The Eurozone’s Achilles Heel: Reassessing Italy’s Long Decline in the Context of European Integration and Globalization

This paper analyzes how Italy’s decades-long decline turned the country into the Eurozone’s Achilles heel, the most vulnerable spot of the common currency. We use a structuralist-evolutionary framework to synthesize supply-side and demand-side explanations, accounting for long-term processes and sectoral interdependences. We argue that Italy is a failed case of modernization by external constraint. Structural domestic factors—low-cost competition and labour fragmentation, many small firms, and the North–South divide—which proved instrumental to Italy’s development after WWII later interacted with the policy constraints brought about by globalization and European integration, exacerbating Italy’s decline vis-à-vis its Eurozone peers. Our analysis underscores the need to reconcile fiscal, industrial and labor market policies, both at the national and at the EU level replacing: fiscal austerity with a broad and lasting public investment program; subsidies and horizontal policies with selective and strategic interventions; flexibilization of labor with the promotion of stable, high-quality and high-wage employment.