As Italians go to the polls today week, there is much to reflect not just on the Italian situation but also on traits which have an uncanny resemblance to our own, national, puny, situation.

Italy has now replaced Germany as the eurozone’s unofficial ‘sick man’. The country has underperformed the euro area in 13 of the past 15 years. Demographic projections show a 30 per cent drop in the working-age population over the next 40 years. The debt-to-gross domestic product ratio is back to a rising trajectory.

Some economists have been making catastrophic projections. A 16 per cent appreciation of the real exchange rate over the last seven years has led to a loss of competitiveness and falling economic growth. If the trend of the last seven years were to persist, the consequences for Italian industry and the solvency of the state would be near-catastrophic. Some economists have even been debating the merits of withdrawing from the euro while others warn of an Argentinian-style debt default.

These disaster scenarios may well be exaggerated but the underlying truth is that Italy’s membership of the eurozone and its present economic policies are incompatible in the long run.

But as if that were not enough, the present electoral campaign has seen Prime Minister Silvio Berlusconi and his main rival Romano Prodi shower the voters with more promises of spending than with threats of belt-tightening.

Mr Berlusconi says he will raise the minimum pension, cut income and corporate taxes, lower VAT rates on tourism and give free TV licences and access to public transport for the elderly.

Mr Prodi is promising big credits for families with children, cuts in labour taxes for employers and less severe reforms to the state pensions system than the government passed last year.

Berlusconi and Prodi have been providing a blow by blow rerun of the election campaign they fought against each other 10 years ago, but they did not have a coherent economic strategy then, nor do they have it now.

Mr Berlusconi offers the same old supply-side recipes that have failed during his present administration while Mr Prodi’s ragbag coalition has promised to limit the rise of temporary contract jobs, deregulate the services industry and reduce unit labour costs. There is nothing wrong with any of these policies but they do not solve any of Italy’s problems within the eurozone. If they can indeed be called reforms, they are the wrong kind at the wrong time.

What Italy needs are specifically targeted measures to liberalise wage-setting mechanisms sand to generate higher productivity growth. One of the main reasons why Italy is losing competitiveness is inflation persistence – the tendency for prices to continue rising after an initial inflationary shock. This is to some extent due to a dysfunctional labour market: in Italy wage increases are still too often linked to past inflation rather than to changes in productivity. Another problem is the tendency of Italian companies to set prices at less frequent intervals than is common in other industrialised countries.

The trouble is that while Italy needs a massive dose of pro-growth reforms, deregulation and liberalisation of products and labour markets, privatisation to reduce the still large presence of the state and a big shake-up in the public administration, which despite absorbing huge and growing resources is still largely inefficient, the electorate still prefers more social protection and social spending.

There are some very important lessons to be learnt here as mainly our own electorate is also culturally structured along these lines, which may well mean we will see the same race to promise gifts and tax cuts come our own election in two years’ time, when what we really need are still the same pro-growth reforms that seem so alien to the Italian culture.

Having said all this, however, there is a certain poignancy in words spoken by Mr Prodi some weeks ago: “There has been a moral decline in the country… Vulgarity has been preferred to beauty, lies to truth and arrogance to intelligence.” How true! And how descriptive of situations not just Italy’s!