Italy and Spain have always presented a puzzle for comparative political economists and a satisfying definition of their capitalist model is still lacking. In an attempt to provide such a definition this paper traces the evolution of Italian and Spanish capitalism over the last two decades. By comparing labour and corporate relations the paper highlights the increasing divergence between the trajectories of the two countries. Spain is now the most market-based of the Continental economies, whereas it is in Italy that liberalisation has had the least impact. To explain this divergence, this paper looks at the preferences and sector of activity of the main domestic firms in the two countries. It shows how domestic firms, thanks to their double role as employers/blockholders, are in a privileged position to influence labour and corporate relations. Not only are these findings interesting in their own right, but the actor-centred institutionalist approach used here can also be applied to other Continental economies, thus providing an important contribution to the wider debate on the liberalisation of European capitalism.
