True, the inflation rate has come down sharply. Indeed, it is now slightly negative. This is hardly surprising given that the unemployment rate is running at 12.6pc. Unlike some of the other peripheral members of the euro, however, Italy has not done much to reduce the competitiveness gap. With so much spare capacity, it is possible that pay and other costs will start to fall markedly, as they have in Spain, Greece and Ireland. But if this happens, although it will eventually make Italian products more competitive, it will also worsen Italy’s other big problem – debt.