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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,

Albanian fear of renewed Greek designs on their country prevented effective co-operation with the Greek forces, and Mussolini's forces soon established a stable front in central Albania. Fearful that the Balkans might become the achilles heel of her domination of Europe, on April 6, 1941, Germany intervened (together with Bulgaria and Hungary) to crush both Greece and Yugoslavia, and a month later the Axis added Kosovo to Italian-ruled Albania. Thus Albanian nationalists ironically witnessed the realization of their dreams of uniting most of the Albanian-populated lands during the Axis occupation of their country.

Italy is largely homogeneous linguistically and religiously but is diverse culturally, economically, and politically. Italy has the fifth-highest population density in Europe — about 196 persons per square kilometer (490 per square mile).

Most raw materials needed by industry 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 conception in 1999.

The Guardia di Finanza (a specialised police for tax and financial crimes) is also a military corps, but it is going to be transformed, expectedly in a short time, into a civil administration, as previously happened for the State Police, Forestry Police and Prisons Police.

Italy was invaded by the Visigoths in the 5th century, and Rome was sacked by Alaric in 410. By the end of the century the peninsula was mostly under Ostrogothic control, and the last Roman emperor, Romulus Augustus, was deposed in 476 by Theodoric the Great. The eastern half of the Empire, now centred on Constantinople, invaded Italy in the early 6th century, and the generals of emperor Justinian, Belisarius and Narses, conquered the Ostrogothic kingdom after years of warfare. The collapse of the Ostrogoths allowed the Lombards to fill the gap, and the Eastern Empire could not hold on to its reconquered territory against the Lombard invasion. The Lombards ruled Italy until the late 8th century when their kingdom was conquered by Charlemagne.

Significant changes are occurring in the composition of this trade. More value-added products such as office machinery and aircraft are becoming the principal U.S. exports to Italy. The change reveals the growing sophistication of the Italian market, and bilateral trade should expand further. In 2000 the United States imported about $24.5 billion in Italian goods while exporting about $12.4 billion in U.S. goods to Italy. U.S. foreign direct investment in Italy at the end of 1999 exceeded $14.1 billion.