Italy's main proble is not fiscal. Or, more accurately, it would not be fiscal if the economy were able to grow beyond its mediocre medium-term prospects. In the last 25 years, Italy has grown slower than any other European country, and there is no clear sign that this pattern is about to change. The main reason for this sluggishness is low productivity, a problem that has been mostly neglected. The Maastricht framework for European economic governance has been mainly focused on rigorous fiscal discipline. Microeconomic effects were expected to result from structural reforms aimed at improving the functioning of markets rather than directly improving productivity. However, identifying policies to promote innovation and thereby increase productivity is critical at this juncture. It is high time Europe returns to a sensible strategy aimed at increasing productivity and overall economic activity.

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