REFORMS AND CONTINUITY IN THE ITALIAN ECONOMY: EMU AT RISK?

2. The position of Italy in Europe today 3. The 1980s and 1990s: Italy’s position in the European Monetary System 4. Inflation, productivity and competitiveness from 1999 5. External restructuring, Germany’s macroeconomic strategy, and the competitiveness channel 6. Conclusion Some concerns have been advanced that the Italian economy would cause harm to the EMU. In this paper we will analyze the extent of divergence between the main Euro-zone countries and highlight the dynamics which produce such strains. In particular we will question the effec-tive functioning of price and wage flexibil ity adjustments, which are presupposed in the present EMU framework, in the case of the Italian economy. The main findings are that such channels are not working as expected and some self-reinforcing process of divergence is in place. That depends both on the EMU and national institutional frameworks. Institutional reforms directed to flexibil ise the labour market are not obtaining the expected results. Moreover, the German poli-cies to increase competitiveness by controlling wages have exported tensions to Italy