Here's the FT's reading of the situation.
Note this extract: "As financial markets digested the remarks of Roberto Maroni, Italy's welfare minister, the interest rate differential between Italian and German bonds rose to 23 basis points, the widest spread since November 2002."
These are the numbers we will be following at Afoe moving forward. Maroni is a member of a Northern xenophobic party that wants an independent country for the north of Italy. But *note*: he is in the government, and responsible for an important part of the Lisbon agenda, labour reform. So this is not some complete outside crank. Bottom line: Berlusconi's government is an unstable coalation, and this very instability *is* cause for concern, especially since we have just seen mainstream politicians lose important votes in two of Europe's more stable democracies.
One more irrelevant detail:
I used to keep a blog called Italy Economic News and Analysis, which I subsequently discontinued. I am reloading a new template at blooger now. They are only bits and pieces, but they may have some interest.
Basically I am a great admirer of the late Karl Popper, especially interms of his idea of science as being moved by daring conjectures, and then attempts at refuting them. When I came to the conclusion that demography might be more important for economic theory than it was fashionable to accept today, I treid to set myself an objective, a hypothesis whose confirmation, or absence of it, would help me decide if I was on the right lines.
Japan was already mired in crisis (we are talking about 2001 here), so I asked myself, if you are right what should happen next. Italy should enter a sudden and otherwise relatively unexplicable economic decline was my response. This is why I started the blog, and this is why I have maintained a continuing interest in Italy.
Having said that, I am not a reductionist. Italy's demographic problems form an important backdrop for the present 'embarrasment of difficulties', but of course it is by no means the only factor.
Another stab at what I think is the problem in Italy can be found in this post.