Italy (Italian: Italia), officially the Italian Republic, (Italian: Repubblica Italiana), is located on the Italian Peninsula in Southern Europe, and on the two largest islands in the Mediterranean Sea, Sicily and Sardinia. Italy shares its northern Alpine boundary with France, Switzerland, Austria and Slovenia. The independent states of San Marino and the Vatican City are enclaves within the Italian Peninsula, while Campione d'Italia is an Italian exclave in Switzerland.
Italy has been the home of many European cultures, such as the Etruscans and the Romans, and later was the birthplace of the movement of the Renaissance, that began in Tuscany and spread all over Europe. Italy's capital Rome was for centuries the center of Western civilization, it also spawned the Baroque movement and seats the Catholic Church. Italy possessed a colonial empire from the mid-nineteenth century to the mid-twentieth century.
Today, Italy is a democratic republic and a developed country with the 8th-highest Quality-of-life index, rating in the world. It is a founding member of what is now the European Union (having signed the Treaty of Rome in 1957), and a founding member of the North Atlantic Treaty Organization (NATO). It is a member of the G8 (having the world's 7th largest nominal GDP), Organisation for Economic Co-operation and Development (OECD), World Trade Organization (WTO), the Council of Europe, the Western European Union, the Central European Initiative, and a Schengen state. It has the world's 8th largest defence budget and shares NATO's nuclear weapons. On January 1, 2007, Italy began a two year term as a non-permanent member of the United Nations Security Council.
According to GDP calculations, Italy was ranked as the seventh-largest economy in the world in 2006, behind the United States, Japan, Germany, China, the United Kingdom, and France, and the fourth-largest in Europe. According to the OECD, in 2004 Italy was the world's sixth-largest exporter of manufactured goods. This economy remains divided into a developed industrial north, dominated by private companies, and a less developed agricultural south. In the Index of Economic Freedom 2008 it ranked 64th of 162 countries, or 29th of 41 European countries, the lowest rating in the EU-15 and behind many ex-communist European countries. Italy has often been called a sick man of Europe, with governments having problems in pursuing reform programs.
According to World Bank data, Italy has high levels of freedom to invest, do business, and trade. On the other hand, Italy has inefficient bureaucracy, relatively low property rights and high levels of corruption (compared to other European countries), heavy taxes, and heavy public consumption at around half of GDP. Italy has been in economic decline compared to most other EU-15 countries.
Most raw materials needed by Italian industries, and more than 75% of energy requirements, are imported. Over the past decade, Italy has pursued a tight fiscal policy in order to meet the requirements of the Economic and Monetary Union and has benefited from lower interest and inflation rates. Italy joined the Euro from its introduction in 1999.
Italy's economic performance has at times lagged behind that of its EU partners, and the current government has enacted numerous short-term reforms aimed at improving competitiveness and long-term growth. It has moved slowly, however, on implementing certain structural reforms favoured by economists, such as lightening the high tax burden and overhauling Italy's rigid labour market and expensive pension system, because of the economic slowdown and opposition from labour unions.
Italy has a smaller number of world class multinational corporations than other economies of comparable size. Instead, the country's main economic strength has been its large base of small- and medium-sized companies. Some of these companies manufacture products that are technologically moderately advanced and therefore face increasing competition from China and other emerging Asian economies which are able to undercut them on labour costs. These Italian companies are responding to the Asian competition by concentrating on products with a higher technological content, while moving lower-tech manufacturing to plants in countries where labour is less expensive. The small average size of Italian companies remains a limiting factor, and the government has been working to encourage integration and mergers and to reform the rigid regulations that have traditionally been an obstacle to the development of larger corporations in the country.
Italy's major exports are motor vehicles (Fiat Group, Aprilia, Ducati, Piaggio), chemicals, petrochemicals (Eni), electricity (Enel, Edison), home appliances (Merloni, Candy), aerospace and defense tech (Alenia, Agusta, Finmeccanica), firearms (Beretta); but the country's more famous exports are in the fields of fashion (Armani, Valentino, Versace, Dolce & Gabbana, Benetton, Prada, Luxottica), food industry (Ferrero, Barilla Group, Martini & Rossi, Campari, Parmalat), luxury vehicles (Ferrari, Maserati, Lamborghini, Pagani) and motoryachts (Ferretti, Azimut).
Tourism is very important to the Italian economy: with over 37 million tourists a year, Italy is ranked as the fifth major tourist destination in the world.