The boot-shaped Italian peninsula stretches 800 km (496 miles) southward into the Mediterranean, while the Alps form a natural boundary to the north. Italy also includes Sicily, Sardinia, and several smaller islands. The south is an area of seismic activity, with two famous volcanoes, Vesuvius and Etna. Rival city states flourished in Renaissance Italy, a unified country only in Roman times and since 1870. Fascist rule under Mussolini from 1922 ended with Italy's defeat in World War II. The Christian Democrats (DC) then dominated Italy's notoriously short-lived governments for decades, until in the 1990s the established parties and patronage systems were shaken up by corruption investigations. New groupings emerged, power alternating between a right-wing coalition and a broad center-left Olive Tree alliance.

Italy is a remarkably homogeneous society. Most Italians are Roman Catholics and Italy has far fewer ethnic minorities than its EU neighbors; most are fairly recent immigrants from Ethiopia, the Philippines, and Egypt. A sharp rise in illegal immigration in the 1980s and 1990s, from north and west Africa, Turkey, and Albania, became a major election issue and a factor in the rise of the federalist Northern League. Despite stringent measures introduced in 1995 against illegal immigrants, the number of new arrivals continues to increase.

Difficult economic conditions caused many Italians to emigrate in the 1950s and 1960s. There are now five million Italians living abroad. About half live in other EU countries, the rest mainly in the USA, South America, and Australia. Most migrants then, as now, are from the poorer south – the Mezzogiorno. Within Italy, prejudice still exists in the north against southern Italians.

Sport – especially soccer – has an unusual ability to bring out a strong sense of national identity among Italians. In other spheres, with state institutions viewed as inefficient and corrupt, most people feel a stronger allegiance to the region, or the community, and above all to the family. The extended family remains Italy's key social and economic support system. Most Italians live at home before marriage. Marriage rates are among the highest in Europe and divorce rates the lowest. Catholicism, however, has not stopped Italy having the lowest birthrate and one of the highest abortion rates in the EU.

Italians tend to dress well. Their preoccupation with style reflects the traditional importance of bella figura – image, cutting a dash – in Italian life as much as the high living standards which most now enjoy.

Strengths

Highly competitive, innovative small- to medium-size business sector. World leader in industrial and product design, textiles, and household appliances. Several highly innovative firms include Fiat (cars), Montedison (plastics), Olivetti (communications), and Benetton (clothes). Strong agriculture and tourism sectors, prestigious fashion houses.

Weaknesses

Public deficit and government debt remain high. Slow growth. Inefficient public sector undergoing major privatizations. Uneven wealth distribution: northern Italy far richer than the south, which suffers three times more unemployment. Poor record on tax collection, although now much improved. Relatively small companies facing foreign competition. Heavy dependence on imported energy.

Profile

Since World War II, Italy has developed from a mainly agricultural society into a world industrial power. The economy is characterized by a large state sector, a mass of family-owned businesses, relatively high levels of protectionism, and strong regional differences. Italy also has relatively few multinationals compared with other G7 economies.

The Institute for Industrial Reconstruction (IRI), a state-owned holding company dating from the Fascist era, progressively privatized its electronics, steel, telecommunications, engineering, shipbuilding, transportation, and aerospace companies, until closing down itself in 2000. The National Hydrocarbons Group (ENI), one of the world's top players in the energy and chemicals sectors, has been privatized, as has Telecom Italia, and the electricity corporation Enel. City and regional authorities own utilities, banks, and other businesses.

Family-owned businesses, which are the backbone of the private sector, include Fiat, whose interests include aero engines, telecommunications, and bioengineering, as well as cars. Similar businesses tend to congregate, encouraging local competition which has translated into national success.

The Mezzogiorno remains an exception. State attempts to attract new investment have met with success in areas immediately south of Rome, but elsewhere organized crime has deterred investors and siphoned off state funds. Anger at the misuse of state funds in the south was a powerful factor in the growth of the LN with its demands for autonomy. One-third of Italian tax revenue is generated in Italy's industrial heartland of Milan.

Italy is a multiparty democracy.

Profile

A coalition of Silvio Berlusconi's Forza Italia, Gianfranco Fini's "post-fascist" AN, and Umberto Bossi's xenophobic, secessionist LN won elections in 1994, but had collapsed by the end of that year. A technocratic government took over until 1996, when fresh elections resulted in a historic victory for the center-left Olive Tree alliance headed by Romano Prodi.

Bossi failed to rouse mass support for his declaration in September 1996 of an independent northern state of "Padania."

Success in qualifying for membership of the single European currency crowned the Prodi government's achievements in the economic sphere. After two years in office, it fell in October 1998 when the communists challenged its budget. The premiership passed to Massimo D'Alema of the Left Democrats (DS – formerly the reformed communist PDS), then to Giuliano Amato, retaining a broadly similar coalition formula. Aware of the strength of the challenge from Berlusconi and the right, Amato then stood aside so that the popular mayor of Rome, Francesco Rutelli, could lead the center-left campaign in the May 2001 elections. The right-wing victory in that poll was essentially Berlusconi's personal triumph, although his new government repeated his 1994 formula by including the LN and the AN. It faced mass public protest in 2002 against proposed labor law reforms.

Main Political Issues

Corruption

The 1990s mani pulite (clean hands) investigations, initially concerned with financial scandals in Milan, went on to reveal a nationwide network of corruption permeating political and business life. The issue destroyed the old political order, and many public figures were disgraced. Berlusconi, who emerged as a leading figure in the country's new political makeup, was himself dogged by bribery-related charges. Although he was acquitted on several counts during 2000, his return to power the following year left the corruption issue still simmering, as he pushed through reforms which meant that outstanding charges against him could be quashed.

Institutional Reform

The old proportional representation (PR) electoral system, blamed for a lack of strong government, was much modified in the early 1990s, but the process lost impetus after the 1994 elections. Twice, in 1999 and in 2000, referendums failed to abolish the 25% of seats still elected by PR, not because voters opposed this, but merely due to inadequate turnout. Berlusconi favors a system with greater presidential powers, akin to that in France.

Italy has very few natural resources. It produces just 1% of its oil needs and is highly vulnerable to both fluctuations in world prices and political instability in its north African suppliers. It has reduced its exposure since 1973, when oil accounted for 71% of its needs. Even so, oil still accounts for over 50% of energy consumption. Some power is generated from hydro and geothermal sources. Nuclear power was rejected in a 1987 referendum, and development has effectively been abandoned. Italy's mineral assets are small and the sector contributes little to national wealth.

Italy's health care system is rated by WHO as the second most efficient in the world.

Standards of health care vary across the country, as the services are run by the regions. The state-run health system introduced in the 1970s initially provided services free at the point of use, but charges have been levied since 1988 for some dental and prescription costs; patients also have to pay a daily hospital charge and a yearly health fee. AIDS patients are exempt.

Schooling is state-run, apart from a few religious and elite private institutions. The pupil–teacher ratio in Italian schools is one of the best in Europe. In 1993, the minimum school leaving age was raised from 14 to 16 years, bringing Italy into line with most of Europe. However, the dropout rate in schools – as high as 50% in Sicily – remains a problem. An educational credit system aims to tackle shortcomings in information technology training.

Universities in Italy are oversubscribed. Rome has 180,000 students, only 30% of whom gain a degree. Many Italian educationalists wish to restrict entry. Another concern is the fact that Italy devotes only 1.4% of its GNP to research, compared with a European average of 2.5%.

Italians, particularly in the north, are today among the world's wealthiest people in terms of disposable income. This is a result not only of economic growth, but also of the structure of Italian society.

Many Italians have more than one job. The extended families in which most people still live often have access to more than one income. Few people have mortgages, and savings and tax avoidance levels are high.

The main exceptions are in parts of the south. Although inward investment has been attracted to the Bari area, many people still live in poverty in other places, such as Naples and the Calabria region, where investment has been lowest, unemployment is highest, and even tourism is underdeveloped.

Previously a collection of independent city states, dukedoms, and monarchies, Italy became a unified state in 1870.

• 1922 Mussolini asked to form government by king.
• 1928 One-party rule by Fascists.
• 1929 Lateran Treaties with Vatican recognize sovereignty of Holy See.
• 1936–1937 Axis formed with Nazi Germany. Abyssinia (Ethiopia) conquered.
• 1939 Albania annexed.
• 1940 Italy enters World War II on German side.
• 1943 Invaded by Allies. Mussolini imprisoned by Victor Emmanuel III. Armistice with Allies. Italy declares war on Germany.
• 1945 Mussolini released; establishes puppet regime in north; executed by Italian partisans.
• 1946 Referendum votes in favor of Italy becoming a republic.
• 1947 Italy signs peace treaty, ceding border areas to France and Yugoslavia, Dodecanese to Greece, and giving up colonies.
• 1948 Elections: DC under De Gaspieri heads coalition.
• 1949 Founder member of NATO.
• 1950 Agreement with USA on US bases in Italy.
• 1951 Joins European Coal and Steel Community.
• 1957 Founder member of European Economic Community. Aided by funds from that organization and by Marshall Aid, industrial growth accelerates.
• 1964 DC government under Aldo Moro forms coalition with Socialist Party (PSI).
• 1969 Red Brigades, extreme left terrorist group, formed.
• 1972 Support for extreme right reaches postwar peak (9%). Rise in urban terrorism by both extreme left and right.
• 1976 Communist Party (PCI) support reaches a peak of 34% under Enrico Berlinguer's Eurocommunist philosophy.
• 1978 Aldo Moro abducted and murdered by Red Brigades.
• 1980 Extreme right bombing of Bologna station kills 84, wounds 200.
• 1983–1987 Center-left coalition formed under Bettino Craxi.
• 1990 LN attacks immigration policies and subsidies for the south.
• 1992 Corruption scandal, involving bribes for public contracts, uncovered in Milan. Government members accused.
• 1994 General election: DC support collapses; coalition government formed between Silvio Berlusconi's Forza Italia, LN, and neo-fascists.
• 1995–1996 Technocrat government tackles budget, pensions, media, and regional issues.
• 1996 Center-left Olive Tree alliance wins general election; Romano Prodi prime minister.
• 1998 May, Italy qualifies to join euro currency from January 1999. October, Prodi government falls, Massimo D'Alema prime minister.
• 1999 Carlo Ciampi president.
• 2000 April, D'Alema replaced by Giuliano Amato.
• 2001 May, Berlusconi victory in general election. June, right-wing government includes "post-fascist" National Alliance.
• 2002 Euro fully adopted.