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Under longstanding bilateral agreements flowing from NATO membership, Italy hosts important U.S. military forces at Vicenza and Livorno (army); Aviano (air force); and Sigonella, Naples, and Gaeta – home port for the U.S. Navy Sixth Fleet. The United States has about 16,000 military personnel stationed in Italy. Italy hosts the NATO War College in Rome.

Italy has a diversified industrial economy with roughly the same total and per capita output as France and the United Kingdom. This capitalistic economy remains divided into a developed industrial north, dominated by private companies, and a less developed agricultural south, with 20% unemployment. In comparison to its western European neighbours, it has a high number of small to medium sized enterprises (SMEes).

As Germany annexed Austria and moved against Czechoslovakia, Italy saw itself becoming a second-rate member of the Axis. The imminent birth of an Albanian royal child meanwhile threatened to give Zog a lasting dynasty. After Hitler invaded Czechoslovakia (March 15, 1939) without notifying Mussolini in advance, the Italian dictator decided to proceed with his own annexation of Albania. Italy's King Victor Emmanuel III criticized the plan to take Albania as an unnecessary risk.

In 1929 Mussolini signed the Lateran Pacts with the Catholic Church (with whom Italy was in conflict since the annexation of Rome in 1870), leading to the formation of the tiny independent state of Vatican City. He was initially in friendly terms with France and Britain, but the situation changed in 1935-36, when Italy invaded Ethiopia despite their opposition (Second Italo-Abyssinian War); because of this and of the ideological affinities with the Nazi party led by Hitler,

The name Italy (Italia) is an ancient name for the country and people of Central Italy, with exclusion of Etruria in the North and the Greek colonies in the South. Coins bearing the name Italy were minted by an aliance of Italic tribes (Sabines, Samnites, Umbrians and other) competing with Rome in the first century B.C. By the time of emperor Augustus approximately the present territory of Italy was included in Italia as the central unit of the Empire; Cisalpine Gaul, the Upper Po valey, for example was appended in 42 B.C. Ever since, "Italy" or "Italian" was the collective name for diverse states appearing on the penninsula and their overseas properties. Italy is one of the few modern countries bearing a name of such long tradition.

Unemployment has been steadily decreasing but remains high (8.6% in 2003, its lowest level since 1992). It is especially severe in the south where average unemployment exceeded 20% this year. Women and youth have significantly higher rates of unemployment than do men. A rigid labor market serves as a disincentive to job creation. There is a significant underground economy absorbing substantial numbers of people, but they work for low wages and without standard social benefits and protections.