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786. What went wrong with Italy, and what the country should now fight for in Europe

Working paper N. 786 Ottobre 2018

Sergio Cesaratto 

DEPS, USiena

Gennaro Zezza

Università di Cassino e del Lazio Meridionale, and Levy Economics Institute


In this paper we briefly review the evolution of the Italian economy in the post-war period, discussing the shift from a first period when fiscal policy was targeted – among other things – at full employment, to a later period when controlling inflation through a “foreign discipline” became the main policy target. We review critically the literature on the Italian productivity slowdown, suggesting that it neglects the role of aggregate demand, and of labor market reforms, on productivity. Finally, we discuss Eurozone imbalances, suggesting that Eurozone institutions adopt new rules to keep the interest rate low enough to make public debt sustainable, while using fiscal policy to stimulate growth


Italy; stagnation; Eurozone; imbalances

Jel Codes

E44; E52; E62;F45