Investors are betting the house on Mario Monti. Italy’s unelected prime minister presented a new set of spending cuts and tax increases to parliament yesterday and already Italian bond yields are dropping. The measures were enough to send the 10-year yield tumbling below 6 per cent. It is worth pausing to consider two things, however. First, Italy needs growth, not austerity. Second, parliament may well water it all down. The measures are a welcome but small step on a very long journey.

A property tax, a clampdown on tax evasion, pension reform and a tax on luxury goods appear to tick all those Italian boxes that make other Europeans jealous. The aim is to save €30bn over the next three years and to balance the budget by 2013. Italy has €1.9tn of outstanding debt, however: the best way to cut that is a strong economy. In that context, the most striking news from Rome at the weekend was the poor outlook for growth. The government forecasts that the Italian economy will shrink in 2012 by 0.5 per cent.

Mr Monti is also promising labour market reforms. These are essential. Italy is falling down the ranks of business-friendly countries. According to the World Bank’s 2012 study of countries and their tax systems, Italy ranks 170th for the size of its overall tax rate on companies: a whopping 68 per cent total tax rate. Labour taxes account for about two-thirds of that figure. This is an area crying out for reform – it is an increasingly unbearable burden for Italy’s entrepreneurs, who should be front and centre in the new government’s priorities.