New Italian PM Mario Monti has taken on the difficult task of restructuring, or appearing to restructure, the Italian economy.
What most look at is the government debt, a bloated bureaucracy, and a massive cash economy but few realise that Italy has a private sector that is potentially dynamic.
Austerity will not create one extra job or have anything but a negative impact on growth and the only way Italy can grow is to ease the restrictions on business.
What Monti must do and do quickly is to cut the public service to the bone and free up the way business is done.
The markets must see that something is done quickly otherwise once again pressure on Italian bonds will build up. Failure to deliver in a short space of time could see Italy consider using the lire again if the ECB will not enter the bond market as a back stop to the slide in bond values.
At a guess Italy has a few months of breathing space before markets make up their minds. EZ banks will act decisively if the situation looks to deteriorate.
This is the EZs last warning. Should Italy be forced to leave the EZ then the euro is a dead duck.
