Italy was for many of the post-war years one of the fastest growing countries in the OECD area, and its labour productivity is among the highest in the OECD.1 It embarked on an ambitious programme of structural reforms in the 1990s, and by 1997, achieved a dramatic reduction in the public sector deficit allowing Italy to qualify for entry into EMU. More recently, it has had a good record on employment creation, and is the only one of the three largest euro-area countries to respect the 3 per cent upper deficit limit of the Stability and Growth Pact in 2002...