Italy: country overview

22 June 2012
by Ina Dimireva -- last modified 22 June 2012

Italy has a diversified industrial economy, which is divided into a developed industrial north, dominated by private companies, and a less-developed, welfare-dependent, agricultural south, with high unemployment.

Italian flag

Year of EU entry: Founding member (1952)

Member of Schengen area: Yes

Political system: Republic

Capital city: Rome

Total area: 301 263 km²

Population: 61.3 million

Currency: Euro

Listen to the official EU language: Italian

Map of Italy

Country overview

Italy is mainly mountainous, except for the Po plain in the north, and runs from the Alps to the central Mediterranean Sea. It includes the islands of Sicily, Sardinia, Elba and about 70 other smaller ones. There are two small independent states within peninsular Italy: the Vatican City in Rome, and the Republic of San Marino.

Italy has a two-chamber parliament, consisting of the Senate (Senato della Repubblica) or upper house and the Chamber of Deputies (Camera dei Deputati). Elections take place every five years.

The country's main economic sectors are tourism, fashion, engineering, chemicals, motor vehicles and food. Italy's northern regions are per capita amongst the richest in Europe.

Economy overview

The Italian economy is driven in large part by the manufacture of high-quality consumer goods produced by small and medium-sized enterprises, many of them family owned. Italy also has a sizable underground economy, which by some estimates accounts for as much as 17% of GDP. These activities are most common within the agriculture, construction, and service sectors. Italy is the third-largest economy in the euro-zone, but exceptionally high public debt burdens and structural impediments to growth have rendered it vulnerable to scrutiny by financial markets. Public debt has increased steadily since 2007, reaching 120% of GDP in 2011, and borrowing costs on sovereign government debt have risen to record levels. During the second half of 2011 the government passed a series of three austerity packages to balance its budget by 2013 and decrease its public debt burden. These measures included a hike in the value-added tax, pension reforms, and cuts to public administration. The government also faces pressure from investors and European partners to address Italy's long-standing structural impediments to growth, such as an inflexible labor market and widespread tax evasion. The international financial crisis worsened conditions in Italy''s labor market, with unemployment rising from 6.2% in 2007 to 8.4% in 2011, but in the longer-term Italy''s low fertility rate and quota-driven immigration policies will increasingly strain its economy. The euro-zone crisis along with Italian austerity measures have reduced exports and domestic demand, slowing Italy''s recovery. Italy''s GDP is still 5% below its 2007 pre-crisis level.