ABSTRACT
The years 1985-87 were a period of euphoria and consumption. Italian GNP became larger, or so it was claimed, than that of the UK. Italy was now the fifth economic power in the world, after the USA, Japan, West Germany and France. Italy remained, throughout the 1980s a relatively high inflation and high unemployment country. Moderation in wages were due in part to trade unions weakness, in turn caused by the increase in unemployment, in part to the government pledge to ease income tax. Membership of the European Monetary System (EMS) fixed the exchange rate of the lira was used to justify stringent monetary policies and imposed a discipline on employers. The paucity of shareholders meant that Italian capitalism remained underdeveloped. The productivity achieved by Italian industry in the late 1980s provided an opportunity for investing in the South. Economic development had thus created an environment in which the principal ingredients of the political crisis of the 1990s could thrive.
