People have been talking about Italy's problems for years, but about two weeks ago they suddenly burst into the news for some reason - due to either a coordinated attack by speculators or squabbling within the governing coalition. And the by now predictable response: an austerity package, passed on Friday. Early in the week an important part of the bond mafia indicated that the markets would be reassured by such budget-cutting moves. But that wasn't the case in Ireland or Greece, so such declarations seem premature.
As in Greece, and Ireland, and the other countries in trouble, there are real problems in Italy. The net national debt is currently over 110% of GDP. The current Prime Minister, Silvio Berlusconi, manages to combine all the negative aspects of Rupert Murdoch, George Bush, and Anthony Weiner in one human body. The country is easily the most corrupt major EU country; only Greece ranks lower out of the 27 countries in the union.
Of course, that's not the whole story. While the Italy has a high level of debt, it has been able to sustain it for over a decade now. Because the country has had a relatively high savings rate, the debt is mostly internally financed and its net foreign investment position is nearly neutral. Despite pervasive corruption and a political culture that is a complete mess, it has still managed to raise its citizens' (adjusted) per capita income to over 30,000 dollars, and it is a top 25 country in the Human Development Index.
I would say that like America, Italy's problems are mostly politi-cultural. But that doesn't mean that market forces can't force a crisis. Italy is a relatively populous country, and its bond float isn't trivial. But it doesn't necessarily take that much money to move markets. So the "crisis" is likely to continue as long as bond traders are able to exploit the market for personal gain at the expense of taxpayers.
Update 2011.07.22: Calculated Risk reproduces a Bloomberg chart that illustrates the futility of bailout packages (which included austerity measures) in other countries.
Update 2011.08.06: The Economist said it better. And it turns out that Italy has the third largest sovereign bond market (or sub-sovereign, because Italy doesn't issue its own currency). However, the amount that is likely to be traded could be much smaller.