Along with the rest of the OECD, Italy is facing a deep and possibly prolonged recession. A decade of slow productivity growth and gradually deteriorating competitiveness meant that the financial crisis hit a weakened economy. Fortunately, the banking sector itself has – up to now – escaped the risk of insolvency that has crippled banks in some countries, but this has not protected the economy from the credit crunch. The inability of successive government to take effective action to reduce public debt in the past has left the government with little room to manoeuvre in fiscal policy, other than to allow automatic stabilisers to work as best they can.