The country strongly supported the establishment of the single currency and its enthusiasm for adopting the Euro in the first round has strongly influenced the government's management of the economy in recent years. Throughout the 1980s, Italy's public annual deficit had been more than 10 per cent of GDP and the rate of inflation was the highest of all member states. Since the establishment of the convergence criteria for monetary union, set out in the Maastricht Treaty in 1992, Italian governments began to stabilise the debt by increasing taxes and reducing spending. In 1994, the country still had an annual deficit of 9.6 per cent of GDP and a debt of 124.9 per cent of GDP. By 1999, however, Italy managed to meet the criteria for monetary union and was one of the eleven members of the EU to adopt the euro as its national currency.

In the IMD World Competitiveness Scoreboard 2002, which takes into account a country's economic performance, government efficiency, business efficiency and infrastructure, Italy is ranked 32nd of 49 countries around the world.

Economy:
The government has traditionally played a significant role in the country's economy through the ownership of large industrial and financial companies. However, this influence has been reduced by a series of privatisation and regulatory reforms that have taken place since 1994. The north of the country, where the majority of dynamic industries and markets are concentrated, is generally more prosperous than the south. Italy has a limited natural resource base and the vast majority of its raw materials and energy requirements are imported.

In line with other Western European economies, the service industry is responsible for a large proportion of the country's GDP. In fact, according to figures published by the OECD in 2000, some 67.9 per cent of Italy's GDP comes from the service sector, while the industrial and agricultural sectors account for 29.2 per cent and 2.9 per cent respectively. Italy's major manufacturing industries include chemicals, electronic equipment, fashion and textiles, industrial machinery, metals, motor vehicles, pharmaceuticals and precision machinery.

Infrastructure:
Italy's national airline, Alitalia, flies all over the world and a large number of international airlines operate direct flights to destinations throughout Italy from Australia, Europe and North America. Flight times between Rome and London are approximately 2 hours 30 minutes, New York is less than 10 hours away and Singapore and Sydney can be reached in just under 14 hours and 25 hours respectively. There are 15 major ports in the country and just under 16,000km of railways, more than half of these are electrified. The road network in Italy is comprised of over 300,000km of roads, including more than 6000km of motorway.

Workforce:
Figures published by the OECD in 2000 show that 62.2 per cent of employees in Italy work in the service sector, 32.4 per cent are employed in the industrial sector and 5.4 per cent are employed in the agricultural sector. The unemployment rate for the entire country in 2001 stood at 9.4 per cent, although there is significant regional variation between the north and the south of the country. In a report produced by the European Institute of Social Services it was noted that the high levels of unemployment existed alongside labour shortages. This situation results in part from the large regional variation in unemployment coupled with poor mobility in the workforce and also from the fact that there are skill shortages with regards to certain occupations, especially in the fields of maths, natural and physical sciences. Furthermore, there is a reluctance among young people to work in unskilled, low status occupations and poor management in the public employment services is making employment allocation mechanisms ineffective.

New Technologies:
According to the Italian Ph.D. Association, Italy's spending on research stands at approximately 1 per cent of the Gross National Product, compared to the European average of 2.2 per cent. Plans had been made under the former prime minister Giuliano Amato to commit some $8.2 billion for science funding in 2002, an increase of 12 per cent on the previous year's spending. However, the government of his successor Silvio Berlusconi has revoked this pledge and funding levels have remained the same.

As part of the EU, Italy benefits from several programs, such as Eureka and Esprit, which are aimed at stimulating research and development. Eureka is designed to develop R&D and corresponding training in any technology area, whilst the Esprit program is concerned with establishing Europe wide standards and providing member countries with critical technologies in a wide variety of areas including advanced microelectronics, software, industrial automation and advanced information/image processing.

Business Costs:
In the Competitive Alternatives Guide published by KPMG in 2002, which compares the cost of doing business in North America, Europe and Japan, Italy was ranked as the third most cost effective location, improving its position against every other G7 country from previous years. This reduction in business costs is partly due to a decrease in the amount of legally required employee benefits. Italy was also ranked third in terms of manufacturing and labour costs and has the lowest costs for building construction and leasing of suburban office space.

In keeping with European norms, the Italian government provides financial incentives for new businesses and also for the development of established businesses within certain areas. Grants are available for such things as modernisation, expansion, training, research and innovation.