I can verify that something very strange is going on with the Italian economy right now. Since November 2010, the interest rate on Italian 10 year bonds has shot right up, from 3.7% to 5.3%, and with no end in sight.
The problem is, with the "austerity" measures the Germans and French have punitively foisted on Greece (which do not include downsizing their massively bloated military - just the opposite in fact, as Greece was forced into a multibillion Euro arms deal with two aforementioned countries) is the Eurozone is now going into a race to the bottom. Factories and other producers will move to Greece, to take advantage of the low wages, high unemployment, weak central government etc. In order to compete with that, Italy, the UK and, yes, eventually Germany, will have to enact even harsher austerity measures and weaker regulation on business.
But taking money out of the economy makes the economy weaker, which forces up interest rates as bonds are downgraded. Same thing is happening in Ireland too...they did everything the EU, Germany and the credit ratings agencies told them, and they're being downgraded again for their sins, because all that advice led to a weaker economy. You literally cannot win once you are in this game. With pressure on all the PIIGS to jump on the austerity bandwagon, expect to see similar problems arising in Spain (they've already started in Portugal).