Over the last decade, Italy has often been pinpointed as the "sick man in Europe," a vulnerable economy that is a risk to the European Union's financial stability.

Still today, a series of disappointing numbers are alerting analysts to the fact that Italy's vulnerability might be increasing.

The country's government recently cut its growth forecast for the year from 1% to 0.2%.

Eurostat recently confirmed that Italy's public debt has reversed its declining trend and has grown almost 1% in 2018, reaching 132.2% of gross domestic product (GDP). In total numbers, Italy's public debt is the EU's highest, and with the meager growth forecasted for this year, it is expected to rise.

Italy is also currently the only EU member state in a recession. But what brought the country to this point?

According to Carlo Alberto Carnevale-Maffe, Professor at Bocconi University School of Management in Milan, the situation is actually worse than the government estimates.

He and other analysts expect zero or even negative growth, as internal demand remains low and both public and private investment have dropped.

"Our export is robust, but it's the only positive component of our GDP," he tells DW. "And it isn't able to bear the weight of the national economy on its own."

A political and economic system that's been faulty for decades

To find the root causes of Italy's economic malaise, one must look to its history, argues Andrea Capussela, author of The Political Economy of Italy's Decline.

His book traces the country's political and economic history, pinpointing events and trends that have lead Italy to today's decline.

Throughout the last few decades, one recurrent trait is the country's malfunctioning social institutions — in particular the lack of rule of law and political accountability — which hinder productivity, innovation and therefore growth.

Italy's populist government: Key players Conte: Novice at the helm Giuseppe Conte, a little-known law professor with no political experience, was picked by the League and 5-Star Movement (M5S) as their candidate for prime minister. He was forced to temporarily give up his leadership bid after the parties' cabinet selection was initially blocked. However, after the two parties struck a deal with President Sergio Mattarella, Conte was eventually sworn in on June 1.

Italy's populist government: Key players Mattarella: President with the final say President Sergio Mattarella faced calls for his impeachment after he prevented the populist alliance from taking office. He singled out its choice for finance minister, Paolo Savona, warning that an openly euroskeptic minister in that position went against the parties' joint promise to simply "change Europe for the better." After the parties agreed to replace Savona, Mattarella gave the go-ahead.

Italy's populist government: Key players Di Maio: Anti-austerity advocate M5S chief Luigi Di Maio secured his party 32 percent of the vote in the March election. With the populist M5S-League coalition in power, Di Maio assumed the role of joint deputy prime minister and took over the economic development portfolio. The M5S leader has come under fire for his anti-immigration rhetoric, including calling rescue missions to save migrants from drowning a "sea-taxi service."

Italy's populist government: Key players Salvini: 'The Captain' Matteo Salvini is the leader of the anti-immigrant, euroskeptic League, which won 17 percent of the vote in the March election. A former MEP, he and his party have no experience in governing. Salvini has taken on the position of interior minister within Conte's Cabinet. Known for his hostile rhetoric toward immigrants and the EU, Salvini once described the euro a "crime against humanity."

Italy's populist government: Key players Savona: Anti-euro radical Paola Savona, initially tipped to lead the Finance Ministry, has called the euro a "German cage" and said that Italy needs a plan to leave the single currency. The 81-year-old's stance won him the backing of most Italian lawmakers but that wasn't enough to stop his appointment being vetoed. In his place steps Giovanni Tria, an economics professor without any previous government experience.

Italy's populist government: Key players Cottarelli: Temporary caretaker Carlo Cottarelli was set to become Italy's caretaker prime minster after the M5S-League alliance failed to have its controversial cabinet picks approved. The former IMF economist's time in the spotlight was short-lived, however. Political uncertainty in Italy rocked Europe's financial markets and prompted Mattarella to swiftly renegotiate and approve Salvini and Di Maio's governing coalition.

Italy's populist government: Key players Berlusconi: Vanquished enabler Silvio Berlusconi (right) and his Forza Italia entered a four-party electoral alliance including League in the March election that secured the bloc 37 percent. Berlusconi is now upset at his right-wing ally Salvini after the League leader moved to work with M5S. Berlusconi has said he would act as a "reasonable and scrutinizing opposition." Author: Chase Winter



After the Second World War, Capussela tells DW, Italy's economic miracle was based on importing superior manufacturing technology from abroad, mostly from the United States. For such a model, which pushes for innovation and growth, Italy's faulty institutions were not an obstacle to development.

Things started changing in the 1970s and 1980s, when Italy evolved into a fully formed industrial economy, and its industrial districts started developing. At this point, the country was nearing its technological and production frontiers, and needed solid social institutions to spur innovation and deliver competitiveness.

On the contrary, says Capussela, "this is what Italy really lacked."

Read more: Italy's economic plight, and why it matters

"An expansionary fiscal policy, financed through debt, kept growth up, but also hid underlying problems, like slowing growth and innovation."

With the 1992 economic and currency crisis, the previous growth model was ultimately blown up. Italy's growth "was once again based solely on structural factors — namely productivity growth — and finally the decline of such growth, which we are still experiencing, became clear," Capussela says.

The other big crisis in 2008 landed a further blow to Italy's economy.

No recent change and no change in sight

Since the crisis, nothing has really changed, Capussela believes, both in terms of improving Italy's rule of law and political accountability, and in terms of measures to spur growth.

Italy's spat with Brussels over its proposed budget deficit caused a stir at the end of last year — it was finally lowered from 2.4% to 2.04%, moderately appeasing all parties involved. But the problem is not necessarily how much budget the country has, but how it spends it.

Read more: Italy launches €7 billion 'citizens' income' plan to combat poverty

Both Capussela and Carnevale-Maffe agree that Italy's government isn't spending soundly.

"The issue is not that they haven't produced more growth; the issue is that they haven't tackled the deep causes of these problems." says Capussela. "In the short-term, the inefficient public spending; in the long-term, Italy's inefficient institutions — and none of this has been done."

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Carnevale-Maffe details exactly which measures are detrimental to the quality of Italy's public spending.

"Some countries spend on public investment that increases productivity," he says. "But with the new pension reform, which increases the pension expenditure by tens of billions of euros, Italy isn't promoting the economy's growth; on the contrary, it depresses growth, it reduces employment and it raises the financial burden for the new generations."

The outlook for the future is also not so rosy.

Carnevale-Maffe doesn't expect a recovery in 2019, as "what's done is done." What happens in 2020 depends on the political situation.

A situation that currently doesn't look promising with the two government parties, the Five Star Movement and the League, constantly pitted against each other, unable to even reach an agreement on the country's economic growth plan.