The increase in employment was favored by the expansion of the labor supply, with a significant contribution from immigrant work. The Italy, from a country of emigrants, rapidly transformed in the period 1991-2005 into the country in Europe with the highest immigration flows after Spain. Regular admissions, which have grown mainly thanks to repeated amnesties, have risen from around 650,000 in 1992 to around 2.5 million in 2005. The expansion of employment was also reflected in a sharp reduction in the unemployment rate, which gradually aligned itself with the European average, passing from 11.7 % in 1997 to 7.7% of 2005. The reduction affected all areas, although significant territorial imbalances remain: in 2005 this rate was 14.3 % in the South, 6.4 in the Center and just 4.2 in the Northern regions. Labor productivity, understood as the ratio between production and the number of standard work units, grew over the decade 1996-2005 by only 4.8 %, approximately 8.5 and 4.7 points less than in Germany and France. In the years 2004-05 it has even declined, especially in the manufacturing industry. The main cause was the delay in the adoption of new technologies and in the related company reorganization. Consequently, despite a modest progress in labor income in real terms (about 1.4 % in the decade mentioned above), the cost of labor per unit of product has increased much more than the average of competing countries, undermining the com- international competitiveness of Italian products.
Public budget policy
According to TOPSCHOOLSINTHEUSA, the effort to consolidate public accounts, which had been initiated in the second half of the 1980s and intensified in the 1990s, culminated in 1997 with the creation of the conditions necessary for the immediate participation of Italy to the European Monetary Union. The increase in the tax burden and the numerous interventions in the expenditure sector had made it possible to reduce the budget deficit of public administrations from 11.8 % of GDP in 1990 to 2.7% in 1997 ; excluding the interest expenses on the large public debt, the budget was in a large surplus (primary surplus), for 6.7 % of GDP. In 1998 the long period of difficulty in public finances therefore seemed to be over; a new one could begin, in which fiscal policy offered greater margins to pursue economic stabilization objectives and to create conditions favorable to growth and employment. However, the result achieved in 1997 left some problems open: the adjustment of the public finances had not been obtained with all long-lasting measures, the level of the tax burden had reached values higher than the average of the other EU countries, the composition expenditure remained heavily skewed towards pension expenditure.
Since 1998, the objectives of budgetary policy have undergone a gradual change. While the objective of gradually achieving balance remains a priority, budgetary policy has been aimed above all at reducing the tax burden and relaunching the economy. A phase characterized by the granting of tax breaks and the resumption of growth in payments for wages and social security began. During the four-year period 1998-2001, the resources made available by the large reduction in interest expenditure (2.9 percentage points of GDP), thanks to the fall in rates due to the monetary union, were almost entirely used to finance the lowering of the tax burden (2.3 points). In the four-year period 2002-2005, public accounts were also negatively affected by the low growth of the economy. Extensive use was made of temporary measures to support tax revenues and improve budget balances. Since 2001, the deficit has almost always remained above the 3 % of GDP threshold, and exceeded 4% in 2005 ; the primary surplus has almost canceled out.
Monetary and financial policy
Since the beginning of 1999, the currency in circulation in Italy is the euro, and the monetary policy that applies to the Italian economy is the common one valid for the whole area, developed by the European system of central banks, to which summit ranks the European Central Bank. The very short-term interest rates are identical throughout the area, those on longer-term financial assets differ due to the different risk premium associated with the issuer. In the five-year period 2001-2005, the Italian economy was able to benefit from some of the lowest interest rates in its history.
The process of modernization of the country’s banking and financial system, which began at the end of the 1980s, has continued on various fronts. The efforts of the legislator and the supervisory authorities have been oriented towards the creation of a financial system that is characterized by a minimum presence of the state, capable of competing internationally and providing a wider range of services to households and businesses. Also due to the disposal by the public sector of a large part of its shareholdings in banks, in the period between 1998 and 2005Some large banking groups were formed by successive aggregations, characterized by a distribution network active throughout the national territory. The number of banks operating in Italy decreased considerably, bringing the concentration of the market to levels similar to those of the main European countries. However, the role of smaller banks remained important, mainly engaged in financing small and medium-sized enterprises. Foreign banks have acquired significant stakes in the capital of Italian banks. At the same time, the largest Italian banking groups extended their activities beyond national borders, acquiring control of foreign intermediaries operating mainly in Eastern European markets. L’24 February 1998 no. 58) defined a regulatory framework comparable with that of the most advanced countries.
Legislative innovations as well as privatizations have been accompanied by a strong development of the securities markets, although the failure to complete the pension reform has not yet led to the development of pension funds, which in other advanced economies play a central role as institutional investors and contribute a lot to increase the depth of equity and bond markets. The Italian stock exchange, in particular, remains smaller than those of the other countries with which the Italy it compares, both by number of listed companies and by capitalization. The introduction of the euro and the increased financing needs for corporate mergers and acquisitions have given a strong boost to the non-financial corporate bond market. This impulse has recently subsided, also due to the outbreak of financial scandals involving some large companies operating above all in the food sector. Following these events, the demand for greater protection of savers arose, to which the legislator intended to respond with l.Dec 28 2005 nr. 262.
