The Euro Area’s Achilles Heel: Reassessing Italy’s Long Decline in the Context of European Integration and Globalisation


Dario Guarascio, Philipp Heimberger and Francesco Zezza

wiiw Research Report No. 470, July 2023
41 pages including 4 Tables and 7 Figures

free download

This paper analyses how Italy’s decades-long decline turned the country into the euro area’s Achilles heel, the most vulnerable spot in the common currency. We use a structuralist framework to synthesise different (competing) supply-side and demand-side explanations, accounting for long-term processes and sectoral interdependencies. We argue that structural domestic factors that were already present in the decades after World War II (‘original sins’) – low-cost competition and labour fragmentation, many small firms linked to low innovation, and a deep territorial divide – interacted with the policy constraints brought about by globalisation and European integration to exacerbate Italy’s decline vis-à-vis its euro area peers.


Keywords: Italy, decline, euro area, crisis

JEL classification: E65; P16; F45; F62

Countries covered: European Union, Italy

Research Areas: Macroeconomic Analysis and Policy