Italy’s retail sales volume picked up in January rising by 0.5% after a long period of weakness. If we look at monthly retail sales volumes, we have to go back to January of 2007 to find a prior 12-month period in which sales volumes rose in more months than they fell. As of January 2012, retail sales have fallen in 10 of the last 12 months despite this month’s bump up in sales.

Not surprisingly Italy’s retail sales show negative rates of growth over 3-months over 6-months and over 12-months. The weakness is progressively worse; for sales volumes three month and six month growth rates at nearly the same pace and are below the yr/yr pace.

Italy’s retail sales growth is only slightly worse than that for EMU as a whole. Since the financial crisis, Italy’s performance has become more closely tied to that of the Zone than it had been before, as the chart plainly shows.

Austerity and the German short-leash on formerly adventurous Southern EMU economies are pulling them into the fold. While the fate of the Southern nations is far from sealed, their scope for independent policy has been drastically reduced as their backs have been bent to whip of austerity. Even as economic performance deteriorates there has been no taste to let up on the stern targets set for them

One day the Southern EMU members may have seemed care-free and independent but that day is no longer this day. And now the future for the Mediterranean members of EMU may depend on how much austerity they can stomach. And the pressure is growing.

In Greece the minority parties already are making inroads. So far the Zone has been able to bend the leadership in the Southern states to the task of austerity but the whole plan is in jeopardy if the people do not buy into it. And the people are not buying into it.