Italy's industrial development began at the
end of the 19th century, with relatively rapid expansion in the North before
and during World War I. Fascist policies and the world depression encouraged
restructuring rather than expansion, and by the end of World War II nearly
half the workforce was still employed in agriculture. Since the 1950's,
however, the Italian economy has undergone massive changes so that by the
1990's manufacturing, mining, and construction accounted for 33 percent
of gross domestic product, with services (including trade, banking, and
government) providing a further 63 percent, while agriculture's share had
fallen to a mere 4 percent.
Between 1950 and 1964 Italy's industrial production nearly doubled. Finished manufactured goods replaced primary goods as principal exports with increasing imports of raw materials and capital goods. Between 1963 and 1974, the economy grew at 4.7 percent per year, making northern Italy one of the most advanced industrial regions in Europe by the early 1970's.
The economic boom of the 1950's was based on the competitiveness of Italian manufacturing products (especially consumer goods) that resulted from low wage rates and living standards. Entry into the European Common Market in 1958 was also a major factor in stimulating Italian exports. Rapid economic growth began to create strains in the 1960's, and it became increasingly difficult to hold down domestic wages and consumption levels. These tensions found expression in the intense period of strikes and industrial disputes between 1968 and 1969, which forced Italian employers to make heavy concessions to their workers.
While earlier comparative advantages were being eroded, a massive increase in oil prices and a recession in international trade in the same decade hit Italy particularly hard. Oil prices quadrupled between 1973 and 1974 and resulted in massive increases in Italy's balance-of-payments deficit. Inflation accelerated, reaching a peak of 21.1 percent in 1980 and remaining at 9.9 percent a year throughout the 1980's. Nonetheless, that decade saw renewed economic growth, with strong expansion in exports, decline in the trade deficit, spectacular successes by small businesses, and a return to profitability in public sector enterprises. Consumption rose to meet the highest levels in the European Community, and between 1984 and 1992 the annual growth rate of the economy was 2.5 percent, while in terms of gross domestic product Italy retained third place in Europe after Germany and France.
Despite the buoyancy of the Italian economy in the 1980's, underlying structural problems remained and these became more evident in the bleaker climate of the 1990's. Italy's public sector deficit rose from 84.6 percent of gross domestic product in 1985 (in contrast to 48.5 percent in the United States) to 103 percent in 1992. To meet the conditions laid down by the European Community in the Maastricht agreement of 1991, recent Italian governments attempted to reduce the public debt and the budget deficit, but government borrowing in 1992 was still running at 10.7 percent of gross domestic product, six times as high as the average for OECD countries. The huge public debt and continuing overruns on public sector spending were the main reasons for the 7 percent devaluation of the Italian lira in the European Exchange Rate Mechanism (ERM) in September 1992 and for the package of emergency financial and fiscal measures introduced by Italian governments in 1992 and 1993.
Another major structural problem was the continuing gap between levels of production and affluence in the North and the South. Since 1945, southern Italy has also experienced profound economic and social change. The rural population has declined owing to migration in the 1950's and 1960's to expanding industrial cities of northern Italy and overseas (to other EC countries and to the United States), while incomes, living standards, and education and employment rates have all increased. However, in all these respects in relative terms the South has fallen even further behind the North, and a particular cause of concern arises from the concentration of huge populations in the principal southern cities -- specifically Naples, Catania, and Palermo -- with low employment opportunities, scarce housing, and inadequate educational and welfare facilities.
Since 1945 the Italian government has played a very direct role in economic development. In political terms the reason lay in the need to reconstruct the Italian economy after the war, to reduce high unemployment rates and dependence on imports, and to redress the imbalance between North and South. The means were provided by the state's direct involvement in economic planning inherited from Mussolini's regime. In 1933, in response to the Depression and the threatened collapse of the Italian banking system, Mussolini's government set up the Institute for Industrial Reconstruction (IRI). It acquired extensive interests in Italy's key industrial sectors, and by the 1950's these included iron and steel, cement, engineering, chemicals, shipbuilding, aviation, highways, telecommunications, and television. Another state holding company, the National Hydrocarbons Board (ENI), was founded by Enrico Mattei in the 1950's to exploit natural gas and petroleum deposits, and this too branched into many other fields. Other state holding companies included ENEL (electricity production), EGAM (minerals), and EFIM (manufacturing). In the 1950's, these state holding companies played an important role in Italy's "economic miracle," but by the mid-1960's they were moving into deficit and their difficulties were reflected in the rise of new private sector giants such as Montedison (from the fusion of Montecatini and Edison). But the distinctions between public and private enterprises were not always clear-cut, and the private sector giants in turn became increasingly dependent on political support and monopolistic controls. During the 1980's IRI and ENI were restructured by Romano Prodi and Franco Reviglio, respectively, and entered a new phase of profitability.
Another key target of state intervention
in Italy's postwar economy has been the South, where development strategies
were spearheaded by the Fund for the Development of the South (Cassa per
il Mezzogiorno), set up in 1950, and the Association for the Economic Development
of the South (SVIMEZ). In the 1950's these agencies focused primarily on
creating infrastructure (roads, electrification, agricultural credit).
As well as establishing a network of modern highways, public expenditure
in the South increased employment, but mainly in services. The program
was accompanied by a massive exodus from rural regions, some of which resumed
earlier patterns of overseas migration but a considerable portion of which
was absorbed in the rapidly expanding northern industrial cities. Once
the expansion of the Italian economy faltered in the 1960's, strategic
planning in the South switched to promoting heavy industry. The idea was
to create "poles of industrial attraction" around Naples, Taranto, and
Brindisi, but the strategy proved unsuccessful. Only two major industrial
concerns were established in the South in the 1960's, a Montecatini-Edison
petrochemical works in Brindisi and a large FIAT motor vehicle plant near
Naples. The strategy did create numerous "cathedrals in the desert,"
such as the steel foundry at Gioia Tauro in Calabria that was built but
never commissioned. In the 1980's public investment in the South was increasing
via a variety of welfare packages, while much of the emergency funding
following the earthquakes that hit a number of regions in the winter of
1981-1982 was siphoned off by organized crime. During the 1980's new expectations
were raised by the upsurge of small businesses in the private sector in
regions like Apulia, Abruzzi, and Campania, but these proved short-lived.
Despite successive investment programs, the southern mainland, Sicily, and Sardinia still accounted for only 23 percent of Italy's gross domestic product by the late 1970's. The uncontrolled expansion of public expenditure and the constraints imposed since 1989 by the European Community's program of economic convergence required radical reconsideration of public funding programs in the South, which have also been a central target for criticism by the Northern League. As a result, they had an uncertain future, depending on political developments.
Italy's gross domestic product (GDP) -- its total output of marketable goods and services -- was valued at 1,427 trillion lire in 1991, equivalent in purchasing power to $976 billion. Per capita GDP was equivalent to $16,896, compared with $18,227 for France and $19,500 for Germany. In 1991 private consumption accounted for 62 percent of the GDP, government consumption for 17 percent, and investment for about 20 percent.
The Italian labor force in 1990 numbered
23.9 million, or about 41 percent of the total population. The structure
of the workforce changed in many ways during the decades after World War
II. In 1951, for example, 25 percent of Italian workers were women. In
1990 women made up 37 percent of the workforce, compared with about 43
percent in France and 40 percent in Germany. The occupational distribution
of Italian workers also changed. Between 1954 and 1979 about 4 million
agricultural workers left the land, a large proportion of them moving from
the South into northern industrial areas. Since 1958 industry has employed
a larger portion of the labor force than agriculture.
At the start of the 1990's about 32 percent of Italy's employed labor force was in industry, about 9 percent in agriculture, and the remaining 59 percent in commerce, services, and the professions. This contrasts sharply with employment in 1951, when 43 percent of the workforce was employed in agriculture, 33 percent in industry, and 24 percent in services, commerce, and the professions. The change entailed heavy investment to build up new enterprises, large population movements from rural to urban areas, and the retraining of millions of laborers to enable them to acquire new skills. Industrial wages in Italy, once lower than those in most of Western Europe, by the middle of the 1970's were similar to those in France, though still much lower than those in West Germany.
Unemployment has often been a serious problem in Italy. After the middle of the 1950's, unemployment declined, partly because industrialization created more jobs, and partly because many Italians found work in other countries, especially West Germany and Switzerland. After the middle of the 1970's, as economic growth slowed, unemployment increased. In 1993 unemployed workers in Italy represented 11 percent of the labor force, but with marked regional differences -- 7.7 percent in northern and central Italy versus 18.9 percent in the South.
Italy experienced nothing comparable to Britain's
first industrial revolution. Large-scale industry was established relatively
late in Italy. Between 1870 and 1914, however, a number of big industrial
firms were formed in the North, including the Pirelli rubber factories,
the Montecatini chemical works, the Terni steel foundries, and the FIAT
car factories. World War I (1914-1918) stopped industrial development,
but during the 1920's and 1930's some advances were made under Fascism,
although the economy was distorted by efforts to achieve an impracticable
self-sufficiency, by expenditure on colonial ventures in Africa and by
large military expenditures. The bombing and fighting on Italian territory
during World War II was disastrous for the economy. However, recovery after
the war was on the whole amazingly rapid. It was fostered by U.S. aid totaling
After World War II the government encouraged industries that would add to Italy's export earnings, particularly the iron and steel, machine-building, and chemical industries. New machinery and increased efficiency contributed to spectacular advances in steel production, which increased more than eightfold between 1951 and 1980. Great advances were also made in the manufacture of machinery and electrical appliances and in the motor vehicle industry, dominated by FIAT of Turin. Advances in the chemical industry affected a wide range of products, from petrochemicals to dyestuffs, synthetic fibers, and plastics.
The cotton and wool textile industry, Italy's leading industry at the beginning of the 20th century, declined after 1950 in comparison with the main growth sectors. However, the production of textiles, increasingly synthetics, remained important. The clothing industry also expanded rapidly from the early 1950's as Italians became more willing to buy ready-made clothes, and foreign markets for Italian clothing and footwear were developed. In the field of haute couture, Italian fashion houses also successfully entered foreign markets.
Manufacturing industries are the most important
sector of the Italian economy. They contribute about 25 percent of the
national income, the second largest contribution of any sector of the economy.
Industrial products account for the bulk of export earnings. Manufacturing
also provides one out of every five jobs in Italy, a proportion surpassed
only by the service sector.
The production of machinery is Italy's chief manufacturing industry. The principal types of nonelectrical machinery made in Italy are office machines such as calculators and typewriters, agricultural machinery such as tractors, textile machinery such as looms and sewing machines, and heating and cooling equipment. Electrical machinery made in Italy includes telecommunications apparatus, refrigerators, washing machines, and other household appliances. Machinery is produced mostly in the North, around Milan, Turin, Genoa, Bergamo, Brescia, and Florence. Since World War II some machine-building plants have been constructed in the vicinity of Naples and Bari.
The manufacture of motor vehicles such as passenger cars, trucks, and motor scooters is another important Italian industry. The factories are concentrated around Turin, Milan, Brescia, and Desio. In 1991, 1,627,000 automobiles were produced in Italy, making it the world's sixth largest manufacturer of passenger cars. In the same year Italy produced nearly 260,000 commercial vehicles such as trucks and buses.
In the early 1970's Italy was also an important shipbuilder. In 1974 Italy's shipyards launched merchant ships with a capacity of 1,028,000 gross registered tons. By the end of the decade shipbuilding had declined sharply in Italy and in most other countries. From 1978 through 1980 Italian shipyards launched merchant ships with a total capacity of 499,000 gross registered tons, averaging only 166,000 tons per year. From 1986 to 1992 they launched merchant ships with a total capacity of 4,438,000 gross registered tons, averaging 634,000 tons per year. Shipbuilding is centered on Italy's northwest coast, including Genoa.
The manufacture of textiles and clothing is second in importance to the manufacture of machinery and transportation equipment. Cotton textiles are produced at Gallarate, Busto Arsizio, Legnano, Bergamo, and Brescia. Woolen textiles are made at Biella, Vicenza, and Prato. Silk is produced at Brescia, Treviso, and Como. Linen is made in southern Lombardy and Campania. The making of clothing and footwear is also important. Clothing is made in Florence, Turin, and Rome.
The chemical industries, including oil refining, coal processing, and the manufacture of synthetic fibers, account for about one seventh of the total manufacturing product. The chemical industries have grown tremendously since the discoveries of natural gas and oil in Italy in the late 1940's. By the start of the 1970's Italy was one of the world's largest producers of synthetic fibers and of sulfuric acid. Other important chemical products include synthetic ammonia, dyestuffs, pharmaceuticals, photographic materials, plastics, synthetic rubber, fertilizers, and petrochemicals. Production takes place at Genoa, Venice, Milan, Ravenna, Brindisi, Ferrandina, and Gela.
Metallurgy is also a relatively new industry in Italy. Lacking the necessary resources of coal and iron ore, Italy developed a metallurgical industry only after formation of the European Coal and Steel Community in 1952. Between 1959 and 1980 the steel output of Italy rose 292 percent compared to 56 percent for France and 49 percent for West Germany. In 1992 Italy's crude steel production of 25 million metric tons placed it sixth in the world, just ahead of Canada and Brazil. Italy also has important aluminum, zinc, lead, mercury, and magnesium industries.
The production of food, such as pasta and tomato products, and beverages is dispersed throughout the country. Furniture is manufactured at Brianza, near Milan. Paper and paper products are made in Lombardy and Piedmont. An internationally renowned cinema industry is located in Rome. Cement production, important for Italy's construction industry, was 40,788,000 metric tons in 1990.
The construction industry expanded rapidly after World War II, and in 1990 it employed 1.9 million workers. Projects, many of them in the South, included new dams, electric power plants, roads, and other public utilities. Italian construction firms have been active abroad, especially in developing countries; in the 1960's Italian firms built the five largest dams in Africa.
Before World War II hydroelectricity was
the only significant domestic source of energy, and most industries depended
upon imported coal. After the war a major change began following the discovery
of large deposits of natural gas in the Po Valley in the late 1940's and,
later, in Basilicata in the South. A second major change began in the middle
1950's when many Italian companies converted from coal to oil, which had
to be imported but which at that time was relatively cheap.
From 1950 to 1960 total energy consumption rose by 176 percent, almost entirely on the basis of domestically produced gas and imported oil. Coal, which provided almost half the energy in 1950, provided only 20 percent in 1960. The rapid growth in energy use, mainly on the basis of imported oil, continued until 1973-1974, when the price of oil quadrupled. From 1960 to 1974 total energy use rose 232 percent, and oil use rose 374 percent. By 1974 oil supplied more than 75 percent of Italy's energy. During the later 1970's there was hardly any rise in energy use. Oil use was reduced by 4 percent and gas use was increased by 35 percent. In 1978 oil provided 71 percent of Italy's energy and gas provided 19 percent, as against 14 percent in 1974. Only 6 percent of the energy used in 1978 came from coal and 4 percent came from hydroelectricity and nuclear power. From 1980 to 1990 energy use rose only 11 percent. In 1990 oil provided 61 percent of Italy's energy, gas provided 25 percent, coal provided 9 percent, and hydroelectricity and geothermal energy provided 5 percent.
In 1990 Italy generated 216.9 billion kilowatt-hours of electricity. About 82 percent of the electricity came from steam-driven power plants burning fossil fuels, especially oil; about 16 percent came from hydroelectric power plants, and about 2 percent came from geothermal power plants. Nuclear power plants, which had provided almost 1 percent of Italy's electricity in 1987, were phased out between 1988 and 1990 in response to popular opposition expressed in a 1987 referendum in which the electorate voted against further construction of nuclear power plants.
The types of farming in Italy vary greatly
according to geographical area. The most productive agricultural land is
in the fertile plain of the Po Valley in the North, where large-scale,
intensive, mixed farming predominates. This is also Italy's main dairying
area. Lombardy, in the northeast part of the plain, is the only region
in Italy in which livestock breeding predominates over cereal cultivation.
The southern part of the plain, the Emilia-Romagna region, has more diversified
farming and is a major area for the raising of fruits and cereals as well
as livestock. The other regions of the plain, Piedmont in the east and
Venetia in the west, rank high in agricultural production; they are famous
for their wines.
The central regions -- Tuscany, Umbria, and the Marches -- are also mixed farming areas, devoted to olives, grains, grapes, and livestock. Conditions there are not as good as in the North because the central regions are made up of mostly hilly and mountainous country. The mezzadria, or sharecropping, system was common until 1960, when it began to be eliminated. As hillside farming has become unprofitable, farmers have left the land to work in the towns.
In the South the types of crops grown vary greatly. The fertile belts along the coast are devoted to orchards and vineyards. Grapevines and fruit, olive, and almond trees are cultivated. In contrast, much of the inland soil is of poor quality and can support little more than primitive cereal cultivation and sheep raising. Lack of water remains a major problem in the South, and irrigation is the key to developing agriculture there.
Types of Farms
In 1990 there were 2,940,000 farms in Italy,
and farmland covered 22.6 million hectares (55.8 million acres). Only 4
percent of farms were classified as large-scale enterprises. Farms worked
directly by owners and their families numbered about two million; the average
size of these farms was 5.4 hectares (13.3 acres). In addition, many Italians
who hold other jobs supplement their incomes or their food supplies by
cultivating plots of land smaller than one hectare (2.5 acres) in area.
Land reform laws enacted in 1950 reduced the number of large farms, especially in the South, by redistributing land to the peasants. The number of small farms decreased during the 1960's and 1970's, however, as Italian agriculture was modernized through the introduction of machinery too costly for many of the poorer peasants to afford. For example, the number of tractors in use in Italy almost quadrupled between 1960 and 1978.
Cereals are the main food crops. Italian
farms produce about two thirds of the cereals consumed domestically. The
main cereal crop is wheat, grown throughout Italy. In 1992 the country
produced 8.9 million metric tons of wheat. Half the wheat is grown in the
North, which has by far the highest yields per acre. Corn (maize) and rice
are also grown in the North. Other important cereals are oats and barley.
The growing of Mediterranean tree and vine crops is also important. Grapes, olives, citrus fruits, and almonds are the principal crops of this type of cultivation, which is especially characteristic of the South. Italy is among the world's largest producers of olive oil and wine, and these, together with tomatoes, fruits, and early vegetables such as peas and beans, are important export items.
The chief industrial crops are sugar beets (grown especially in Venetia), tobacco (cultivated especially in the South), soybeans, hemp fiber, cotton, and flax fiber.
In 1992 Italy was the third leading meat
producer in Western Europe. However, it still had to import large amounts
of meat; almost one-third of the beef and veal consumed in Italy was imported.
Cattle are raised in the North, especially on large dairy farms in the Po Valley. Some of the sturdy Alpine breeds have been introduced into the hilly districts of the South, where sheep and goats have long been the chief livestock.
Agricultural Development Plans
During the 1960's, Italian government "green plans" promoted farm mechanization, technical training, cooperative processing and marketing of produce, soil conservation, irrigation, and reforestation. The European Community (EC) helped fund many of these programs in the 1970's. However, the EC's common agricultural policy consisted primarily of a price support system under which much more was spent on price guarantees for northern European products such as milk and beef than for fruits, vegetables, and wine, which are very important in the Italian economy. The system was criticized as discriminatory. In the late 1980's, EC price supports for southern European products were increased.
Forests and woods occupy 6.8 million hectares (16.8 million acres), or one-fifth of Italy's land area, but forestry is insignificant in the total economy. Annual roundwood production averages 8.5 million cubic meters (300 million cubic feet). The main forest regions are in the mountainous or hilly areas of the Apennines, Alps, and Dolomites, and the Sila and Aspromonte regions of Calabria. Resinous trees (firs and pines) grow in the upper areas, whereas on the lower slopes broadleafed trees such as beech and oak predominate.
Despite Italy's long coastline, the catch is small. The fishing industry is mostly local and small scale. The annual catch averages 543,000 metric tons, about three-fifths the average catch of France.
Natural gas, produced in the Po Valley and in the South, is Italy's main mineral fuel resource. Italy's proved recoverable reserves of natural gas are estimated at 300 billion cubic meters. Production of natural gas was 17 billion cubic meters in 1990. Italy has very small petroleum resources, located mainly in Sicily and the South. Proved recoverable reserves of petroleum totaled 91 million metric tons and petroleum production was 4.6 million metric tons in 1990. Some coal (all subbituminous) and lignite are mined in Sardinia. Italy is self-sufficient in bauxite, lead, and zinc, and it produces some mercury and marble for export.
The contribution of domestic trade, finance, and other services to the gross domestic product is the largest of any sector of the economy. Many people who left farms in the 1950's and 1960's found jobs in shops or service industries or started small local businesses. The pattern of domestic trade changed considerably in the 1950's and 1960's. Chain stores and supermarkets, although less widespread in Italy than in other West European countries, have branches in most provincial capitals, including southern towns like Cosenza and Potenza. Consumers began to buy inexpensive mass-produced clothes from big stores rather than have them made by tailors and dressmakers. The 1980's saw the rapid expansion, integration, and specialization of services and small businesses.
The Italian railroad network included about
12,180 miles (19,600 km) of track in 1991, half of which was electrified.
In the 1960's tracks and equipment were modernized on all main lines, much
outdated stock was eliminated, and diesel and electric engines replaced
steam engines. The express trains between Rome and centers like Milan,
Genoa, Venice, and Naples are among the best in Europe.
By the early 1970's Italy had Europe's leading road system after West Germany. A superhighway, the Autostrada del Sole, runs from Milan to Naples, with links to Bari and through Salerno to Calabria and Sicily. The use of automobiles increased greatly beginning in the 1960's; in 1989 there were 26.3 million automobiles in Italy, about ten times as many as in 1960, and 2.1 million trucks and buses.
Air travel is an important means of transportation on the mainland. Airplanes are widely used as transport to the islands. Besides the international airports at Rome, Milan, and Naples, there are many smaller airports on the mainland and islands. Italy's major airline is Alitalia.
Italy's registered merchant fleet was the 12th largest in the world in 1992. It included first-class passenger vessels operating on Atlantic and Far Eastern routes, and small craft like ferryboats, tramp steamers, and fishing vessels. More than two-fifths of the fleet's total capacity was accounted for by oil tankers. There are ferryboat services between the mainland and Sicily and Sardinia.
Italy's industrial economy depends heavily
on foreign trade. In the early 1990's Italy's merchandise exports amounted
to 18 percent of its GDP.
Starting in the late 1950's, Italy began to export more finished manufactures, especially machinery, metallurgical goods, and chemical products. Such goods accounted for somewhat more than half of Italy's earnings from exports in the late 1960's and early 1970's. Automobiles and trucks were a leading export. Other, more traditional exports were textiles and shoes.
Italy remained dependent on foreign raw materials and petroleum. Oil and oil products accounted for almost one-fourth of Italy's spending on imports in 1979. Other raw materials, including metal scrap and ores and textile fibers, accounted for another 13 percent of the import expenditure.
Italy's main trading partners in the 1970's were West Germany, France, and the United States. In the late 1970's the other countries of the European Community purchased half Italy's exports by value and supplied almost half its imports by value. In the mid-1970's, oil-producing countries took on new importance in Italy's foreign trade. Saudi Arabia, Libya, Iraq, and Iran became leading suppliers of imports. During the late 1970's, Italy substantially increased the volume of its exports to Saudi Arabia and Libya.
In the mid-1970's one of Italy's most serious economic problems was a large deficit in its balance of payments. Until 1957, Italy had regular payments deficits, mainly because it spent more on imports than it earned from exports. Industrial development enabled Italy to export more, and throughout the late 1960's and early 1970's Italy's international payments were regularly in surplus. Export earnings were almost equal to the cost of imports. Other sources of income, such as the remittances of Italian workers abroad, the spending of tourists in Italy, and foreign investment in the Italian economy, supplemented export earnings to provide a substantial surplus.
In 1973-1974, however, world oil prices quadrupled, and since Italy was very dependent on foreign oil it had to spend vast sums to acquire fuel. In 1974, oil imports cost Italy $10.2 billion, compared to $2.6 billion in 1972, and Italy had an overall balance-of-payments deficit of $7.8 billion. By 1978 the recovery of the Italian economy enabled the country to show a favorable trade balance for the first time since 1972. However, the position of Italy in the world economy remained precarious. The deficit recurred in 1980, when Italy's exports earned $77.7 billion, while its imports, including freight and insurance fees, cost $99.5 billion.
In the 1980's and the early 1990's, Italy's main trading partners were Germany, France, the United States, and Great Britain. The chief imports were machinery, motor vehicles, petroleum products, crude petroleum, iron and steel, and chemicals. Major exports were machinery, motor vehicles, clothing, footwear, iron and steel, and textiles. Italy consistently spent more on imports than it earned from exports; its trade deficit was $9.5 billion in 1988, $12.5 billion in 1989, $11.8 billion in 1990, and $12.9 billion in 1991. However, in 1993 Italy's foreign trade account showed a surplus.
Italy's unit of currency is the lira, issued
by the Banca d'Italia. For many years until the middle 1970's 100 lire
were worth $0.16. Then, huge balance-of-payments deficits and rapid inflation
caused the value of 100 lire to fall to about $0.12. A new slide began
in late 1980 and 1981, bringing 100 lire down to $0.08. The slide continued
in the early and middle 1980's, so that 100 lire were worth $0.06 in 1985.
But the value of the lira rose against the dollar in the late 1980's, so
that 100 lire were worth $0.07 in 1989 and $0.08 in 1990. Following devaluation
and withdrawal from the European Monetary System in September 1992, the
lira fell 25 percent against major world currencies. In 1994, 100 lire
were worth $0.06.
The three principal commercial banks, the so-called banks of national interest, are the Banca Commerciale Italiana (Milan), the Credito Italiano (Milan), and the Banca di Roma. All three were reorganized between 1934 and 1936 in the course of a vast industrial salvage operation conducted by the state-controlled Institute for Industrial Reconstruction (IRI). The banks turned over all their assets other than short-term credits to IRI, which ever since has held a controlling interest in the banks. There are also about 1,100 other banks. They range in size from large concerns such as the Banca Nazionale del Lavoro, the Banco di Napoli, and the Banco di Sicilia, to small cooperative banche popolari ("people's banks").
During the 1950's, 1960's, 1970's, and 1980's, extensive credits were provided for industry and agriculture, as well as for the development of backward areas, especially the South. Special institutions providing medium- and long-term industrial loans were established, and credit institutions were set up to finance government development plans.
The national budget was regularly in deficit
from the early 1950's through the 1970's. The deficits were relatively
small during the 1960's because of higher tax revenues. In 1967, for instance,
the deficit was only $170 million. But in the early 1970's the deficits
became very large again. In 1979 total government spending was $110.9 billion
and revenues were only $75.1 billion. In 1990 total government spending
was $446.8 billion and revenues were $342.3 billion.
Income and property taxes provided 45 percent of government revenue in 1990. The income tax is steeply progressive and bears heavily on the middle-income and high-income brackets. Tax evasion has been a central target of new legislation since 1992. Business taxes and duties brought in another 23 percent of government revenue in 1990. Customs and frontier charges provided 9 percent, and 2 percent was derived from state-run monopolies. The main items of government expenditure in 1990 were interest on the public debt, social security and health services, education, public works, and defense.
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