Lessons from Italy’s economic decline:exploring how some of Italy’s traps may become future challenges for the UK economy

Italy has faced a series of economic crises in the past 50 years, many of them shared by the United Kingdom. There were inflation crises in the 1970s, public debt concerns in the 1980s and currency volatility in the 1990s. There were then four shocks in a row over the past fifteen years, i.e. the Global Financial Crisis (GFC), the sovereign debt crisis, the coronavirus pandemic and finally the inflation shock partly linked to the Russian invasion of Ukraine. These crises were opportunities to reform Italy’s economy. Yet, hopes have been repeatedly disappointed by the lack of policy delivery and as reforms were captured by lobbies and interest groups. This chapter first examines some stylised facts, then provides a short history of Italy’s economic underperformance, before digging into the root of Italy’s growth problems. Many factors are to blame: poor economic incentives, a large share of small and unproductive firms, a lack of domestic market competition, and policy capture. Some of Italy’s traps may become future challenges for the UK economy.