American Marshall Plan aid finances postwar economic recovery. The government inherits extensive holdings in industry from the Fascist regime, notably the Institute for Reconstruction of Industry (IRI), which includes companies in the steel, electronics, transport, and communications sectors. The economy is oriented toward the industrial and service sectors to the detriment of agriculture.
Gains in industrial production in the North bring an increase in exports and an economic boom, leaving the agricultural South behind. The government establishes the Cassa per il Mezzogiorno, or Fund for the Development of Southern Italy, which, combined with land reforms, brings a rise in agricultural production. The government extends its ownership of industrial and commercial enterprises.
Italy is a founding member of the European Economic Community (EEC). Low labor costs and a low-value lira fuel an export-led "economic miracle," but the South's economy still lags behind the North's. The IRI and state-owned oil company ENI dominate the economy, but public-sector intervention and investment in infrastructure enable the expansion of private firms such as Fiat, Olivetti, and Pirelli.
The state continues to play a strong role in the economy, nationalizing the electric industry. Membership in the EEC and the climate of international competition reveal weaknesses in Italy's export-led strategy. With higher rates of employment and rising discontent over wages, the low-wage policies that enabled the economic boom have to be abandoned. The period of strong growth comes to an end.
Devastating floods ravage one-third of the land, causing more than $1.5 billion in damage. Economic expansion slows. The government institutes national economic plans, calling for active promotion of the development of the South. Results, however, are disappointing. A government austerity program to combat inflation brings a decline in profits and a fall in investment.
Italy, no longer able to rely on low wages, sees its economic growth shrink further. Strikes affect many sectors. Strong export demand and the government's expansionary policies, however, enable growth to remain positive. But inflation accelerates, domestic demand is low, and a depreciation of the lira worsens the balance of payments. Multinationals acquire many existing firms.
Italy enters an economic crisis caused by an imbalance in international trade, social upheaval, and the worldwide energy crisis. Inflation, unemployment, political terrorism, and organized crime soar. Production falls as the country enters a recession. State-owned enterprises become a drain on the national budget as entrenched interests impede the adoption of new technologies.
Italy's balance of trade slumps into deficit. An austerity program helps pull Italy out of its recession and a sharp rise in demand for consumer goods strengthens the industrial sector, but the country remains wracked by inflation and unemployment. National income drops.
Italy's coalition governments apply severe measures of economic austerity. A major banking scandal forces Italy's largest private bank into liquidation. An earthquake and a landslide cause widespread damage in central Italy. In 1984, responding to continued economic sluggishness, Prime Minister Craxi institutes another austerity budget, including tax increases, service cuts, and wage adjustments.
The government controls one-third of industrial activity and two-thirds of banking operations. Agriculture now contributes less than 4 percent of GDP. But industry struggles to compete as a result of wage increases and the use of a hard exchange-rate policy to combat inflation. Oil company ENI head Franco Barnabè considers privatization. Economic disparities between North and South persist.
The Amato government initiates a privatization program, transforming major state holdings (including the IRI, ENI, and the ENEL electric company) into joint-stock companies. The Ciampi government follows suit, floating two commercial banks on the stock market. A raft of deregulation measures place greater emphasis on the private sector. Industrial restructuring hits the labor market hard.
Economic recovery begins with a rebound in investment and exports, but has a minimal effect on welfare conditions. Political opposition and regulatory problems slow privatization until legislation in 1995 provides for an independent energy authority and the floating of 15 percent of ENI on the Milan, London, and New York stock markets. The IRI begins to dismantle itself through sell-offs.
Growth slows to 1.5 percent as a result of weak European demand, a strong lira, and tight fiscal and monetary policy aimed at meeting criteria for membership in the European Monetary Union (EMU). Two further tranches of ENI are sold, reducing the government's stake to 51 percent. The state sells 35 percent of its shares in Telecom Italia. Several smaller, public-sector companies are sold as well.
Italy joins the European Monetary Union. Economic growth rises to 2.9 percent but is the slowest of all EMU members. The government sells another 14 percent of ENI, as well as significant shares in ENEL, Autostrade (which operates highways), the Rome airports, and the defense industries holding company. The IRI, having divested its assets, closes down. Unemployment is high and job creation slow.
The new Berlusconi government promises labor market reforms and the revival of the privatization program, but both fail to materialize. The government deficit is within European Union norms, but in other respects the economy is morose, with unemployment and public debt high. The crisis at carmaker Fiat marks the decline of old-line Italian industry. The 2003 budget cuts both taxes and spending.
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