Analyse the main causes and consequences of the economic miracle and assess its overall significance for today's Italy.

At the same time Italy was experiencing low labour costs, the lira also had a low-value which aided in fuelling an export led miracle. The Ente Nazionale Idrocarburi was one of Italy's most important state-owned enterprises and it played an important role as an agent of economic growth. It did this through the supply of an expensive source of energy. Along with state-owned companies enhancing and dominating the economic boom, public sector intervention and investment in communications enabled the expansion of private firms like Fiat, Olivetti and Pirelli.

Another key factor in Italy's economic miracle was the Marshall Plan which helped to boost post-war recovery. Italy was to decide on its economic needs so that material and financial aid from the United States could be integrated on a broad scale. The Economic Cooperation Administration was established to over see the Marshall Plan. The ECA was created to promote European production, to bolster European currency, and to facilitate international trade.

The counties that were members of the ECA also joined another organisation in an attempt to continually boost and maintain there new stronger economies. The Organization for European Economic Cooperation was founded in 1948 to coordinate the Marshall Plan for European economic recovery following World War II. The organization has 29 full members including Italy . Member countries are pledged to work together to promote their economies, to extend aid to underdeveloped nations, and to contribute to the expansion of world trade. 3

Due to the fact that the economic miracle affected largely the North and left the agricultural South behind, thus creating the North- South divide, one of the consequences of the miracle was to target the economy in the South. The government established ' fund for the development of Southern Italy', which, combined with land reforms, brought a rise in agricultural production.

Eventually with higher rates of employment and rising discontent over wages, the low wage policies that enabled the economic miracle had to be abandoned and the period of strong growth came to an end. When the economic miracle came to an end there were several consequences.

The downside of Italian financial improvement had been a general weakening of economic activity. With very rigid labour markets, low growth has meant only a moderate rise in unemployment, accompanied however by a low increase in productivity and the loss of international competitiveness. Italy's income growth remained higher than OECD countries' average but this in turn meant very high inflation. Competitive devaluations led to inflationary pressures and more competitive devaluations. After Italy's economic miracle subsided another consequence it provoked was that the financial and business worlds rapidly reorganised and acquired new visibility. The Italian banking world under went a massive overhaul, Italian savers switched from government bonds to shares and investment funds.

Partly because of the North-South divide and partly because the small businesses that were not effected by the high inflation and the demise of the economic boom after its initial peak, the wealth in Italy was unevenly distributed. So there was a reorganisation of Italian territory, the government had an idea of 'remoulding' the north and South sides together to economically globalise Italy.

A major impact that the miracle has had on today's Italy was the currency crisis of Autumn 1992. During this period the lira lost over one third of its value against other European currencies and Italy was forced to leave the EMS. 4 This shock prompted an utter change of policies and was one of the elements in the major overhaul in Italian politics which destroyed most traditional parties. With the drive to introduce reforms, the sober mood over government finance, the pensions reforms, the privatisation drive, a generalised feeling of anxiety about Italy being left out of European Monetary Union and its weak currency forced Italy to fend for itself in hostile financial markets. With all of these worries and problems afoot resulting from the consequences of the miracle the Italian government were forced to become more organised. Co-operation between organised labour, government and employers prevented a wage explosion, thus eliminating a major inflationary pressure. This in turn lead to exchange rate stability which eliminated another traditional source of inflation. Both interest expenditure and inflation reductions were particularly sharp in 1996-97. The general atmosphere of uncertainty and the realisation that pension reform would result in limitation of expected future income induced Italians to adopt a more cautious attitude and brought to an end the era of cheerful consumer demand. In 1998 Italian consumer expenditure grew by 2.3%, which was better than Germany's 2%.

However, the miracle has also caused some problems for today's Italy, 2 of the major problems that still remain today are unemployment and underdevelopment of the South.5 Unemployment is high and very unevenly distributed. Nowadays subsidies, protection and restrictive rules dominate the solutions put forward to eliminate these problems while traditional solutions are seen as pointless. Italy today is still reluctant to embrace wholeheartedly the idea that market forces can be effectively harnessed to work toward solving both age old problems.

In conclusion, the Italian economic miracle came about due to several different reasons including the government, political decisions, European and worldwide factors. It was brought to an end when the inflation in Italy caused politicians to rethink the economy and both trade and employment evened out and stopped rising at such an astonishing rate. Today's Italy is still effected by the economic miracle because there is still a North-South divide present, the trading has changed dramatically and both those in the public and private sectors are more cautious and the government has introduces several reforms.

The United States offered up to $20 billion for relief, but only if the European nations could get together and draw up a rational plan on how they would use the aid

2 for example the material and textile industries

3 The United States promoted and initialy organised organisations like these to allow future trading with the developing countries involved

4 Effectively Italy had a worthless currency in relation to trading with other European and international countries

5 If the Italian government had not become more organised and unemployment rates were extremely high today Italy's economy would never have recovered