Italy

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Full Report: Italy

Overview

1910-1913: Italy is a constitutional monarchy governed by Prime Minister Giovanni Giolitti under King Victor Emmanuel III. Mass migration from the agricultural South to the industrializing North brings social unrest and the rise of left-wing political groups in industrial centers. Italy goes to war with Turkey, conquering part of Libya and the Dodecanese Islands. As tensions rise in Europe, Giolitti resigns.

1914-1918: Antonio Salandra replaces Giolitti as premier. Lured by promises of territorial rewards, Italy joins the Allies in World War I. Vittorio Orlando becomes prime minister. After two years of serious defeats, Italy's poorly equipped army wins a great victory in 1918 and forces Austria-Hungary to surrender. Unhappy with the Allies' only partial fulfillment of prewar promises, Orlando resigns.

1919-1922: Political and social unrest fuel the extremist Fascist movement which advocates aggressive nationalism. Parliament dissolves. Fascist leader Benito Mussolini organizes the National Fascist Party and directs a march on Rome, promising restoration of social order and political greatness. Mussolini is made premier by the king who, with little effective power, remains the titular head of state.

1923-1928: The Fascists gain an absolute majority in 1924 elections. Mussolini crushes opposition, transforming the government into a dictatorship supported by a secret police and Fascist militia. Industry and labor are subject to strict controls. Adopting the title of Duce, or "Leader," Mussolini directs the erection of monumental buildings and extols Italy's greatness. Parliamentary government ends.

1929-1935: The Fascists reorganize the economy to focus on self-sufficiency. Twenty-two guilds, represented in the National Council of Corporations, administer sectors of the economy. The government manages the banks and forms several holding companies, including the Industrial Reconstruction Institute (IRI). Italy recognizes Catholicism as its state religion and the Vatican as sovereign and independent.

1936-1938: Mussolini strengthens Italy's ties with Germany through the Rome-Berlin Axis, a military and political alliance later joined by Japan, Hungary, Bulgaria, Romania, Slovakia, and Croatia. Italy invades Albania and launches claims for Tunisia, the French island of Corsica, and the city of Nice. Mussolini abolishes the Chamber of Deputies, replacing it with his own Chamber of Fascii.

1939-1942: Italy joins Germany in declaring war on France and Great Britain, then suffers defeat at the hands of the British and the Greeks in Europe and of the Ethiopians and the British in East Africa. By 1941, Italy is at war with the Soviet Union and the United States. Italy falls under greater German control, deporting Italian Jews to Nazi death camps and tying its industry to Germany's war machine.

1943: Italy, its army shattered, relinquishes its African colonies. Discontent among Italians culminates in a Fascist rebellion against Mussolini, his dismissal by the king, the dissolution of the Fascist Party, and the appointment of Fascist Pietro Badoglio as premier.

1944: Italy signs a secret armistice with the Allies and declares war on Germany. Rescued by German paratroopers, Mussolini forms a small Fascist regime in Northern Italy. When the Allies enter Rome, the king retires in favor of his son, Prince Umberto, and Prime Minister Badoglio resigns, replaced by Socialist Ivanoe Bonomi. Allied-occupied areas of Italy are returned to Italian control.

1945-1952: Christian Democrat Alcide De Gasperi heads a coalition government which, at the behest of the United States, excludes the Communists. The king is exiled, and De Gasperi stays on as prime minister under a new republican constitution with a weak executive. Relying on U.S. aid for reconstruction, the state takes a major role in the economy through holding companies, emphasizing industry and exports.

1953-1957: Rapid Northern industrialization sparks an "economic miracle"; the South lags behind despite government efforts to draw investment. The government owns major commercial and industrial firms. The Christian Democrats head a series of coalition governments without an absolute majority. Italy signs the Treaty of Rome in '57, and the European Economic Community (EEC) is born.

1958-1962: A low-value lira and low wages allow strong export-led growth. As required by the Treaty of Rome's provisions, Italy moves to free trade with other EEC members. The left gains political support. The government controls key economic sectors, but its investments and subsidies enable the rise of several private companies. Inflation and worker discontent signal the end of the economic boom in 1962.

1963-1968: Strong international competition and pressure from labor for higher wages slow economic expansion. An austerity program to combat inflation brings a drop in investment. Divisions within the Christian Democratic party under Prime Minister Aldo Moro expose the frailty of his government's coalition with the Socialists. Students and workers stage violent protests of economic and social conditions.

1969-1975: Labor protests bring contract and wage renegotiation. The economy enters recession as the higher cost of inputs and the inefficiency of state-owned enterprises make Italian goods less competitive. Inflation rises. Crime rates and terrorism by extremist groups rise as well. The Communists make gains in local elections. A series of governments fails to bring political, economic, or social stability.

1976-1982: The Communists join forces with other opposition groups, and the left's power grows. Republican Giovanni Spadolini becomes prime minister. Austerity programs pull the economy out of recession, but inflation and unemployment remain high, and the trade balance turns negative. Italy joins the European Monetary System (EMS). Extremists terrorize the country with murders, kidnappings, and bombings.

1983-1987: Socialist Prime Minister Bettino Craxi, the longest running premier since 1945, heads a coalition government. Craxi cracks down on organized crime and continues an austerity program to revive the sluggish economy, but resigns in 1987 due to allegations of corruption. Italy, its economy half owned by the government, struggles to remain internationally competitive.

1988-1991: The Christian Democrats return to head a coalition government under Giulio Andreotti. As state-owned companies lose money, some begin to consider privatization. Organized crime decreases as many Mafia members are arrested, but terrorist activity by domestic and international groups continues. With its overvalued currency, high inflation, and slow economy, Italy's rank in the EEC falls.

1992-1995: To reduce Italy's deficit and public debt in order to qualify for the European Monetary Union (EMU), Prime Minister Giuliano Amato privatizes industry and infrastructure. A major corruption investigation implicates many leading politicians, bringing political turmoil. Two coalitions emerge, one center-right and one center-left. Media magnate Silvio Berlusconi briefly heads a right-wing government.

1996-2000: Romano Prodi of the leftist Ulivo coalition forms a government but resigns when Italians protest his austerity measures which ultimately enable Italy to join the EMU. Former Communist Massimo D'Alema becomes prime minister of a seven-party government which lasts less than two years. D'Alema continues privatization, and while economic growth rises, it still lags behind that of other EMU members.

2001-2003: Silvio Berlusconi is reelected despite concerns of conflicts of interest with his extensive business affairs. Relations with other EU members are volatile. Genoa hosts the 2001 G-8 summit of industrial nations, at which protests turn violent. The domestic atmosphere is charged due to economic stagnation, political polarization, and fears of renewed political violence.

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Political

1945-1946: Resistance fighters kill Mussolini. The German army in Italy surrenders. Christian Democrat Alcide De Gasperi becomes prime minister. A plebiscite makes Italy a republic. A Constituent Assembly is elected under a new system of proportional representation. King Umberto is exiled, Enrico De Nicola becomes provisional president, and De Gasperi builds a coalition with the Socialists and Communists.

1947-1948: A peace treaty establishes Italy's borders and reparations payments. Under pressure from the United States and the Church, Prime Minister De Gasperi forms a new Christian Democrat government that excludes the Communists. A new republican constitution goes into effect in 1948, with a weak executive and a bicameral parliament. Luigi Einaudi is elected president for a seven-year term.

1949-1952: Italy joins the North Atlantic Treaty Organization and becomes a founding member of the Council of Europe. Successive administrations led by Christian Democrat Prime Minister De Gasperi rely on support from more and more right-of-center Socialists and Liberals. Left-wing parties in the governing coalitions become increasingly dissatisfied with the government's internal policy.

1953-1959: The Socialists split into the left-wing majority Socialists and the right-wing minority Social Democrats, enabling the Christian Democrats to maintain power at the head of successive coalition governments. Italy is admitted to the United Nations. Giovanni Gronchi succeeds Einaudi as president. The new liberalism of the Vatican under Pope John XXIII facilitates a gradual shift to the left.

1960-1962: During a brief premiership, Fernando Tambroni attempts in vain to find a new right-wing coalition by drawing on monarchists and neo-fascists. He is rapidly succeeded by Christian Democrat Amintore Fanfani, whose move to the left in his coalition government costs him the support of his own party. Fanfani stands down at the end of 1962.

1963-1968: Christian Democrat Aldo Moro replaces Fanfani as prime minister and resumes his shift to the left. His alliance with the Socialist Party is strained. Both parties are divided. Social Democrat Giuseppe Saragat is elected president. In 1968 Christian Democrat Mariano Rumor forms a short-lived center-left coalition. The Communist Party breaks with Moscow after the Soviet invasion of Czechoslovakia.

1969-1972: Christian Democrat Emilio Colombo replaces Rumor as premier. A law creating new regional assemblies begins devolution of power to Italy's regions. Christian Democrat Giovanni Leone is elected president. With the economy in recession and workers demanding social reforms, Colombo resigns, and Parliament dissolves. Giulio Andreotti, also a Christian Democrat, forms a center-right government.

1973-1975: A series of governments, beginning with Prime Minister Andreotti's and ending with Aldo Moro's, prove unable to deal with economic decline, political corruption, or lawlessness. In 1975 the Communists make landslide gains in local elections.

1976: Prime Minister Moro's government resigns when the Socialists withdraw their support. The Communists increase their share of the vote and propose the "historic compromise": a coalition of the Christian Democrats, Socialists, and Communists. When the Christian Democrats reject the proposal, the Communists join the organized opposition. Andreotti returns to form a Christian Democratic government.

1977-1982: Sandro Pertini is elected president in 1977. Andreotti remains in power as premier through 1979. Dissatisfaction with political chaos prompts greater Communist participation in politics. The Socialists return in 1980 to share power with the Christian Democrats and Republicans until the following year, when the Christian Democrats relinquish the premiership to Republican Giovanni Spadolini.

1983-1987: The leader of the Italian Socialist Party (PSI), Bettino Craxi, becomes the first Socialist prime minister, leading a broad-based coalition government. Craxi is a strong premier who remains in office longer than any of his recent predecessors. Francesco Cossiga is elected president in 1985. Craxi rules over a period of strong economic growth, but resigns in 1987 under allegations of corruption.

1988-1991: After two short-lived coalition governments, Christian Democrat Giulio Andreotti takes office at the head of a coalition of Christian Democrats, Socialists, and minor parties. After the Berlin Wall falls in 1989, the Italian Communist Party, no longer a part of mainstream politics, changes its name to the Democratic Party of the Left (PDS). Provincial governments are granted greater authority.

1992: Christian Democrats and Socialists suffer setbacks in elections, exacerbated by investigations into political corruption. Oscar Luigi Scalfaro is elected president, and Socialist Giuliano Amato is named premier. Amato forms a government of tecnici, or technocrats, which carries through major monetary and economic reforms. Shaken by corruption allegations, his government survives only one year.

1993: Prime Minister Amato resigns amid public discontent over illicit political funding. In a referendum, a majority of Italians favor a new majority electoral system and cleaner democracy. Carlo Azeglio Ciampi, former head of the Bank of Italy, forms a new administration of tecnici. Constitutional reforms introduce a new majority electoral system, and Italy enters its Second Republic.

1994: Prime Minister Ciampi resigns. New parties form, but the new electoral system leads to the emergence of two coalitions of the center-left and center-right. The latter, led by media magnate Silvio Berlusconi's Forza Italia party, gains a majority in parliament. Berlusconi becomes premier, but his coalition soon disintegrates amid fears that his business interests may affect his political decisions.

1995: President Scalfaro directs Treasury Minister Lamberto Dini to lead a new tecnici government, supported by the center-left. Opposed by Forza Italia, Dini soon agrees to step down. In preparation for the 1996 national elections, the center-left parties create the Olive Tree coalition, or Ulivo, led by economist Romano Prodi, while the center-right unites under the Freedom Pole coalition.

1996-1997: Romano Prodi's Ulivo coalition forms the first left-leaning government since World War II. Ulivo gains support from the far left in exchange for labor and pension reforms. A constitutional reform commission proposes the introduction of direct election of the president. Upheaval over austerity measures put in place in preparation for the European Monetary Union (EMU) leads Prodi to resign.

1998-2000: Massimo D'Alema of the PDS becomes premier of a coalition government of seven parties, and Parliament names former Prime Minister Ciampi president. Prodi goes on to become president of the European Commission. D'Alema resigns in 2000 following a poor showing by his coalition in regional elections. Former Prime Minister Amato returns as premier, heading a reshuffled, center-left Cabinet.

2001-2003: National elections return Berlusconi to power at the head of a center-right alliance with majorities in both houses of parliament. Conflict-of-interest accusations surround his ownership of the three main private television channels. Relations with European Union partners are poor and made tense by Italian support, and French and Germany opposition to, U.S. plans for a war with Iraq.

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Economic

1945-1949: 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.

1950-1956: 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.

1957-1961: 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.

1962-1965: 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.

1966-1969: 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.

1970-1973: 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.

1974-1975: 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.

1976-1980: 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.

1981-1984: 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.

1985-1991: 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.

1992-1993: 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.

1994-1995: 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.

1996-1997: 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.

1998-2000: 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.

2001-2003: 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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Social

1945-1950: At the end of the war, a large part of Italy's industry, agriculture, and infrastructure lies destroyed. The Allies and the United Nations Relief and Rehabilitation Administration contribute substantial quantities of food and clothing. But unemployment is high, and political turmoil delays reconstruction. In the South, agricultural laborers rise up and attempt to occupy uncultivated lands.

1951-1959: Prime Minister De Gasperi and his successors carry out various attempts at social reform, especially in the area of land reform. But the rapid industrialization of the North and the concurrent rise in national income cause massive emigration from the agrarian South despite government initiatives for investment in that region. The economic and social divide between the North and the South widens.

1960-1967: The low wages that enabled Italy's "economic miracle" begin to cause discontent among Italy's workers. Successive governments make very little progress in structural reforms regarding education, the penal and civil codes, health services, or pensions. Emigration to industrialized European countries rises. Within Italy, South-to-North emigration continues.

1968-1972: Unrest over wages, working conditions, political chaos, and social services culminates in violent outbursts by students and industrial workers. Labor contracts covering five out of 13 million workers are renegotiated in 1970. Labor costs and wages increase. Italy begins to see educational reforms, an overhaul of the social security system, and the gradual legalization of divorce and abortion.

1973-1975: The parliamentary left breaks off dialogue with Italy's new social forces and proposes a "historic compromise" with the Christian Democrats. As a result, social movements disassociate themselves from institutional representation and become increasingly violent. Repression by employers and the police tightens. Unemployment rises as Italy suffers from the effects of soaring oil prices.

1976-1983: Fringe militants and workers in the North affected by factory restructuring form the Red Brigades, an extreme left terrorist organization practicing "proletarian justice." In 1978 the government introduces a welfare model that offers many universal and free services, including a state-run health service.

1984-1990: The labor market suffers from the cumulative effect of the system of wage indexation designed to compensate for inflation. The government introduces "social shock absorbers" such as wage guarantee funds, job-security agreements, and early retirement to dampen the effect of industrial restructuring.

1991-1996: The government abolishes the system of wage indexation and implements an Incomes Policy Agreement. Wage hikes are kept within the projected inflation rate while companies are granted the ability to introduce profit-related and performance-related pay. The pension system is completely reformed, with the creation of a single pension scheme for all workers. Unemployment rises to 12.3 percent.

1997-2001: As unemployment remains high, an underground economy absorbs many people who work for low wages and without standard benefits. A jobs package allows the creation of private employment agencies for temporary work and allocates $550 million to finance workfare programs and work grants for young people. A 1997 government commitment to a 35-hour work week goes unfulfilled.

2002-2003: With the economy stagnant and political life polarized by Berlusconi's government, many fear that Italy is entering a period of social malaise. The political assassination of a ministry advisor rekindles memories of the Red Brigades' late '70s reign of terror. The death of Fiat boss Giovanni Agnelli unites businessmen and trade unionists in mourning, marking the end of an era for Italian industry.

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Environmental

1945-1965: Rapid industrialization in the North raises pollution levels, but emphasis is on economic growth and development rather than environmental protection. Constitutional articles provide for the protection of Italy's natural, historic, and cultural heritage without details or means to enforce any form of compliance.

1966-1976: Italy establishes general environmental legislation. The Clean Air Law of 1966 delegates responsibility to local governments for setting standards, permitting, and monitoring. The Water Pollution Control Law of 1976 controls discharges of industrial and municipal wastes into surface waters. But Italy's concern for the environment lacks concrete policy and goal-setting mechanisms.

1977-1985: Substitution of natural gas for coal brings a dramatic reduction in sulfur oxides emissions, but overall pollution rates continue to rise. Responsibility for environmental protection is divided among several national institutions and poorly coordinated. A massive earthquake kills more than 3,000 people in the Naples area, causing considerable environmental and economic damage.

1986-1988: International influences such as treaties and United Nations conventions drive environmental action. Italy establishes a Ministry of the Environment, charged with coordinating government activities. Several Italian firms export hazardous waste to developing nations until international pressure forces the Italian government to assume all costs to recover the waste and repair environmental damage.

1989-1990: The Ministry of the Environment develops a planning process based on Three-Year Environmental Management Programs. The Ministry, however, has minimal resources, and other national agencies retain responsibility for many environmental matters in their sector. The government delegates certain implementation duties regarding land and water management and industrial pollution to the country's regions.

1991-1992: The Ministry of the Environment drafts its first 10-year environmental plan and implements "polluter pays" principles, holding air and water polluters fully responsible for environmental damage. Weaknesses in the legislative process cause some difficulties with the European Union as Italy provides the least amount of information of all EU members regarding the implementation of union directives.

1993-1997: The government creates the Environmental Protection Agency to function as the Ministry of the Environment's field liaison by gathering data, supervising compliance, and providing technical support in setting environmental standards. Compliance on environmental matters varies from region to region as regional governments have significant autonomy in implementing environmental law.

1998-2003: National laws are structured to provide a basic framework but depend on legal and regulatory texts at the regional level, resulting in uncoordinated and uneven implementation of environmental policy. In 2000 the European Union issues a warning to Italy following the country's failure to respond to European Commission requests for environmental information.

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Rule of Law

1945-1948: Violent royalist demonstrations demand in vain that the strongly monarchist South secede. In Sicily the Mafia moves into the cities from the countryside and becomes involved in land speculation and construction. Italy's constitution, effective in 1948, guarantees basic rights of freedom and nondiscrimination. The Fascist Party and the monarchy are outlawed, and the royal family is exiled.

1949-1957: The Communists promote widespread strikes for higher wages. When the strikes escalate into a national crisis, government troops and police forces are called in to restore the peace. Workers in the South continue to demonstrate their frustrations with poverty through strikes and riots.

1958-1969: As Sicilians move north in search of work, Mafia operations spread throughout the country. The Mafia prospers, delivering votes and financing political campaigns in exchange for local contracts. Organized crime, however, is not yet a major concern for prosecutors. Legislators attempt to restrain the most glaring forms of labor force exploitation. Crime and violence accompany rapid urbanization.

1970-1976: The Mafia's income from drugs and arms trafficking, kidnapping, and extortion reaches into the billions of dollars as it becomes an independent economic force of its own. Despite laws enacted to combat organized crime, the lack of political will behind them means that nothing stands in the Mafia's way. Repression by factory employers and the police drives a resistance movement to arm itself.

1977-1981: Political violence escalates as the extreme-left Red Brigades and other groups turn to terrorism that culminates in the kidnapping and assassination of former Prime Minister Aldo Moro. Far-right groups are responsible for a bombing at the Bologna railway station that kills 82 people. In 1981 a corruption scandal involving hundreds of public servants brings down the government.

1982-1986: Italy becomes a major world center of illegal arms transfers. After a leap in the number of murders, including those of Carlo Alberto Dalla Chiesa (who had directed a campaign against the Red Brigades) and his wife, Prime Minister Craxi cracks down on organized crime. Legislation forbids membership in the Mafia and permits the investigation of business and banking activities of Mafia suspects.

1987-1991: As a result of new legislation, the government is able to put impressive numbers of Mafia members behind bars and impound their property, including well-known hotels in Rome and Milan. International and domestic terrorist events continue on Italian soil in spite of this success.

1992-1994: Magistrate Antonio Di Pietro investigates a corruption network in which former Prime Ministers Craxi and Andreotti are among dozens of accused high-ranking politicians. The "Clean Hands" investigation shows that most political parties are involved in an institutionalized system of bribes (Tangentopoli, or "Bribesville"). Constitutional reforms largely end proportional representation in Parliament.

1995-1996: Former Prime Minister Andreotti and four others are charged with the 1979 murder of a journalist alleged to have been blackmailing him. Andreotti is later arraigned on further corruption charges, along with former Prime Ministers Berlusconi and Craxi, former Foreign Minister Gianni De Michelis, and former Chief Prosecutor Antonio Di Pietro.

1997-2001: A constitutional reform commission introduces direct elections for the office of president. In 1998 former Prime Minister Berlusconi is convicted of financial crimes, but his sentence is immediately quashed. The Italian police attract unwanted international attention when they fatally shoot a young activist during violent clashes with anti-globalization protesters at the 2001 G-8 summit in Genoa.

2002-2003: Parliament passes judiciary reform laws that an angry opposition sees as an attempt to protect Prime Minister Berlusconi and his associates from prosecution. The assassination of a Labor Ministry advisor prompts fears of a revival of 1970s-style political terrorism. Former prime minister Giulio Andreotti is convicted of having ordered a Mafia hit; he is sentenced to jail and appeals.

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Trade Policy

1945-1950: Forced to import oil, coal, and iron as a result of its lack of raw materials and under pressure from the United States, Italy opens its economy to the international market. Italy begins to focus less on agriculture and more on industrial exports to North America and Western Europe. Italy does retain, however, some protectionist tariffs.

1951-1956: Italy, Belgium, France, West Germany, Luxembourg, and the Netherlands create the European Coal and Steel Community (ECSC) to pool their coal, iron, and steel resources. They remove custom duties and quantitative restrictions on these raw materials. The low value of the lira and low labor costs make Italian goods competitive. All industries except for the food industry become export-oriented.

1957-1963: Italy is a founding member of the European Economic Community (EEC), which forms a customs union and a unified market with free trade among the member states. The creation of the EEC ends any remaining vestiges of protectionism in Italy. Italy's dependence on imported coal, petroleum, and other raw materials results in an unfavorable balance of trade which is offset by the tourism industry.

1964-1969: Italy's main exports continue to be machinery and transport equipment, textiles, and chemicals, but Italian goods become less competitive as technologies in other countries improve and wages in Italy rise.

1970-1975: Italy's imports become more expensive as a result of constant devaluations of the lira and the soaring price of oil. The terms of trade shift toward producers of primary products. Italy struggles to increase exports to prevent a negative balance of trade.

1976-1986: The balance of trade becomes negative for the first time in years as prices of imports continue to be high and tourism revenues drop as a result of political violence. The Mafia, with its narcotics, arms. and explosives deals, forms a substantial, albeit illegal, part of Italy's international trade.

1987-1991: Italy's trade balance remains largely in deficit, coming out of the red only occasionally with the drop in oil prices and the fall in the value of the U.S. dollar. A government crackdown on organized crime reduces the volume of illegal trade.

1992-1996: With the collapse of the value of the lira in September 1992, exports pick up. The top export sectors are fashion, furnishings, precision instruments, and transportation equipment. The balance of trade swings into a small surplus of $3.2 billion in 1992 which expands during the next four years to reach $60 billion in 1996. Italy joins the World Trade Organization upon its creation in 1995.

1997-2003: Italy conducts 60 percent of its total trade with the European Union. The trade balance remains highly volatile, reacting sharply to changes in the real exchange rate and the economic cycle. The decline of Fiat raises concerns for one of Italy's traditional lead exporters. The government promotes Italian culinary exports with a campaign to rate the authenticity of Italian restaurants abroad.

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Money

1945-1955: Italy maintains a restrictive monetary policy. The removal of the wage and price controls of the Fascist regime and the sheer amount of currency in circulation spark inflation. A law allowing exporters to keep 50 percent of their revenues in foreign currency means most exporters hold on to as many dollars as possible. Combined with inflation, this leads to a series of devaluations of the lira.

1956-1963: Monetary policy loosens as firms invest their profits and borrow less. The rapid expansion in liquidity reduces interest rates. After dropping to 2.7 percent in 1960, inflation picks up again and reaches 7.6 percent in 1963. The Bank of Italy imposes a harsh credit squeeze to tackle inflation just as the economic boom comes to an end. Inflation slows, but so do investment and domestic demand.

1964-1973: The Bank of Italy continues to implement restrictive domestic monetary measures, coupled with a government austerity program to combat inflation. Various experiments with price controls fail. Italy adopts a devaluation strategy which aggravates inflation, raising the price of imports.

1974-1975: The rise in oil prices contributes to inflation. The government believes earlier restrictive policies to be partly responsible for the economic crisis. It initiates an expansionary monetary and fiscal policy, abolishing bank credit ceilings and lowering the discount rate. While inflation begins to drop, these policies bring a decrease in total output and investment.

1976-1978: The lira depreciates sharply in early 1976, and the official exchange market closes for two months. To prevent a deeper fall, the authorities reinitiate tightening measures. The lira strengthens in 1977, and interest rates rise. Companies begin to borrow abroad. A grant of credit from the International Monetary Fund and the EEC improves Italy's balance of payments and the performance of the lira.

1979-1983: In 1979 Italy becomes a founding member of the European Monetary System (EMS), created to stabilize foreign exchange and counter inflation, and adheres to its exchange-rate mechanism (ERM). Inflation, however, surpasses 21 percent in 1980. A major banking scandal forces the liquidation of the Banco Ambrosiano of Milan, the country's largest private bank.

1984-1991: As European integration increases, uneven management of Italy's finances severely weakens Italy's standing in Europe. Prime Minister Craxi succeeds in bringing inflation down to 10.6 percent in 1984 with a tight national budget, but his measures and a number of downward realignments of the lira are insufficient to compensate fully for higher inflation in Italy than in its major trading partners.

1992-1995: After heavy currency speculation, the government devalues the lira and suspends its membership in the ERM. The lira falls sharply and remains undervalued through 1995. The Maastricht Treaty sets out conditions for membership in the European Monetary Union (EMU), and the government introduces a series of austerity budgets to control and reduce the deficit and public debt.

1996-1997: Greater political stability helps the lira appreciate, reenter the ERM, and remain stable. The government works hard to meet the criteria for EMU membership. The 1997 budget deficit achieves the Maastricht Treaty target, and inflation falls to 1.7 percent. But reliance on falling interest rates to reduce public debt payments casts doubts on Italy's suitability as a member of the EMU.

1998-2003: In 1999 the EMU members adopt a single currency, the euro, for foreign exchange and electronic payments. January 2002 sees the euro in public circulation and the retirement of the lira. The European Central Bank now handles monetary policy. As in other European countries, there are accusations that the switch has given shopkeepers cover for price hikes.

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Categories: Overview | Political | Economic | Social | Environmental | Rule of Law | Trade Policy | Money
Graphs: Growth | Income | Inflation | Unemployment | Well-being | Trade Volume | Trade (CAB) | Debt | Spending

Related: LinksView all categories for years from to | See Full Report | Print