Italy builds Ferraris and Lamborghinis, welcomes millions of tourists, and produces food, fashion and design admired around the world.
Yet beneath all that beauty, its economy has spent decades running without going anywhere. What went wrong, and what, if anything, can be done about it?
Tap a purple word for its meaning. Tap a time to play from there.
[00:00:05] Hello, hello, hello, and welcome to English Learning for Curious Minds, by Leonardo English, the show where you can listen to fascinating stories and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:21] I'm Alastair Budge, and today we are going to be talking about Italy. And specifically, the Italian economy.
[00:00:28] And even more specifically, what went wrong?
[00:00:32] Italy has experienced three decades of stagnation, with barely any growth in wages or living standards, whilst much of the rest of Europe has fared much better.
[00:00:44] Today, we will be talking about the reasons why.
[00:00:47] OK then, let's not waste a minute and get right into it.
[00:00:53] If you were to design the perfect European country, from the point of view of giving it inherent, natural economic advantages, a few things might spring to mind.
[00:01:06] It would have to be relatively central, with easy connections to the rest of the continent.
[00:01:13] Ideally it would have a good amount of coastline, so it was simple to import and export goods by sea.
[00:01:21] You would give it a favourable climate, warm enough to grow high-value crops, let's say grapes for wine or olives for oil, but not so hot that it is unbearable.
[00:01:35] The climate would also be nice enough so that people would want to come there on holiday. It would be warm in the summer, there would be beaches and places to relax, but you'd also like there to be mountains for people to hike up or ski down in the winter.
[00:01:53] You'd also want other reasons for people to visit. Sites of historic importance would be good. Museums, art galleries, churches, beautiful old cities.
[00:02:04] If the food was good, that would be nice too. And if the people tended to be friendly, outgoing, and welcoming, well, that would be another bonus.
[00:02:16] You'd also want people to associate the country with high quality workmanship, so that if people knew that a bag or a suit was made in that country, it would command a premium price.
[00:02:31] You would, essentially, create a country that looks very much like Italy.
[00:02:37] So, given all these inherent advantages, why has Italy, and the Italian economy, fared so poorly?
[00:02:47] Why is the average Italian no better off than they were 30 years ago, and is there anything that can be done about it?
[00:02:57] Now, let me start with a little disclaimer. It is hard to find a bigger fan of Italy than me. I have lived in Italy, I am married to an Italian, my kids are half-Italian, I speak Italian every day at home, and I am now an Italian citizen. I come to this subject as someone who has a deep love and appreciation for Italy as a country, and Italians as a people.
[00:03:23] So, with that out of the way, let's talk about what went wrong.
[00:03:27] Well, the first important thing to stress is that Italy is a relatively new country. It was, as you may know, a collection of smaller states until 1861, when it became the Kingdom of Italy.
[00:03:43] And in those early years it was a poor, largely agricultural economy.
[00:03:50] The chaos of fascism and the Second World War didn't do much to help, and in 1945, the country was practically in ruins. Bridges were down, factories had been bombed, and much of the south lived on small-scale farming in conditions that had barely changed in a century.
[00:04:14] What followed was one of the most extraordinary economic transformations in modern history.
[00:04:21] Italians call it il miracolo economico, the economic miracle. For more than a decade, from the early 1950s to the early 1960s, the Italian economy boomed, growing at almost six per cent a year.
[00:04:40] Italy became the workshop of Europe. Fiat made small, affordable cars like the Fiat 500. Piaggio made the Vespa scooter, which you can hear about in episode 120, by the way.
[00:04:55] Olivetti made typewriters so beautiful you'll still find them in art museums. Italian fridges, washing machines and shoes poured into homes across the continent.
[00:05:07] Millions of people left the poorer south and moved north, to the factories of cities like Turin and Milan. A country of farmers became a country of factory workers and, increasingly, of consumers.
[00:05:24] All this growth had a particular character. Rather than being driven by a handful of giant corporations, much of Italy's growth was built on thousands upon thousands of small family firms, often clustered together in specialist districts: one town making ceramic tiles, another making spectacle frames, another making a particular type of clothing, and so on.
[00:05:54] These firms were flexible, hard-working, and brilliant at design.
[00:06:01] They were also assisted by the Italian government, which frequently devalued the lira, its currency, to make Italian exports more competitive.
[00:06:13] When Italian products looked like they were becoming too expensive for foreign buyers, the government would let the lira fall in value. A weaker lira made Italian goods cheaper abroad, so the orders would come flooding back.
[00:06:31] This caused inflation at home, in Italy, because imports suddenly got more expensive. But it kept the factories busy and the economy chugging away.
[00:06:44] On the surface, all was well. But two problems were growing.
[00:06:50] The first was debt. Now, Italian politics is a topic for another day, but over the years, politicians offered more and more benefits: better pensions, more public-sector jobs, subsidies for this and subsidies for that.
[00:07:08] Of course, these benefits had to be paid for, and successive Italian governments borrowed more and more money. By the early 1990s, Italy's public debt had passed one hundred per cent of GDP.
[00:07:24] In other words, the Italian state owed more than the entire economy produced in a year. Servicing this debt meant paying interest to creditors, and the bill increased every year.
[00:07:39] This "miraculous" economy looked to be built on some shaky foundations, and, to cut a long story short, in the 1990s, the vultures were well and truly circling.
[00:07:53] But out of all this financial chaos, it looked like there might be a solution. At the end of the decade, a group of European countries were planning to get rid of their own currencies and adopt a new European single currency, the euro.
[00:08:12] This seemed to many in Italy like a sensible proposition; not only could you use the same currency to buy goods in Germany, France or Spain, but Italy's borrowing costs would be cheaper and it wouldn't be constantly fighting to support the lira.
[00:08:30] To qualify to join, however, Italy had to get its finances in order. So through the 1990s, governments raised taxes and cut spending, year after year.
[00:08:44] And... it worked, in the narrow sense. Italy duly joined the euro as a founding member in 1999.
[00:08:52] But joining the euro meant giving up a tool that Italy had used for decades: being able to devalue its currency on a whim.
[00:09:03] With the euro, Italian goods and German goods were priced in the same currency. An Italian government couldn't just say "let's devalue the euro to make our cars more competitive internationally"; any devaluation of the euro would also make German or French manufactured goods cheaper. Suddenly, there was no magic button Italian economists could press. No way to make exports cheap again.
[00:09:32] None of this would have mattered had Italian firms become more productive, had they produced more economic value per hour. The thing is, they didn't get more productive.
[00:09:45] Since the mid-1990s, Italian productivity has barely grown — between 1999 and 2019, the amount an Italian worker produced per hour grew by about five per cent in total. Five per cent over two whole decades. In France and Germany over the same period, it grew by more than twenty per cent, and they aren't exactly shining beacons of economic productivity either.
[00:10:17] In Poland, it rose by about sixty per cent. In Lithuania, it more than doubled. And in Latvia, it rose by even more.
[00:10:28] Of course, Poland, Lithuania and Latvia were catching up from much lower levels.
[00:10:33] But Italy was not just growing slowly. It was barely moving at all.
[00:10:39] Now, this has nothing to do with laziness. It's not to suggest that Italian workers are twiddling their thumbs or going on extended breaks while their colleagues in Poland or Latvia are rolling up their sleeves and putting in the hours.
[00:10:56] The average Italian actually works longer hours each year than the average German, Frenchman or Spaniard. The problem is what each of those hours produces, and a lot of that depends on things the individual worker cannot control, like the size of the company they work for, the technology they are given, and the way that the business is organised.
[00:11:20] And here, we need to talk about the set of traps that work together to drive down productivity.
[00:11:28] The first trap is size. As we talked about a few minutes ago, Italy is a country of tiny companies. Firms with fewer than ten employees provide around forty per cent of Italian jobs. In Germany and France, the figure is about half that.
[00:11:48] Now, there's nothing wrong with small companies, of course, but they tend to be less productive on a per worker basis. They don't have the economies of scale of larger companies.
[00:12:01] And many Italian companies stay small on purpose. Italian bureaucracy is suffocating. Regulations become more demanding as a company grows, and this can discourage owners from crossing particular thresholds. So business owners may keep their firms just below a size that brings new obligations.
[00:12:25] There is also the question of who runs these companies. Most small Italian companies are family businesses, and in about two-thirds of them, the managers are members of the family.
[00:12:39] Again, there is nothing inherently wrong with a family business, but it tends to mean that the managers are chosen because of who their parents are rather than whether they are the best person to do the job.
[00:12:53] And Italian companies are often hopelessly behind when it comes to technology.
[00:13:00] From the 1990s onwards, the companies that really grew were the ones that reorganised themselves around new technology: professional managers, new systems, constant retraining. That kind of stuff. These were exactly the things that a small, family-run firm was least likely to do. This is one reason economists focus on the timing of Italy's productivity freeze in the mid-1990s. This was just at the start of the Internet and computer age.
[00:13:33] The second trap is the labour market, and this one is generational.
[00:13:40] Older Italian workers, the insiders, have traditionally enjoyed some of the strongest job protections in Europe, and it is notoriously difficult to get rid of an underperforming employee in Italy.
[00:13:55] This is not to suggest that Italy would be in a better place if it adopted US-style labour laws, with employees being fired for looking at the boss the wrong way, but it has made companies incredibly nervous about hiring anyone on full-time contracts.
[00:14:15] Instead, what happened was the mass adoption of short, temporary contracts of months at a time.
[00:14:24] The result was a two-tiered system. The silver-haired man sitting at the cafe, leisurely sipping his coffee and reading the newspaper, has a job for life, or perhaps he's already enjoying a generous pension. The thirty-year-old physics graduate making his espresso is on a six-month temporary contract with a salary that barely covers the rent.
[00:14:47] And, of course, an employer does not invest in training someone who will likely be gone by Christmas. A bank does not give a mortgage to someone with a six-month contract. An entire generation, my generation, essentially, was left in this limbo, moving from one short-term contract to another, and thanking their lucky stars if they were able to get any sort of permanent, secure job.
[00:15:14] The third productivity trap is an old one, one I've spoken about before here, and one you are probably aware of: the divide between north and south.
[00:15:26] Northern Italy is one of the most productive industrial regions in Europe. But in the south, so, sort of south of Naples and below, it's a very different situation, with incomes half those in the north and much higher levels of unemployment and crime.
[00:15:44] So Italy's national statistics are really an average of two different economies: the north is doing just about OK, given all of the issues we've currently spoken about, but the country overall is dragged down significantly, from an economic perspective at least, by the south.
[00:16:04] And sitting on top of everything is the fourth trap: the debt.
[00:16:11] That mountain of borrowing from the 1980s never really went away. New debt was issued to roll over the old debt. Every year, Italy has to pay interest on these debts. And that bill is massive, €90 billion every year. And that's just the interest payments — that isn't repaying any of the debt, like you might do with a home loan; it's literally just paying the bill for decisions taken 30 or 40 years ago.
[00:16:44] Now, Italy isn't the only country with huge public debt — the UK is in a not dissimilar situation — but clearly it handcuffs the policymaking decisions of any government. €90 billion that you need to pay your creditors is €90 billion you can't spend on education or healthcare, and in fact, Italy spends almost exactly the same amount of money on its interest payments as it does on public education.
[00:17:18] Those freebies in the 1980s, well, now Italians are having to pay the bill.
[00:17:24] Now, it is one thing to describe all of this with charts and percentages and talk of GDP and productivity. It is another thing to live it.
[00:17:36] So, I want you to close your eyes and imagine someone. Imagine a young Italian woman, born in the late 1980s. She does everything right. She studies hard, goes to university, and graduates with a good degree. She goes abroad to continue her studies, to the UK, let's say. She would love to return to Italy, but there are no jobs, at least none in a field she wants to work in. The best thing she could get might be a series of low-paid temporary contracts.
[00:18:12] She is offered a job in another European country, a permanent job with a good salary and a clear career path. Of course, she takes it.
[00:18:23] Still, she keeps her eye on opportunities back in Italy. The years go by, and now even with 10 years' experience in her field, she might have to wait until she is in her mid-50s to be considered "experienced" enough for a similar job back in Italy, and even if she were offered a job, it would be at a fraction of what she was earning abroad.
[00:18:47] Perhaps you know someone like this. Perhaps you work with them. The person I just described is someone who is quite easy for me to imagine. She is my wife, and she is one of 6 and a half million Italians who are living abroad.
[00:19:04] There is an expression in Italian for this: la fuga di cervelli, brain drain, you might say in English.
[00:19:12] On an emotional level, it's a sad thing for a country. It's a sad thing for Italian parents to see their children move abroad. But purely on an economic level, it's awful. This person receives a tax-funded education, from nursery right through to a university degree, and then just as they are in a position to start contributing, they move abroad and pay taxes in the UK, Germany, or, in the case of my wife, Sweden.
[00:19:44] Meanwhile, back in Italy, partly given the precarious economic situation that most young people find themselves in, fewer and fewer babies are being born. In 2025, 355,000 births were registered in Italy. That is the lowest number since Italian unification in 1861, when the country had fewer than half as many people as it does today.
[00:20:13] And this younger generation is the generation that will be paying for the generous pensions of their parents and grandparents. And there simply aren't enough of them. In my wife's hometown, there are more people who are older than 75 than there are under 18.
[00:20:34] So, joining the dots together, on one side you have young people leaving and fewer babies being born, and on the other side you have an ageing population with increasing care costs and generous pensions to fund.
[00:20:50] The tax burden on the working population is already one of the highest in Europe, and four out of every ten euros spent by the Italian state goes to either interest on its debts or pensions.
[00:21:05] It is a vicious circle, and try as various Italian governments might, it's incredibly difficult to do anything about it.
[00:21:14] So, can anything be done? Or is Italy simply doomed to a gentle, sunlit decline?
[00:21:22] To be fair, the recent picture is not all bleak.
[00:21:27] Italy has just been through an unusually stable political period. Financial markets spent years treating Italy as the eurozone's greatest risk, but they have changed their tune slightly.
[00:21:41] There has been some modest employment reform, and unemployment is down. Italy, for all its woes, is still Europe's second-largest manufacturing country, after Germany.
[00:21:54] And then there is the money.
[00:21:56] After the pandemic, there were a series of domestic and EU recovery measures, with hundreds of billions of euros being dished out for everything from digital infrastructure to building subsidies.
[00:22:10] Whether all that money has been spent well is something of an open question, but there was this huge cash injection that has given the country a serious boost.
[00:22:22] Now, all of those things I mentioned at the start of the episode, the natural advantages Italy has, they are still there.
[00:22:31] But so is everything else: the strangulating bureaucracy, the short contracts, the flat wages, the gargantuan public debt, and we haven't even mentioned the informal, under-the-table economy, which is estimated to be worth something like 10% of all Italian GDP and costs the Italian state up to €100 billion a year in lost tax revenue. Or the vast problem of organised crime.
[00:23:01] Italy is a wonderful place. That is, of course, my opinion, but I imagine it's an opinion shared by most of the 60 million tourists that come there every year.
[00:23:13] Italian city centres and hilltop villages are beautiful, Italian food is fantastic, and to the outside eye, it looks like everything is going swimmingly, like life could not be better.
[00:23:26] Under the bonnet, however, the economy is a mess, dragged down by the past and throttled by a dozen different factors.
[00:23:35] It's the home of Ferrari, Lamborghini, and a plethora of other feats of engineering.
[00:23:41] But until something about the economy changes, the Italian economic engine will keep idling, running but going nowhere, in a beautiful country that deserves much better.
[00:23:55] OK, then, that is it for today's episode on what's wrong with Italy's economy. For the Italians out there, I hope you'll think this was a fair assessment of your wonderful country.
[00:24:06] As always, I would love to know what you thought of this episode.
[00:24:10] Let me know in the comments below, if you're listening to this somewhere where you can comment, and for the members among you, you can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:24:24] You've been listening to English Learning for Curious Minds by Leonardo English.
[00:24:29] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
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Italy builds Ferraris and Lamborghinis, welcomes millions of tourists, and produces food, fashion and design admired around the world.
Yet beneath all that beauty, its economy has spent decades running without going anywhere. What went wrong, and what, if anything, can be done about it?
[00:00:05] Hello, hello, hello, and welcome to English Learning for Curious Minds, by Leonardo English, the show where you can listen to fascinating stories and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:21] I'm Alastair Budge, and today we are going to be talking about Italy. And specifically, the Italian economy.
[00:00:28] And even more specifically, what went wrong?
[00:00:32] Italy has experienced three decades of stagnation, with barely any growth in wages or living standards, whilst much of the rest of Europe has fared much better.
[00:00:44] Today, we will be talking about the reasons why.
[00:00:47] OK then, let's not waste a minute and get right into it.
[00:00:53] If you were to design the perfect European country, from the point of view of giving it inherent, natural economic advantages, a few things might spring to mind.
[00:01:06] It would have to be relatively central, with easy connections to the rest of the continent.
[00:01:13] Ideally it would have a good amount of coastline, so it was simple to import and export goods by sea.
[00:01:21] You would give it a favourable climate, warm enough to grow high-value crops, let's say grapes for wine or olives for oil, but not so hot that it is unbearable.
[00:01:35] The climate would also be nice enough so that people would want to come there on holiday. It would be warm in the summer, there would be beaches and places to relax, but you'd also like there to be mountains for people to hike up or ski down in the winter.
[00:01:53] You'd also want other reasons for people to visit. Sites of historic importance would be good. Museums, art galleries, churches, beautiful old cities.
[00:02:04] If the food was good, that would be nice too. And if the people tended to be friendly, outgoing, and welcoming, well, that would be another bonus.
[00:02:16] You'd also want people to associate the country with high quality workmanship, so that if people knew that a bag or a suit was made in that country, it would command a premium price.
[00:02:31] You would, essentially, create a country that looks very much like Italy.
[00:02:37] So, given all these inherent advantages, why has Italy, and the Italian economy, fared so poorly?
[00:02:47] Why is the average Italian no better off than they were 30 years ago, and is there anything that can be done about it?
[00:02:57] Now, let me start with a little disclaimer. It is hard to find a bigger fan of Italy than me. I have lived in Italy, I am married to an Italian, my kids are half-Italian, I speak Italian every day at home, and I am now an Italian citizen. I come to this subject as someone who has a deep love and appreciation for Italy as a country, and Italians as a people.
[00:03:23] So, with that out of the way, let's talk about what went wrong.
[00:03:27] Well, the first important thing to stress is that Italy is a relatively new country. It was, as you may know, a collection of smaller states until 1861, when it became the Kingdom of Italy.
[00:03:43] And in those early years it was a poor, largely agricultural economy.
[00:03:50] The chaos of fascism and the Second World War didn't do much to help, and in 1945, the country was practically in ruins. Bridges were down, factories had been bombed, and much of the south lived on small-scale farming in conditions that had barely changed in a century.
[00:04:14] What followed was one of the most extraordinary economic transformations in modern history.
[00:04:21] Italians call it il miracolo economico, the economic miracle. For more than a decade, from the early 1950s to the early 1960s, the Italian economy boomed, growing at almost six per cent a year.
[00:04:40] Italy became the workshop of Europe. Fiat made small, affordable cars like the Fiat 500. Piaggio made the Vespa scooter, which you can hear about in episode 120, by the way.
[00:04:55] Olivetti made typewriters so beautiful you'll still find them in art museums. Italian fridges, washing machines and shoes poured into homes across the continent.
[00:05:07] Millions of people left the poorer south and moved north, to the factories of cities like Turin and Milan. A country of farmers became a country of factory workers and, increasingly, of consumers.
[00:05:24] All this growth had a particular character. Rather than being driven by a handful of giant corporations, much of Italy's growth was built on thousands upon thousands of small family firms, often clustered together in specialist districts: one town making ceramic tiles, another making spectacle frames, another making a particular type of clothing, and so on.
[00:05:54] These firms were flexible, hard-working, and brilliant at design.
[00:06:01] They were also assisted by the Italian government, which frequently devalued the lira, its currency, to make Italian exports more competitive.
[00:06:13] When Italian products looked like they were becoming too expensive for foreign buyers, the government would let the lira fall in value. A weaker lira made Italian goods cheaper abroad, so the orders would come flooding back.
[00:06:31] This caused inflation at home, in Italy, because imports suddenly got more expensive. But it kept the factories busy and the economy chugging away.
[00:06:44] On the surface, all was well. But two problems were growing.
[00:06:50] The first was debt. Now, Italian politics is a topic for another day, but over the years, politicians offered more and more benefits: better pensions, more public-sector jobs, subsidies for this and subsidies for that.
[00:07:08] Of course, these benefits had to be paid for, and successive Italian governments borrowed more and more money. By the early 1990s, Italy's public debt had passed one hundred per cent of GDP.
[00:07:24] In other words, the Italian state owed more than the entire economy produced in a year. Servicing this debt meant paying interest to creditors, and the bill increased every year.
[00:07:39] This "miraculous" economy looked to be built on some shaky foundations, and, to cut a long story short, in the 1990s, the vultures were well and truly circling.
[00:07:53] But out of all this financial chaos, it looked like there might be a solution. At the end of the decade, a group of European countries were planning to get rid of their own currencies and adopt a new European single currency, the euro.
[00:08:12] This seemed to many in Italy like a sensible proposition; not only could you use the same currency to buy goods in Germany, France or Spain, but Italy's borrowing costs would be cheaper and it wouldn't be constantly fighting to support the lira.
[00:08:30] To qualify to join, however, Italy had to get its finances in order. So through the 1990s, governments raised taxes and cut spending, year after year.
[00:08:44] And... it worked, in the narrow sense. Italy duly joined the euro as a founding member in 1999.
[00:08:52] But joining the euro meant giving up a tool that Italy had used for decades: being able to devalue its currency on a whim.
[00:09:03] With the euro, Italian goods and German goods were priced in the same currency. An Italian government couldn't just say "let's devalue the euro to make our cars more competitive internationally"; any devaluation of the euro would also make German or French manufactured goods cheaper. Suddenly, there was no magic button Italian economists could press. No way to make exports cheap again.
[00:09:32] None of this would have mattered had Italian firms become more productive, had they produced more economic value per hour. The thing is, they didn't get more productive.
[00:09:45] Since the mid-1990s, Italian productivity has barely grown — between 1999 and 2019, the amount an Italian worker produced per hour grew by about five per cent in total. Five per cent over two whole decades. In France and Germany over the same period, it grew by more than twenty per cent, and they aren't exactly shining beacons of economic productivity either.
[00:10:17] In Poland, it rose by about sixty per cent. In Lithuania, it more than doubled. And in Latvia, it rose by even more.
[00:10:28] Of course, Poland, Lithuania and Latvia were catching up from much lower levels.
[00:10:33] But Italy was not just growing slowly. It was barely moving at all.
[00:10:39] Now, this has nothing to do with laziness. It's not to suggest that Italian workers are twiddling their thumbs or going on extended breaks while their colleagues in Poland or Latvia are rolling up their sleeves and putting in the hours.
[00:10:56] The average Italian actually works longer hours each year than the average German, Frenchman or Spaniard. The problem is what each of those hours produces, and a lot of that depends on things the individual worker cannot control, like the size of the company they work for, the technology they are given, and the way that the business is organised.
[00:11:20] And here, we need to talk about the set of traps that work together to drive down productivity.
[00:11:28] The first trap is size. As we talked about a few minutes ago, Italy is a country of tiny companies. Firms with fewer than ten employees provide around forty per cent of Italian jobs. In Germany and France, the figure is about half that.
[00:11:48] Now, there's nothing wrong with small companies, of course, but they tend to be less productive on a per worker basis. They don't have the economies of scale of larger companies.
[00:12:01] And many Italian companies stay small on purpose. Italian bureaucracy is suffocating. Regulations become more demanding as a company grows, and this can discourage owners from crossing particular thresholds. So business owners may keep their firms just below a size that brings new obligations.
[00:12:25] There is also the question of who runs these companies. Most small Italian companies are family businesses, and in about two-thirds of them, the managers are members of the family.
[00:12:39] Again, there is nothing inherently wrong with a family business, but it tends to mean that the managers are chosen because of who their parents are rather than whether they are the best person to do the job.
[00:12:53] And Italian companies are often hopelessly behind when it comes to technology.
[00:13:00] From the 1990s onwards, the companies that really grew were the ones that reorganised themselves around new technology: professional managers, new systems, constant retraining. That kind of stuff. These were exactly the things that a small, family-run firm was least likely to do. This is one reason economists focus on the timing of Italy's productivity freeze in the mid-1990s. This was just at the start of the Internet and computer age.
[00:13:33] The second trap is the labour market, and this one is generational.
[00:13:40] Older Italian workers, the insiders, have traditionally enjoyed some of the strongest job protections in Europe, and it is notoriously difficult to get rid of an underperforming employee in Italy.
[00:13:55] This is not to suggest that Italy would be in a better place if it adopted US-style labour laws, with employees being fired for looking at the boss the wrong way, but it has made companies incredibly nervous about hiring anyone on full-time contracts.
[00:14:15] Instead, what happened was the mass adoption of short, temporary contracts of months at a time.
[00:14:24] The result was a two-tiered system. The silver-haired man sitting at the cafe, leisurely sipping his coffee and reading the newspaper, has a job for life, or perhaps he's already enjoying a generous pension. The thirty-year-old physics graduate making his espresso is on a six-month temporary contract with a salary that barely covers the rent.
[00:14:47] And, of course, an employer does not invest in training someone who will likely be gone by Christmas. A bank does not give a mortgage to someone with a six-month contract. An entire generation, my generation, essentially, was left in this limbo, moving from one short-term contract to another, and thanking their lucky stars if they were able to get any sort of permanent, secure job.
[00:15:14] The third productivity trap is an old one, one I've spoken about before here, and one you are probably aware of: the divide between north and south.
[00:15:26] Northern Italy is one of the most productive industrial regions in Europe. But in the south, so, sort of south of Naples and below, it's a very different situation, with incomes half those in the north and much higher levels of unemployment and crime.
[00:15:44] So Italy's national statistics are really an average of two different economies: the north is doing just about OK, given all of the issues we've currently spoken about, but the country overall is dragged down significantly, from an economic perspective at least, by the south.
[00:16:04] And sitting on top of everything is the fourth trap: the debt.
[00:16:11] That mountain of borrowing from the 1980s never really went away. New debt was issued to roll over the old debt. Every year, Italy has to pay interest on these debts. And that bill is massive, €90 billion every year. And that's just the interest payments — that isn't repaying any of the debt, like you might do with a home loan; it's literally just paying the bill for decisions taken 30 or 40 years ago.
[00:16:44] Now, Italy isn't the only country with huge public debt — the UK is in a not dissimilar situation — but clearly it handcuffs the policymaking decisions of any government. €90 billion that you need to pay your creditors is €90 billion you can't spend on education or healthcare, and in fact, Italy spends almost exactly the same amount of money on its interest payments as it does on public education.
[00:17:18] Those freebies in the 1980s, well, now Italians are having to pay the bill.
[00:17:24] Now, it is one thing to describe all of this with charts and percentages and talk of GDP and productivity. It is another thing to live it.
[00:17:36] So, I want you to close your eyes and imagine someone. Imagine a young Italian woman, born in the late 1980s. She does everything right. She studies hard, goes to university, and graduates with a good degree. She goes abroad to continue her studies, to the UK, let's say. She would love to return to Italy, but there are no jobs, at least none in a field she wants to work in. The best thing she could get might be a series of low-paid temporary contracts.
[00:18:12] She is offered a job in another European country, a permanent job with a good salary and a clear career path. Of course, she takes it.
[00:18:23] Still, she keeps her eye on opportunities back in Italy. The years go by, and now even with 10 years' experience in her field, she might have to wait until she is in her mid-50s to be considered "experienced" enough for a similar job back in Italy, and even if she were offered a job, it would be at a fraction of what she was earning abroad.
[00:18:47] Perhaps you know someone like this. Perhaps you work with them. The person I just described is someone who is quite easy for me to imagine. She is my wife, and she is one of 6 and a half million Italians who are living abroad.
[00:19:04] There is an expression in Italian for this: la fuga di cervelli, brain drain, you might say in English.
[00:19:12] On an emotional level, it's a sad thing for a country. It's a sad thing for Italian parents to see their children move abroad. But purely on an economic level, it's awful. This person receives a tax-funded education, from nursery right through to a university degree, and then just as they are in a position to start contributing, they move abroad and pay taxes in the UK, Germany, or, in the case of my wife, Sweden.
[00:19:44] Meanwhile, back in Italy, partly given the precarious economic situation that most young people find themselves in, fewer and fewer babies are being born. In 2025, 355,000 births were registered in Italy. That is the lowest number since Italian unification in 1861, when the country had fewer than half as many people as it does today.
[00:20:13] And this younger generation is the generation that will be paying for the generous pensions of their parents and grandparents. And there simply aren't enough of them. In my wife's hometown, there are more people who are older than 75 than there are under 18.
[00:20:34] So, joining the dots together, on one side you have young people leaving and fewer babies being born, and on the other side you have an ageing population with increasing care costs and generous pensions to fund.
[00:20:50] The tax burden on the working population is already one of the highest in Europe, and four out of every ten euros spent by the Italian state goes to either interest on its debts or pensions.
[00:21:05] It is a vicious circle, and try as various Italian governments might, it's incredibly difficult to do anything about it.
[00:21:14] So, can anything be done? Or is Italy simply doomed to a gentle, sunlit decline?
[00:21:22] To be fair, the recent picture is not all bleak.
[00:21:27] Italy has just been through an unusually stable political period. Financial markets spent years treating Italy as the eurozone's greatest risk, but they have changed their tune slightly.
[00:21:41] There has been some modest employment reform, and unemployment is down. Italy, for all its woes, is still Europe's second-largest manufacturing country, after Germany.
[00:21:54] And then there is the money.
[00:21:56] After the pandemic, there were a series of domestic and EU recovery measures, with hundreds of billions of euros being dished out for everything from digital infrastructure to building subsidies.
[00:22:10] Whether all that money has been spent well is something of an open question, but there was this huge cash injection that has given the country a serious boost.
[00:22:22] Now, all of those things I mentioned at the start of the episode, the natural advantages Italy has, they are still there.
[00:22:31] But so is everything else: the strangulating bureaucracy, the short contracts, the flat wages, the gargantuan public debt, and we haven't even mentioned the informal, under-the-table economy, which is estimated to be worth something like 10% of all Italian GDP and costs the Italian state up to €100 billion a year in lost tax revenue. Or the vast problem of organised crime.
[00:23:01] Italy is a wonderful place. That is, of course, my opinion, but I imagine it's an opinion shared by most of the 60 million tourists that come there every year.
[00:23:13] Italian city centres and hilltop villages are beautiful, Italian food is fantastic, and to the outside eye, it looks like everything is going swimmingly, like life could not be better.
[00:23:26] Under the bonnet, however, the economy is a mess, dragged down by the past and throttled by a dozen different factors.
[00:23:35] It's the home of Ferrari, Lamborghini, and a plethora of other feats of engineering.
[00:23:41] But until something about the economy changes, the Italian economic engine will keep idling, running but going nowhere, in a beautiful country that deserves much better.
[00:23:55] OK, then, that is it for today's episode on what's wrong with Italy's economy. For the Italians out there, I hope you'll think this was a fair assessment of your wonderful country.
[00:24:06] As always, I would love to know what you thought of this episode.
[00:24:10] Let me know in the comments below, if you're listening to this somewhere where you can comment, and for the members among you, you can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:24:24] You've been listening to English Learning for Curious Minds by Leonardo English.
[00:24:29] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[00:00:05] Hello, hello, hello, and welcome to English Learning for Curious Minds, by Leonardo English, the show where you can listen to fascinating stories and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:21] I'm Alastair Budge, and today we are going to be talking about Italy. And specifically, the Italian economy.
[00:00:28] And even more specifically, what went wrong?
[00:00:32] Italy has experienced three decades of stagnation, with barely any growth in wages or living standards, whilst much of the rest of Europe has fared much better.
[00:00:44] Today, we will be talking about the reasons why.
[00:00:47] OK then, let's not waste a minute and get right into it.
[00:00:53] If you were to design the perfect European country, from the point of view of giving it inherent, natural economic advantages, a few things might spring to mind.
[00:01:06] It would have to be relatively central, with easy connections to the rest of the continent.
[00:01:13] Ideally it would have a good amount of coastline, so it was simple to import and export goods by sea.
[00:01:21] You would give it a favourable climate, warm enough to grow high-value crops, let's say grapes for wine or olives for oil, but not so hot that it is unbearable.
[00:01:35] The climate would also be nice enough so that people would want to come there on holiday. It would be warm in the summer, there would be beaches and places to relax, but you'd also like there to be mountains for people to hike up or ski down in the winter.
[00:01:53] You'd also want other reasons for people to visit. Sites of historic importance would be good. Museums, art galleries, churches, beautiful old cities.
[00:02:04] If the food was good, that would be nice too. And if the people tended to be friendly, outgoing, and welcoming, well, that would be another bonus.
[00:02:16] You'd also want people to associate the country with high quality workmanship, so that if people knew that a bag or a suit was made in that country, it would command a premium price.
[00:02:31] You would, essentially, create a country that looks very much like Italy.
[00:02:37] So, given all these inherent advantages, why has Italy, and the Italian economy, fared so poorly?
[00:02:47] Why is the average Italian no better off than they were 30 years ago, and is there anything that can be done about it?
[00:02:57] Now, let me start with a little disclaimer. It is hard to find a bigger fan of Italy than me. I have lived in Italy, I am married to an Italian, my kids are half-Italian, I speak Italian every day at home, and I am now an Italian citizen. I come to this subject as someone who has a deep love and appreciation for Italy as a country, and Italians as a people.
[00:03:23] So, with that out of the way, let's talk about what went wrong.
[00:03:27] Well, the first important thing to stress is that Italy is a relatively new country. It was, as you may know, a collection of smaller states until 1861, when it became the Kingdom of Italy.
[00:03:43] And in those early years it was a poor, largely agricultural economy.
[00:03:50] The chaos of fascism and the Second World War didn't do much to help, and in 1945, the country was practically in ruins. Bridges were down, factories had been bombed, and much of the south lived on small-scale farming in conditions that had barely changed in a century.
[00:04:14] What followed was one of the most extraordinary economic transformations in modern history.
[00:04:21] Italians call it il miracolo economico, the economic miracle. For more than a decade, from the early 1950s to the early 1960s, the Italian economy boomed, growing at almost six per cent a year.
[00:04:40] Italy became the workshop of Europe. Fiat made small, affordable cars like the Fiat 500. Piaggio made the Vespa scooter, which you can hear about in episode 120, by the way.
[00:04:55] Olivetti made typewriters so beautiful you'll still find them in art museums. Italian fridges, washing machines and shoes poured into homes across the continent.
[00:05:07] Millions of people left the poorer south and moved north, to the factories of cities like Turin and Milan. A country of farmers became a country of factory workers and, increasingly, of consumers.
[00:05:24] All this growth had a particular character. Rather than being driven by a handful of giant corporations, much of Italy's growth was built on thousands upon thousands of small family firms, often clustered together in specialist districts: one town making ceramic tiles, another making spectacle frames, another making a particular type of clothing, and so on.
[00:05:54] These firms were flexible, hard-working, and brilliant at design.
[00:06:01] They were also assisted by the Italian government, which frequently devalued the lira, its currency, to make Italian exports more competitive.
[00:06:13] When Italian products looked like they were becoming too expensive for foreign buyers, the government would let the lira fall in value. A weaker lira made Italian goods cheaper abroad, so the orders would come flooding back.
[00:06:31] This caused inflation at home, in Italy, because imports suddenly got more expensive. But it kept the factories busy and the economy chugging away.
[00:06:44] On the surface, all was well. But two problems were growing.
[00:06:50] The first was debt. Now, Italian politics is a topic for another day, but over the years, politicians offered more and more benefits: better pensions, more public-sector jobs, subsidies for this and subsidies for that.
[00:07:08] Of course, these benefits had to be paid for, and successive Italian governments borrowed more and more money. By the early 1990s, Italy's public debt had passed one hundred per cent of GDP.
[00:07:24] In other words, the Italian state owed more than the entire economy produced in a year. Servicing this debt meant paying interest to creditors, and the bill increased every year.
[00:07:39] This "miraculous" economy looked to be built on some shaky foundations, and, to cut a long story short, in the 1990s, the vultures were well and truly circling.
[00:07:53] But out of all this financial chaos, it looked like there might be a solution. At the end of the decade, a group of European countries were planning to get rid of their own currencies and adopt a new European single currency, the euro.
[00:08:12] This seemed to many in Italy like a sensible proposition; not only could you use the same currency to buy goods in Germany, France or Spain, but Italy's borrowing costs would be cheaper and it wouldn't be constantly fighting to support the lira.
[00:08:30] To qualify to join, however, Italy had to get its finances in order. So through the 1990s, governments raised taxes and cut spending, year after year.
[00:08:44] And... it worked, in the narrow sense. Italy duly joined the euro as a founding member in 1999.
[00:08:52] But joining the euro meant giving up a tool that Italy had used for decades: being able to devalue its currency on a whim.
[00:09:03] With the euro, Italian goods and German goods were priced in the same currency. An Italian government couldn't just say "let's devalue the euro to make our cars more competitive internationally"; any devaluation of the euro would also make German or French manufactured goods cheaper. Suddenly, there was no magic button Italian economists could press. No way to make exports cheap again.
[00:09:32] None of this would have mattered had Italian firms become more productive, had they produced more economic value per hour. The thing is, they didn't get more productive.
[00:09:45] Since the mid-1990s, Italian productivity has barely grown — between 1999 and 2019, the amount an Italian worker produced per hour grew by about five per cent in total. Five per cent over two whole decades. In France and Germany over the same period, it grew by more than twenty per cent, and they aren't exactly shining beacons of economic productivity either.
[00:10:17] In Poland, it rose by about sixty per cent. In Lithuania, it more than doubled. And in Latvia, it rose by even more.
[00:10:28] Of course, Poland, Lithuania and Latvia were catching up from much lower levels.
[00:10:33] But Italy was not just growing slowly. It was barely moving at all.
[00:10:39] Now, this has nothing to do with laziness. It's not to suggest that Italian workers are twiddling their thumbs or going on extended breaks while their colleagues in Poland or Latvia are rolling up their sleeves and putting in the hours.
[00:10:56] The average Italian actually works longer hours each year than the average German, Frenchman or Spaniard. The problem is what each of those hours produces, and a lot of that depends on things the individual worker cannot control, like the size of the company they work for, the technology they are given, and the way that the business is organised.
[00:11:20] And here, we need to talk about the set of traps that work together to drive down productivity.
[00:11:28] The first trap is size. As we talked about a few minutes ago, Italy is a country of tiny companies. Firms with fewer than ten employees provide around forty per cent of Italian jobs. In Germany and France, the figure is about half that.
[00:11:48] Now, there's nothing wrong with small companies, of course, but they tend to be less productive on a per worker basis. They don't have the economies of scale of larger companies.
[00:12:01] And many Italian companies stay small on purpose. Italian bureaucracy is suffocating. Regulations become more demanding as a company grows, and this can discourage owners from crossing particular thresholds. So business owners may keep their firms just below a size that brings new obligations.
[00:12:25] There is also the question of who runs these companies. Most small Italian companies are family businesses, and in about two-thirds of them, the managers are members of the family.
[00:12:39] Again, there is nothing inherently wrong with a family business, but it tends to mean that the managers are chosen because of who their parents are rather than whether they are the best person to do the job.
[00:12:53] And Italian companies are often hopelessly behind when it comes to technology.
[00:13:00] From the 1990s onwards, the companies that really grew were the ones that reorganised themselves around new technology: professional managers, new systems, constant retraining. That kind of stuff. These were exactly the things that a small, family-run firm was least likely to do. This is one reason economists focus on the timing of Italy's productivity freeze in the mid-1990s. This was just at the start of the Internet and computer age.
[00:13:33] The second trap is the labour market, and this one is generational.
[00:13:40] Older Italian workers, the insiders, have traditionally enjoyed some of the strongest job protections in Europe, and it is notoriously difficult to get rid of an underperforming employee in Italy.
[00:13:55] This is not to suggest that Italy would be in a better place if it adopted US-style labour laws, with employees being fired for looking at the boss the wrong way, but it has made companies incredibly nervous about hiring anyone on full-time contracts.
[00:14:15] Instead, what happened was the mass adoption of short, temporary contracts of months at a time.
[00:14:24] The result was a two-tiered system. The silver-haired man sitting at the cafe, leisurely sipping his coffee and reading the newspaper, has a job for life, or perhaps he's already enjoying a generous pension. The thirty-year-old physics graduate making his espresso is on a six-month temporary contract with a salary that barely covers the rent.
[00:14:47] And, of course, an employer does not invest in training someone who will likely be gone by Christmas. A bank does not give a mortgage to someone with a six-month contract. An entire generation, my generation, essentially, was left in this limbo, moving from one short-term contract to another, and thanking their lucky stars if they were able to get any sort of permanent, secure job.
[00:15:14] The third productivity trap is an old one, one I've spoken about before here, and one you are probably aware of: the divide between north and south.
[00:15:26] Northern Italy is one of the most productive industrial regions in Europe. But in the south, so, sort of south of Naples and below, it's a very different situation, with incomes half those in the north and much higher levels of unemployment and crime.
[00:15:44] So Italy's national statistics are really an average of two different economies: the north is doing just about OK, given all of the issues we've currently spoken about, but the country overall is dragged down significantly, from an economic perspective at least, by the south.
[00:16:04] And sitting on top of everything is the fourth trap: the debt.
[00:16:11] That mountain of borrowing from the 1980s never really went away. New debt was issued to roll over the old debt. Every year, Italy has to pay interest on these debts. And that bill is massive, €90 billion every year. And that's just the interest payments — that isn't repaying any of the debt, like you might do with a home loan; it's literally just paying the bill for decisions taken 30 or 40 years ago.
[00:16:44] Now, Italy isn't the only country with huge public debt — the UK is in a not dissimilar situation — but clearly it handcuffs the policymaking decisions of any government. €90 billion that you need to pay your creditors is €90 billion you can't spend on education or healthcare, and in fact, Italy spends almost exactly the same amount of money on its interest payments as it does on public education.
[00:17:18] Those freebies in the 1980s, well, now Italians are having to pay the bill.
[00:17:24] Now, it is one thing to describe all of this with charts and percentages and talk of GDP and productivity. It is another thing to live it.
[00:17:36] So, I want you to close your eyes and imagine someone. Imagine a young Italian woman, born in the late 1980s. She does everything right. She studies hard, goes to university, and graduates with a good degree. She goes abroad to continue her studies, to the UK, let's say. She would love to return to Italy, but there are no jobs, at least none in a field she wants to work in. The best thing she could get might be a series of low-paid temporary contracts.
[00:18:12] She is offered a job in another European country, a permanent job with a good salary and a clear career path. Of course, she takes it.
[00:18:23] Still, she keeps her eye on opportunities back in Italy. The years go by, and now even with 10 years' experience in her field, she might have to wait until she is in her mid-50s to be considered "experienced" enough for a similar job back in Italy, and even if she were offered a job, it would be at a fraction of what she was earning abroad.
[00:18:47] Perhaps you know someone like this. Perhaps you work with them. The person I just described is someone who is quite easy for me to imagine. She is my wife, and she is one of 6 and a half million Italians who are living abroad.
[00:19:04] There is an expression in Italian for this: la fuga di cervelli, brain drain, you might say in English.
[00:19:12] On an emotional level, it's a sad thing for a country. It's a sad thing for Italian parents to see their children move abroad. But purely on an economic level, it's awful. This person receives a tax-funded education, from nursery right through to a university degree, and then just as they are in a position to start contributing, they move abroad and pay taxes in the UK, Germany, or, in the case of my wife, Sweden.
[00:19:44] Meanwhile, back in Italy, partly given the precarious economic situation that most young people find themselves in, fewer and fewer babies are being born. In 2025, 355,000 births were registered in Italy. That is the lowest number since Italian unification in 1861, when the country had fewer than half as many people as it does today.
[00:20:13] And this younger generation is the generation that will be paying for the generous pensions of their parents and grandparents. And there simply aren't enough of them. In my wife's hometown, there are more people who are older than 75 than there are under 18.
[00:20:34] So, joining the dots together, on one side you have young people leaving and fewer babies being born, and on the other side you have an ageing population with increasing care costs and generous pensions to fund.
[00:20:50] The tax burden on the working population is already one of the highest in Europe, and four out of every ten euros spent by the Italian state goes to either interest on its debts or pensions.
[00:21:05] It is a vicious circle, and try as various Italian governments might, it's incredibly difficult to do anything about it.
[00:21:14] So, can anything be done? Or is Italy simply doomed to a gentle, sunlit decline?
[00:21:22] To be fair, the recent picture is not all bleak.
[00:21:27] Italy has just been through an unusually stable political period. Financial markets spent years treating Italy as the eurozone's greatest risk, but they have changed their tune slightly.
[00:21:41] There has been some modest employment reform, and unemployment is down. Italy, for all its woes, is still Europe's second-largest manufacturing country, after Germany.
[00:21:54] And then there is the money.
[00:21:56] After the pandemic, there were a series of domestic and EU recovery measures, with hundreds of billions of euros being dished out for everything from digital infrastructure to building subsidies.
[00:22:10] Whether all that money has been spent well is something of an open question, but there was this huge cash injection that has given the country a serious boost.
[00:22:22] Now, all of those things I mentioned at the start of the episode, the natural advantages Italy has, they are still there.
[00:22:31] But so is everything else: the strangulating bureaucracy, the short contracts, the flat wages, the gargantuan public debt, and we haven't even mentioned the informal, under-the-table economy, which is estimated to be worth something like 10% of all Italian GDP and costs the Italian state up to €100 billion a year in lost tax revenue. Or the vast problem of organised crime.
[00:23:01] Italy is a wonderful place. That is, of course, my opinion, but I imagine it's an opinion shared by most of the 60 million tourists that come there every year.
[00:23:13] Italian city centres and hilltop villages are beautiful, Italian food is fantastic, and to the outside eye, it looks like everything is going swimmingly, like life could not be better.
[00:23:26] Under the bonnet, however, the economy is a mess, dragged down by the past and throttled by a dozen different factors.
[00:23:35] It's the home of Ferrari, Lamborghini, and a plethora of other feats of engineering.
[00:23:41] But until something about the economy changes, the Italian economic engine will keep idling, running but going nowhere, in a beautiful country that deserves much better.
[00:23:55] OK, then, that is it for today's episode on what's wrong with Italy's economy. For the Italians out there, I hope you'll think this was a fair assessment of your wonderful country.
[00:24:06] As always, I would love to know what you thought of this episode.
[00:24:10] Let me know in the comments below, if you're listening to this somewhere where you can comment, and for the members among you, you can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:24:24] You've been listening to English Learning for Curious Minds by Leonardo English.
[00:24:29] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[00:00:05] Hello, hello, hello, and welcome to English Learning for Curious Minds, by Leonardo English, the show where you can listen to fascinating stories and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:21] I'm Alastair Budge, and today we are going to be talking about Italy. And specifically, the Italian economy.
[00:00:28] And even more specifically, what went wrong?
[00:00:32] Italy has experienced three decades of stagnation, with barely any growth in wages or living standards, whilst much of the rest of Europe has fared much better.
[00:00:44] Today, we will be talking about the reasons why.
[00:00:47] OK then, let's not waste a minute and get right into it.
[00:00:53] If you were to design the perfect European country, from the point of view of giving it inherent, natural economic advantages, a few things might spring to mind.
[00:01:06] It would have to be relatively central, with easy connections to the rest of the continent.
[00:01:13] Ideally it would have a good amount of coastline, so it was simple to import and export goods by sea.
[00:01:21] You would give it a favourable climate, warm enough to grow high-value crops, let's say grapes for wine or olives for oil, but not so hot that it is unbearable.
[00:01:35] The climate would also be nice enough so that people would want to come there on holiday. It would be warm in the summer, there would be beaches and places to relax, but you'd also like there to be mountains for people to hike up or ski down in the winter.
[00:01:53] You'd also want other reasons for people to visit. Sites of historic importance would be good. Museums, art galleries, churches, beautiful old cities.
[00:02:04] If the food was good, that would be nice too. And if the people tended to be friendly, outgoing, and welcoming, well, that would be another bonus.
[00:02:16] You'd also want people to associate the country with high quality workmanship, so that if people knew that a bag or a suit was made in that country, it would command a premium price.
[00:02:31] You would, essentially, create a country that looks very much like Italy.
[00:02:37] So, given all these inherent advantages, why has Italy, and the Italian economy, fared so poorly?
[00:02:47] Why is the average Italian no better off than they were 30 years ago, and is there anything that can be done about it?
[00:02:57] Now, let me start with a little disclaimer. It is hard to find a bigger fan of Italy than me. I have lived in Italy, I am married to an Italian, my kids are half-Italian, I speak Italian every day at home, and I am now an Italian citizen. I come to this subject as someone who has a deep love and appreciation for Italy as a country, and Italians as a people.
[00:03:23] So, with that out of the way, let's talk about what went wrong.
[00:03:27] Well, the first important thing to stress is that Italy is a relatively new country. It was, as you may know, a collection of smaller states until 1861, when it became the Kingdom of Italy.
[00:03:43] And in those early years it was a poor, largely agricultural economy.
[00:03:50] The chaos of fascism and the Second World War didn't do much to help, and in 1945, the country was practically in ruins. Bridges were down, factories had been bombed, and much of the south lived on small-scale farming in conditions that had barely changed in a century.
[00:04:14] What followed was one of the most extraordinary economic transformations in modern history.
[00:04:21] Italians call it il miracolo economico, the economic miracle. For more than a decade, from the early 1950s to the early 1960s, the Italian economy boomed, growing at almost six per cent a year.
[00:04:40] Italy became the workshop of Europe. Fiat made small, affordable cars like the Fiat 500. Piaggio made the Vespa scooter, which you can hear about in episode 120, by the way.
[00:04:55] Olivetti made typewriters so beautiful you'll still find them in art museums. Italian fridges, washing machines and shoes poured into homes across the continent.
[00:05:07] Millions of people left the poorer south and moved north, to the factories of cities like Turin and Milan. A country of farmers became a country of factory workers and, increasingly, of consumers.
[00:05:24] All this growth had a particular character. Rather than being driven by a handful of giant corporations, much of Italy's growth was built on thousands upon thousands of small family firms, often clustered together in specialist districts: one town making ceramic tiles, another making spectacle frames, another making a particular type of clothing, and so on.
[00:05:54] These firms were flexible, hard-working, and brilliant at design.
[00:06:01] They were also assisted by the Italian government, which frequently devalued the lira, its currency, to make Italian exports more competitive.
[00:06:13] When Italian products looked like they were becoming too expensive for foreign buyers, the government would let the lira fall in value. A weaker lira made Italian goods cheaper abroad, so the orders would come flooding back.
[00:06:31] This caused inflation at home, in Italy, because imports suddenly got more expensive. But it kept the factories busy and the economy chugging away.
[00:06:44] On the surface, all was well. But two problems were growing.
[00:06:50] The first was debt. Now, Italian politics is a topic for another day, but over the years, politicians offered more and more benefits: better pensions, more public-sector jobs, subsidies for this and subsidies for that.
[00:07:08] Of course, these benefits had to be paid for, and successive Italian governments borrowed more and more money. By the early 1990s, Italy's public debt had passed one hundred per cent of GDP.
[00:07:24] In other words, the Italian state owed more than the entire economy produced in a year. Servicing this debt meant paying interest to creditors, and the bill increased every year.
[00:07:39] This "miraculous" economy looked to be built on some shaky foundations, and, to cut a long story short, in the 1990s, the vultures were well and truly circling.
[00:07:53] But out of all this financial chaos, it looked like there might be a solution. At the end of the decade, a group of European countries were planning to get rid of their own currencies and adopt a new European single currency, the euro.
[00:08:12] This seemed to many in Italy like a sensible proposition; not only could you use the same currency to buy goods in Germany, France or Spain, but Italy's borrowing costs would be cheaper and it wouldn't be constantly fighting to support the lira.
[00:08:30] To qualify to join, however, Italy had to get its finances in order. So through the 1990s, governments raised taxes and cut spending, year after year.
[00:08:44] And... it worked, in the narrow sense. Italy duly joined the euro as a founding member in 1999.
[00:08:52] But joining the euro meant giving up a tool that Italy had used for decades: being able to devalue its currency on a whim.
[00:09:03] With the euro, Italian goods and German goods were priced in the same currency. An Italian government couldn't just say "let's devalue the euro to make our cars more competitive internationally"; any devaluation of the euro would also make German or French manufactured goods cheaper. Suddenly, there was no magic button Italian economists could press. No way to make exports cheap again.
[00:09:32] None of this would have mattered had Italian firms become more productive, had they produced more economic value per hour. The thing is, they didn't get more productive.
[00:09:45] Since the mid-1990s, Italian productivity has barely grown — between 1999 and 2019, the amount an Italian worker produced per hour grew by about five per cent in total. Five per cent over two whole decades. In France and Germany over the same period, it grew by more than twenty per cent, and they aren't exactly shining beacons of economic productivity either.
[00:10:17] In Poland, it rose by about sixty per cent. In Lithuania, it more than doubled. And in Latvia, it rose by even more.
[00:10:28] Of course, Poland, Lithuania and Latvia were catching up from much lower levels.
[00:10:33] But Italy was not just growing slowly. It was barely moving at all.
[00:10:39] Now, this has nothing to do with laziness. It's not to suggest that Italian workers are twiddling their thumbs or going on extended breaks while their colleagues in Poland or Latvia are rolling up their sleeves and putting in the hours.
[00:10:56] The average Italian actually works longer hours each year than the average German, Frenchman or Spaniard. The problem is what each of those hours produces, and a lot of that depends on things the individual worker cannot control, like the size of the company they work for, the technology they are given, and the way that the business is organised.
[00:11:20] And here, we need to talk about the set of traps that work together to drive down productivity.
[00:11:28] The first trap is size. As we talked about a few minutes ago, Italy is a country of tiny companies. Firms with fewer than ten employees provide around forty per cent of Italian jobs. In Germany and France, the figure is about half that.
[00:11:48] Now, there's nothing wrong with small companies, of course, but they tend to be less productive on a per worker basis. They don't have the economies of scale of larger companies.
[00:12:01] And many Italian companies stay small on purpose. Italian bureaucracy is suffocating. Regulations become more demanding as a company grows, and this can discourage owners from crossing particular thresholds. So business owners may keep their firms just below a size that brings new obligations.
[00:12:25] There is also the question of who runs these companies. Most small Italian companies are family businesses, and in about two-thirds of them, the managers are members of the family.
[00:12:39] Again, there is nothing inherently wrong with a family business, but it tends to mean that the managers are chosen because of who their parents are rather than whether they are the best person to do the job.
[00:12:53] And Italian companies are often hopelessly behind when it comes to technology.
[00:13:00] From the 1990s onwards, the companies that really grew were the ones that reorganised themselves around new technology: professional managers, new systems, constant retraining. That kind of stuff. These were exactly the things that a small, family-run firm was least likely to do. This is one reason economists focus on the timing of Italy's productivity freeze in the mid-1990s. This was just at the start of the Internet and computer age.
[00:13:33] The second trap is the labour market, and this one is generational.
[00:13:40] Older Italian workers, the insiders, have traditionally enjoyed some of the strongest job protections in Europe, and it is notoriously difficult to get rid of an underperforming employee in Italy.
[00:13:55] This is not to suggest that Italy would be in a better place if it adopted US-style labour laws, with employees being fired for looking at the boss the wrong way, but it has made companies incredibly nervous about hiring anyone on full-time contracts.
[00:14:15] Instead, what happened was the mass adoption of short, temporary contracts of months at a time.
[00:14:24] The result was a two-tiered system. The silver-haired man sitting at the cafe, leisurely sipping his coffee and reading the newspaper, has a job for life, or perhaps he's already enjoying a generous pension. The thirty-year-old physics graduate making his espresso is on a six-month temporary contract with a salary that barely covers the rent.
[00:14:47] And, of course, an employer does not invest in training someone who will likely be gone by Christmas. A bank does not give a mortgage to someone with a six-month contract. An entire generation, my generation, essentially, was left in this limbo, moving from one short-term contract to another, and thanking their lucky stars if they were able to get any sort of permanent, secure job.
[00:15:14] The third productivity trap is an old one, one I've spoken about before here, and one you are probably aware of: the divide between north and south.
[00:15:26] Northern Italy is one of the most productive industrial regions in Europe. But in the south, so, sort of south of Naples and below, it's a very different situation, with incomes half those in the north and much higher levels of unemployment and crime.
[00:15:44] So Italy's national statistics are really an average of two different economies: the north is doing just about OK, given all of the issues we've currently spoken about, but the country overall is dragged down significantly, from an economic perspective at least, by the south.
[00:16:04] And sitting on top of everything is the fourth trap: the debt.
[00:16:11] That mountain of borrowing from the 1980s never really went away. New debt was issued to roll over the old debt. Every year, Italy has to pay interest on these debts. And that bill is massive, €90 billion every year. And that's just the interest payments — that isn't repaying any of the debt, like you might do with a home loan; it's literally just paying the bill for decisions taken 30 or 40 years ago.
[00:16:44] Now, Italy isn't the only country with huge public debt — the UK is in a not dissimilar situation — but clearly it handcuffs the policymaking decisions of any government. €90 billion that you need to pay your creditors is €90 billion you can't spend on education or healthcare, and in fact, Italy spends almost exactly the same amount of money on its interest payments as it does on public education.
[00:17:18] Those freebies in the 1980s, well, now Italians are having to pay the bill.
[00:17:24] Now, it is one thing to describe all of this with charts and percentages and talk of GDP and productivity. It is another thing to live it.
[00:17:36] So, I want you to close your eyes and imagine someone. Imagine a young Italian woman, born in the late 1980s. She does everything right. She studies hard, goes to university, and graduates with a good degree. She goes abroad to continue her studies, to the UK, let's say. She would love to return to Italy, but there are no jobs, at least none in a field she wants to work in. The best thing she could get might be a series of low-paid temporary contracts.
[00:18:12] She is offered a job in another European country, a permanent job with a good salary and a clear career path. Of course, she takes it.
[00:18:23] Still, she keeps her eye on opportunities back in Italy. The years go by, and now even with 10 years' experience in her field, she might have to wait until she is in her mid-50s to be considered "experienced" enough for a similar job back in Italy, and even if she were offered a job, it would be at a fraction of what she was earning abroad.
[00:18:47] Perhaps you know someone like this. Perhaps you work with them. The person I just described is someone who is quite easy for me to imagine. She is my wife, and she is one of 6 and a half million Italians who are living abroad.
[00:19:04] There is an expression in Italian for this: la fuga di cervelli, brain drain, you might say in English.
[00:19:12] On an emotional level, it's a sad thing for a country. It's a sad thing for Italian parents to see their children move abroad. But purely on an economic level, it's awful. This person receives a tax-funded education, from nursery right through to a university degree, and then just as they are in a position to start contributing, they move abroad and pay taxes in the UK, Germany, or, in the case of my wife, Sweden.
[00:19:44] Meanwhile, back in Italy, partly given the precarious economic situation that most young people find themselves in, fewer and fewer babies are being born. In 2025, 355,000 births were registered in Italy. That is the lowest number since Italian unification in 1861, when the country had fewer than half as many people as it does today.
[00:20:13] And this younger generation is the generation that will be paying for the generous pensions of their parents and grandparents. And there simply aren't enough of them. In my wife's hometown, there are more people who are older than 75 than there are under 18.
[00:20:34] So, joining the dots together, on one side you have young people leaving and fewer babies being born, and on the other side you have an ageing population with increasing care costs and generous pensions to fund.
[00:20:50] The tax burden on the working population is already one of the highest in Europe, and four out of every ten euros spent by the Italian state goes to either interest on its debts or pensions.
[00:21:05] It is a vicious circle, and try as various Italian governments might, it's incredibly difficult to do anything about it.
[00:21:14] So, can anything be done? Or is Italy simply doomed to a gentle, sunlit decline?
[00:21:22] To be fair, the recent picture is not all bleak.
[00:21:27] Italy has just been through an unusually stable political period. Financial markets spent years treating Italy as the eurozone's greatest risk, but they have changed their tune slightly.
[00:21:41] There has been some modest employment reform, and unemployment is down. Italy, for all its woes, is still Europe's second-largest manufacturing country, after Germany.
[00:21:54] And then there is the money.
[00:21:56] After the pandemic, there were a series of domestic and EU recovery measures, with hundreds of billions of euros being dished out for everything from digital infrastructure to building subsidies.
[00:22:10] Whether all that money has been spent well is something of an open question, but there was this huge cash injection that has given the country a serious boost.
[00:22:22] Now, all of those things I mentioned at the start of the episode, the natural advantages Italy has, they are still there.
[00:22:31] But so is everything else: the strangulating bureaucracy, the short contracts, the flat wages, the gargantuan public debt, and we haven't even mentioned the informal, under-the-table economy, which is estimated to be worth something like 10% of all Italian GDP and costs the Italian state up to €100 billion a year in lost tax revenue. Or the vast problem of organised crime.
[00:23:01] Italy is a wonderful place. That is, of course, my opinion, but I imagine it's an opinion shared by most of the 60 million tourists that come there every year.
[00:23:13] Italian city centres and hilltop villages are beautiful, Italian food is fantastic, and to the outside eye, it looks like everything is going swimmingly, like life could not be better.
[00:23:26] Under the bonnet, however, the economy is a mess, dragged down by the past and throttled by a dozen different factors.
[00:23:35] It's the home of Ferrari, Lamborghini, and a plethora of other feats of engineering.
[00:23:41] But until something about the economy changes, the Italian economic engine will keep idling, running but going nowhere, in a beautiful country that deserves much better.
[00:23:55] OK, then, that is it for today's episode on what's wrong with Italy's economy. For the Italians out there, I hope you'll think this was a fair assessment of your wonderful country.
[00:24:06] As always, I would love to know what you thought of this episode.
[00:24:10] Let me know in the comments below, if you're listening to this somewhere where you can comment, and for the members among you, you can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:24:24] You've been listening to English Learning for Curious Minds by Leonardo English.
[00:24:29] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
