From the shop floors of Alitalia to the markets of suburban Rome, from Milanese studios to Umberto Eco's laptop, a shroud of self-pity hangs over Italy this Christmas. It is being worn stylishly, of course, but with howls of anguish. The country is mired in an hysterical identity crisis and an “explosion of provincialism”, Mr Eco laments. It is “traumatised by fear of decline,” says La Repubblica. The symptoms of that decline include strike threats, political sclerosis and the unmistakeably damp seasonal spirits at the heart of Christendom on which we report today. But it is also measurable. Luxury goods exports to the US are down because of the strong euro. Domestic sales of clothes, perfume and even pasta are down, too, by 15, 10 and 4 per cent respectively. And the funk is summed up by one indigestible international comparison: for the first time, Spain's per capita GDP has overtaken Italy's.

The main cause of this statistical landmark is not Italian sloth but Spanish energy. Unleashed by the fiscal restraint and liberalising economic policies of José María Aznar, Spain's private sector bestrides the globe, investing heavily in US as well as in British banks and airports. Meanwhile, its lucky Government, under Mr Aznar's successor, has been able to spend lavishly on road and rail-building projects that its Italian counterpart can only dream of.

Dreams apart, there is nothing Italy can do about Spain except compete. But herein lies a fundamental challenge to the identity of a country that has always preferred to see itself more as a land of effortless leadership than of mere competition. It does still lead the world — in fashion, food and football — but that is not enough for Italy's national pride, or its economic future.

“Italy needs a Margaret Thatcher,” one of the country's leading businessmen declared this week. He might have added “or a Sarkozy”. Either way, Italy needs a leader ready to confront unions that are willing to ground the national airline and bring down the curtain at La Scala in defence of an utterly outdated socialism. It needs a far cheaper political system than the current one, which guarantees MPs free entrance to cinemas and football matches and costs Italian taxpayers more than the budgets of the French and Spanish parliaments combined. It needs a bonfire for the red tape produced by a bureaucracy that makes Whitehall look efficient, and it needs a judiciary that buries for good the corrosive notion that no one is above the law except those to whom it does not apply.

Italy needs a quiet, constitutional revolution. Romani Prodi is not the man to lead it, but that does not mean Italians are incapable of forcing it to happen. They already operate one of Europe's finest healthcare systems. Their industrial crown jewels, from Fiat to Fincantieri (builder of Cunard's Queen Victoria), have shown themselves to be masters of adaptability despite the suffocating efforts of their Government. Their younger entrepreneurs have at last faced down the Mafia in Sicily, refusing to pay protection money even at great personal risk. And their football coaches are so much better than Britain's that the English national squad may yet be forced to learn Italian. There is nowhere on Earth more naturally endearing than Italy, which is why rumours of gloom and despond there elicit sympathy, not Schadenfreude. So ciao bella, and chin up!