Italy's Economy & the EU

Since the close of World War II, Italy has managed to get through more than 45 governments, four of which have collapsed in the past six years. In these post-war years, the Italian economy has been no more stable than the government- as Italy has undergone an economic shift away from a system based on agriculture and towards a more industrialized economy, North-South divides have been created that persist into the present day (Geographic, 1999).

Historically speaking, the political plight of Italy has been bound up in its economy. As in most nations, political stability is intrinsically linked to economic stability. Within the construct of the European Community, Italy's economic situation has often dictated the nature of its relationship with its neighbors. And throughout Italy's 50 years of reform and regression, she has managed to maintain a close relationship with the European Community. Indeed, often that relationship has not been as close as the Italians would like; since the advent of the Euro and the European Union, the bulk of Italy's political focus has hinged upon the goal of making itself economically acceptable for monetary integration with the rest of the Union. This has been particularly true in the last decade, as the emergence of the European Union has dominated the political and economic scene; in November of 1997, The Economist noted that "no other country in Europe is so keen to swap its national currency for the euro" (Bishop, 1997).

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mic and monetary solidarity forced Italy to finally begin to address its huge fiscal imbalances; thereby initiating a series of changes made from the inside (Business Week, 2000). * * STEPS TAKEN TOWARDS INTEGRATION * * In 1992, the Italian government began to make a move towards a full scale economic correction. Desiring charter member inclusion into the European Union sparked a trend of reform (Business Week, 2000). The government of Italy adopted fairly stringent budgets, abandoned its inflationary wage indexation system, and started to scale back its generous social welfare programs, including pension and health care benefits (Business Week, 2000); also, a crackdown on organized crime was initiated, as well as moves for labor, welfare and tax reforms (Bishop, 1997). The European Economic and Monetary Union criteria posed a difficult challenge for Italy to meet. In addition to the ERM demands, another problematic issue for Italy was the debt-to-GDP ratio. The EMU criteria insisted that any country that wished to join must have a debt-to-GDP ratio of no more than 60%. By the end of 1994, in spite of reforms, Italy's debt-to-GDP was at 125%(The Economist, 1995). But the reforms were underway. Understanding that accept

Category: Economics - I