With the euro zone’s crisis having passed from an acute to a merely chronic phase (complete with various proclamations that the patient is on the mend), the Daily Telegraph’s grim Ambrose Evans-Pritchard takes a look at how Italy is doing:

Industrial production fell 4.4pc in August, and new orders fell 6.8pc. The Bank of Italy said credit to non-financial firms fell 4.6pc in August (year-on-year), worse than in July. Business confidence fell back to 79.3 in September and is now at post-Lehman crisis levels. Istat said this week that the economy is weaker than previously thought. GDP will shrink yet again in the third quarter.
“The recession has flattened, that is all,” says Antonio Guglielmi from Mediobanca [a leading Italianm bank]. “The debt-to-GDP ratio has risen by 15 percentage points [to 133pc] over the past 15 months because there is no growth. It is all because of the effects of austerity and the fiscal multiiplier. We are making the same mistake they made in Greece.”
Mr Guglielmi said the government has pencilled in growth of 1pc next year, rising to 1.7pc, 1.8pc and 1.9pc thereafter. It is make-believe. (Citigroup said it would be closer to zero all way to 2017). “We barely grew 1pc a year during the best years of the global boom. How are we going to do this now in much harder times?”
Professor Giuseppe Ragusa from Rome’s Luiss Guido Carli University said the government is clutching at straws, hoping that a world recovery will somehow lift Italy out of the slump. “They are not doing anything. The policy is completely passive but it is not going to work because we are in a debt trap, and unlike Spain we have continued to lose labour competitiveness against Germany over the past three or four years.”
Prof Ragusa calculates that the debt will jump by another 5pc of GDP each year even if growth returns to pre-crisis level of around 0.6pc. This would send the ratio spiralling up to nearly 150pc, beyond the point of no return for a country with no sovereign currency.

Ah yes, “no sovereign currency.” That again. Because Italian has no currency that it can truly call its own, 100 percent of its borrowing is effectively in “foreign” currency, meaning that matters can very quickly become very nasty if creditors turn skittish.

The fact that the euro has strengthened of late only makes matters worse.

For Italy this is excruciating. Mediobanca says Italy economy’s has 67pc “gearing” to the exchange rate due to the kinds of products it makes (price sensitive), compared with 40pc for Germany. Its latest report traces how Italy’s productivity growth and competitiveness has faltered each time it pegged its currency to Germany over the past 40 years, and how it roared back with each devaluation.

At this point it’s worth consulting Fabrizio Gora over on Twitter. Check out how the long decline in the percentage of Italians working in manufacturing goes into reverse in the mid 1990s, before resuming its plunge a year or two later.

Back to Evans-Pritchard:

The [Mediobanca] report said the risk is a repetition of Argentina’s fate as the dollar-peg fell apart in 2001. It cited the so-called “Frenkel Cycle” as it moves into its final seventh phase of “collapse”, the brutal denouement of every fixed-exchange rate system and every monetary union that fails to meet the four basic conditions of an optimal currency area. These are labour mobility across borders, wage and price flexibility, fiscal transfers and aligned business cycles. The euro area meets none of them.

Indeed it does not.

Read the whole thing.