Real growth could also depend on unleashing the potential of small businesses like Pallini. In many ways the company, founded in 1875, represents the face of Italian business. While the “made in Italy” label is trumpeted with big-brand icons like Ferrari, Gucci or Barilla, the backbone of the economy is the smaller businesses like Ms. Pallini’s that employ 10 to 30 people. Often, the companies have been in the family for generations.

After World War I, a Pallini boutique was set up next to the Pantheon. In the 1960s, Ms. Pallini’s father, Virgilio, expanded into a more modern factory on the industrial outskirts of the city, where the company still makes its spirits. Today, 26 people are involved in the production and sale of Pallini’s two top products, sambuca romana and limoncello, to export markets in the United States and Europe. The privately held company had 10 million euros, or $12.3 million, in revenue last year.

On a recent afternoon, workers slipped bottles of limoncello into boxes adorned with a florid lemon-tree print, and wrapped plastic around cases of liqueur bound for Belgium. A chemist inspected a batch of peach alcohol used in bars worldwide for Bellini cocktails, while a machine measured cinnamon, elder flower and cardamom destined to infuse a giant vat of sambuca.

But the Pallini dream of taking the business to greater scale and profitability has met with obstacles. For one, labor costs are prohibitively high, because of an array of taxes that mostly go toward supporting Italy’s lumbering government and an extensive social safety net. Wages are set through collective bargaining. For an average worker with net take-home pay of 1,100 euros a month, Ms. Pallini said, the total cost to her company, including taxes and social charges, is 2,500 euros.

Those costs have risen as the European crisis deepens, she added, because the level of taxes she pays for pensions depends on the health of public finances, which have deteriorated rapidly. Adding a new production shift, she said, “would mean such a high cost of manpower that we would not be able to compete.”

What is more, letting go of underperforming workers can often take up to three years and incur high legal costs. Employees often file lawsuits to fight dismissals, and in many cases judges rule for their reinstatement. In the meantime, the worker continues to be paid. Ms. Pallini cited a two-year trial in which a judge reinstated a grocery store employee who stole 80 euros ($98) after concluding that the employee should not lose his job over such a small amount.