The Euro and the Troubled Mediterranean: Italy and Spain

Italy and Spain have both been in the frontline of the Eurozone debt crisis that developed shortly after the global financial crisis of 2007-8. Yet the severity of the crisis facing both countries obscures the fundamental differences between them, and the differing implications of these two cases for our understanding of the crisis. This paper outlines those differences, covering the consequences of financial liberalization and labor market reforms in the decade running up to the crisis, and the distinct responses of the two countries to the recession that followed. It will argue that, contrary to the conventional wisdom, Spain’s much better economic performance in the 1990s and 2000s masked underlying weaknesses that make it more exposed than Italy to the challenges of the post-crisis world.