How monetary integration transformed Italian regional growth

Italia entered the euro with deep regional gaps, but monetary integration has sharpened and transformed them. A silent change took place in the early 2000s, redefining the engines of territorial growth and the economic relationship between North and South. This is the message that emerges from our study recently published in the Socio-Economic Review, in which we analyse Italian regional growth patterns and their interdependencies in the first decade of monetary union.

The starting point is twofold: not only do North and South grow at different speeds, but they rest on different economic engines. In the early 2000s, the picture that emerges is the familiar one of a North driven by manufacturing and exports-integrated into international value chains-and a South driven by domestic demand and public spending. This configuration is often read as evidence of a 'subsidised' South, but the reality is more complex. For decades, that model has performed important political and macroeconomic functions, supporting employment and demand in the South and guaranteeing a stable outlet for industrial production in the North. A balance that was certainly imperfect, but also geared to territorial cohesion and social stability.

With the euro, the southern model, in particular, went into crisis. In the 2000s, public spending stopped driving growth, domestic demand contracted and the South ended up depending on exports to the rest of Italia, thus moving from a 'subsidised' model to one of 'dependence'. The fear evoked by Gramsci in the 1920s of a Mezzogiorno reduced to a 'colony of exploitation' of the industrialists of the North paradoxically seems to come true many decades after it was formulated. In the first decade of the euro, the Mezzogiorno's very small growth was driven exclusively by exports of low value-added goods and services to other Italian regions, while the contribution of consumption, investment, public spending and exports to the rest of the world became negative. At the same time, growth in the other Italian regions is somewhat stronger and, above all, less dependent on domestic exports.

This transformation reflects profound changes. In the 1990s, privatisation reduced the role of public enterprises at the centre of southern development. At the same time, the end of extraordinary intervention and the Maastricht constraints squeeze the fiscal space. The Italia state thus becomes a 'consolidation state', forced to generate primary surpluses and reduce its redistributive capacity.

The lesson goes beyond the Italia case. The euro debate often focuses on the impact at the national level. Our results suggest a different hypothesis: that of an asymmetric impact at regional level. On the one hand, monetary integration has strengthened already export-oriented territories, which have benefited from the single market and the single currency for easier international trade. Regions such as the Mezzogiorno, lacking export-oriented economies, remained excluded.