Italy’s economic decline was not caused by a single crisis or one disastrous policy decision. Rather, it has been a gradual deterioration spanning decades. This is the picture that emerges from the data: weaker growth, lower productivity, an ageing population, and mounting problems with public finances.
This is precisely the subject of Portrait of a Decline by Guido Ascari and Riccardo Trezzi. Its subtitle, Data Against the Illusions, captures the authors’ approach particularly well. And the illusions they challenge are not limited to Italy. Many of them are also present in public debates across Europe.
Italy’s stagnation cannot simply be blamed on the introduction of the euro. As the authors show, the common currency did not create Italy’s underlying problems, although it did expose weaknesses that had previously been easier to conceal through repeated devaluations of the lira. Nor is it enough to blame the global financial crisis, austerity, immigration, or some vaguely defined “Italian mentality”. These are convenient explanations, but they do little to advance a serious discussion about the structural problems affecting the Italian economy.
Ascari and Trezzi show that Italy’s decline is multidimensional and has been unfolding for decades. The country began losing ground relative to other developed economies as early as the 1980s. Italy’s share of global GDP fell from more than 4.7% in 1980 to 1.8% in 2024. This is not a temporary slowdown but a four-decade process that has yet to run its course.
According to International Monetary Fund forecasts, Poland may catch up with Italy in GDP per capita, adjusted for differences in price levels, in the early 2030s. Poland is closing the gap not only because its economy continues to grow relatively quickly, but also because Italy has struggled to generate growth for a long time.
Over the past twenty years, only a handful of countries around the world have grown more slowly than Italy. They include Sudan, Yemen, Venezuela, and Ukraine. What lessons should Poland and other countries in Central and Eastern Europe draw from Italy’s experience?
Lesson One: Demographic Change Is Costly
Without enough people of working age, an economy lacks workers, entrepreneurs, taxpayers, innovators, and consumers. In Italy, population growth first slowed and then went into reverse. Particularly worrying has been the decline in the working-age population. Ascari and Trezzi point out that by 2024 the number of people aged 25–49 had fallen back to levels last seen in the early 1960s. That means fewer people in what is usually the most economically active stage of life.
The Italian state has tried to reverse the fall in fertility through a variety of programs, including childbirth bonuses, family benefits, and parental leave. Yet, the trend has not been reversed. As the authors acknowledge, financial incentives alone are not enough to counter profound social change.
Italy’s demographic challenge was compounded by its pension policies. In the 1990s, the effective retirement age fell to very low levels: around 58 for men and 57 for women. This gave rise to the phenomenon of the baby pensionati – people who retired exceptionally early, sometimes while still relatively young. For a time, such policies may have been politically convenient. In the longer term, however, they placed an increasing burden on younger generations.
Italy demonstrates that demographic policy cannot be reduced to a single program or to debates about the size of cash benefits. Countries need better conditions for families, openness to sensible immigration, and economic policies adapted to ageing societies.
The labor market matters as well. Italy has long struggled with low labor-force participation among women and young people, a strong divide between different forms of employment, and a large share of self-employment and very small businesses. Such a labor market is both a consequence and a cause of stagnation.
Lesson Two: Without Productivity Growth, There Is No Catching Up
The second lesson concerns productivity – how much value an economy can generate from labor, capital, organization, knowledge, and technology. If productivity stagnates, sooner or later wages, investment, and living standards lose momentum as well.
Since the 1980s, Italy has experienced progressively weaker productivity growth, despite once being among the OECD’s strongest performers. Over time, it began falling behind the technological frontier, and the productivity gap continued to widen.
The authors reject an explanation that is also popular in parts of the public debate: that the euro is the main culprit. Italy’s problems began earlier and have much deeper roots.
The country failed to take full advantage of the digital revolution. Instead of creating its own “Silicon Valley”, Italy too often continued to rely on its traditional strengths: tourism, famous brands, family-owned businesses, and the historic quality of Italian manufacturing. But even a country such as Italy cannot continue to base its development primarily on its past.
Another problem is the deteriorating quality of human capital, reflecting weaknesses in education, as well as the emigration of some talented young people. The structure of the economy does not help either, with its very large share of small firms. Small companies can be flexible, but they generally have fewer opportunities to invest, expand internationally, professionalize management, and adopt new technologies.
One particularly interesting theme in the book is privatization without liberalization. If a state monopoly is simply replaced by a private monopoly, healthy competition does not emerge – only a new rent-seeker. The authors describe Italy as a “rentiers’ paradise”. It is an important warning: changing ownership alone is not enough. Open markets, deregulation, easier access to professions and sectors, and genuine market competition are also necessary.
One of the most striking examples concerns the justice system. Resolving a civil dispute in Italy can take around 2,300 days – more than six years and several times longer than in Germany.
Slow courts are not merely a problem for lawyers. They are a problem for the entire economy. Companies become more reluctant to take risks, more cautious in choosing business partners, and more inclined to protect themselves through costly safeguards. Transaction costs rise as a result. The Bank of Italy has estimated that the inefficiency of the justice system may cost the economy as much as one percentage point of GDP per year.
Lesson Three: High Public Spending Does Not Guarantee Development
Italian public spending rose from around 30% of GDP in the 1960s to more than 50% in the 1980s. It peaked at 56% of GDP in 1993. In 2025, Italy had the fifth-highest level of public expenditure in the European Union, at 51.2% of GDP. Poland ranked sixth, at 50.9% – the highest level among CEE EU member states.
Ascari and Trezzi find no evidence that the long-term increase in public spending translated into a lasting increase in national income.
This is particularly important in debates where it is sometimes assumed that a larger state automatically means better public services and faster economic development. Italy’s experience shows that the composition and quality of public spending matter at least as much as its overall level.
Problems include excessive social spending, the pension system, and enormous waste. One symbol of the latter is the Superbonus, a costly program of tax incentives for housing renovations and improvements in energy efficiency. It was intended to support investment and modernization but became an example of badly designed public policy: extremely expensive and vulnerable to large-scale abuse.
The authors raise similar questions about the effectiveness of spending under NextGenerationEU. Public money can reinforce existing dependencies, finance poorly designed programs, and postpone necessary reforms.
The combination of high public debt and adverse demographics is particularly dangerous. Italian public debt rose from less than 40% of GDP in 1960 to more than 130% today, the second-highest level in the EU.
High debt and high pension spending burden younger generations. This may discourage people from having children and encourage emigration. The fewer young people who remain in the country, the harder it becomes to finance an expanded welfare state. A vicious circle emerges.
Lesson Four: Redistribution Is No Substitute for Reform
The final lesson concerns the divide between northern and southern Italy. The Mezzogiorno, the country’s less-developed South, weighs on Italy’s performance across almost every dimension: demographics, productivity, employment, economic growth, and public finances.
For decades, resources have been redistributed from the North to the South. These transfers help reduce income differences, but they have failed to close the development gap.
This lesson matters for the European Union and for Central and Eastern Europe as well. Financial transfers alone do not generate lasting development. Good institutions, effective public administration, education, infrastructure, legal certainty, and a competitive economy are all essential. Without them, public money often sustains the existing model rather than transforming it.
Lessons for Central and Eastern Europe
Portrait of a Decline is a book about Italy, but many of its warnings sound familiar from both a Polish and a broader regional perspective.
Demographic problems, the future sources of productivity growth, the challenge of raising productivity in smaller firms, rapidly increasing public expenditure, the costs of overly generous social programs, the quality of institutions, and the efficiency of the justice system are all highly relevant issues for Central and Eastern Europe as well.
Economic stagnation does not have to begin with a catastrophe. More often, it starts with postponing reforms, buying political peace with public money, and protecting vested interests. Add to this a tolerance for weak institutions and a tendency to repeat convenient myths rather than tell voters uncomfortable truths, and stagnation can gradually become entrenched.
One thing I missed in the book was a more detailed account of how successive political decisions interacted with economic developments. It is precisely at this intersection – between economic data and concrete choices made by governments – that many of the most important lessons for Polish and other CEE policymakers can be found.
Ascari and Trezzi write that a good policymaker should wake up every morning with two compasses in mind: demographics and technological progress – alongside, of course, responsible management of public finances. This is a sentence worth displaying in ministries across Central and Eastern Europe.
Italy is a beautiful country, culturally rich and still economically important. But its economic record over recent decades should serve as a warning.
Poland and other countries in Central and Eastern Europe are not destined to follow the Italian path, provided that their politicians do not ignore the warning signs and are willing to act before a crisis or prolonged stagnation forces them to do so.
Catching up with Italy would, of course, be a reason for satisfaction in Poland and elsewhere in the region. But it would be far more satisfying if it were a race between fast-growing countries in which, as Ascari and Trezzi hope, future generations can look forward to better lives than those enjoyed by the present one.
The article was originally published in Polish on August 06, 2026, on the website of Dziennik Gazeta Prawna.