On a day which sees yet more evidence that the US economy may in fact be slowing down, and when news from the courts only serves to highlight the continuing precarity of the growth and stability pact, the FT runs a story about how a group of prominent Italian economists are suggesting that the budget measures adopted last week under heavy EU pressure may only consists of a batch of one-off measures that disguise the deteriorating underlying state of Italy’s public finances.

The Italian economists estimate that the plan, which is intentded to cut the Italian deficit by ?5.5bn this year, would in fact reduce it by only ?615m in 2005. According to their report, in the absence of other measures, Italy risks having a budget deficit next year of 4.5 to 5 per cent of gross domestic product.

As ever with Italy there is a theatrical backdrop with Silvio Berlusconi having failed for a second time to fill vacancy in the post of finance minister created by the forced resignation of Giulio Tremonti on July 3. However this should not disguise the fact that public sector finances in Italy are in a big enough mess to mean that a simple ‘bandaid’ operation really won’t work. Italy’s accumulated deficit is already extraordinarily large, and even adding to it at the rate of 3% a year is bad enough. With a rapidly ageing population and no clear and credible plan to drag the Italian economy out of a season of pretty lacklustre growth everyone must be truly scratching their heads wondering what to do.

If it does turn out that the most recent global upturn is rather short lived then Italy’s growth projections would already be being revised down. Add to that the impact of the current round of cutbacks and it is hard to see where growth is going to come from, and logically then the weight of the debt will only become greater. A truly vicious circle with no obvious end in sight.