The Italian government needs to propose a contractual agreement to European institutions aimed at reforming the country. The process of economic and administrative reform needs to be subjected to rigorous monitoring by the European institutions. On the other hand, Italy should obtain a medium-term plan to re-launch private and public investment through the mobilization of European resources that are, in part, already available. The agreement cannot be reduced to the financial assistance programs that some other euro-zone countries have benefited from in recent years. In fact, it would not be centered on sanctions but it would stimulate that capital formation lost in Italy during the crises due to the radical uncertainty over the future of the euro-area. It is this persistent uncertainty that, interacting with the country’s own weaknesses, impedes the Italian economy to converge towards the rest of the euro-area, and thus keeps the future integrity of the monetary union in doubt. Our new analysis on the impact of radical uncertainty on investment and savings decisions, also suggests the need for a profound revision of European economic governance.

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