backed French and German calls for tighter controls on national budgets. 
 
 "I feel that it would be perfectly understandable that the European Commission should have the same enforcement powers in the area of budgets that it has in the area of competition," he told reporters. 
 
 Monti, appointed at the head of a technocrat government last month, had been under growing pressure to come up with concrete measures to address fears about Italy's towering debt mountain. 
 
 He has held to Berlusconi's pledge of a balanced budget by 2013, despite growing signs that Italy is heading into a recession that will make it extremely difficult to make inroads into a public debt of 120 percent of gross domestic product. 
 
 Deputy Economy Minister Vittorio Grilli said the measures outlined on Sunday would allow the deficit goal to be met despite a forecast that GDP would contract by 0.4-0.5 percent in 2012. 
 
 The package is divided into 20 billion euros of budget tightening and an additional 10 billion euros that will be pumped back into the economy in the form of measures to help companies and boost growth. 
 
 Caught between the competing needs of slashing the deficit and safeguarding a fragile economy, Monti's government risks growing opposition after an initial honeymoon period granted by a public fed up with the scandals of the Berlusconi era. 
 
 Unions criticized the package and in an early sign of possible opposition to the Monti government, the moderate CISL and UIL unions announced a two hour strike against the austerity package on Monday, December 12. 
 
 (Additional reporting by Philip Pullella and Alberto Sisto, Writing by James Mackenzie; Editing by Barry Moody and Maria Golovnina)
– Surprisingly enough, this idea didn't come from Silvio Berlusconi: Italy plans to include things like illegal drug sales, prostitution, and cigarette smuggling in its GDP figures for the first time, immediately giving the size of the economy a big boost, Bloomberg reports. Prime Minister Mario Renzi has pledged to cut the country's deficit to 2.6% of GDP, a target that will be a lot easier to hit when illegal sectors of the economy are included. The European Union's statistical agency has provided guidelines for estimating the contribution of illegal activities to the economy, and the move is expected to add up to 2% to Italy's GDP, ANSA reports. (As for Berlusconi, he's doing community service at a hospice after being convicted of tax fraud.)