IF THE outgoing 'bunga bunga' Prime Minister Silvio Berlusconi wasn't enough embarrassment for the country, Italy's fiscal crisis reached a new low in the recent G20 summit in France, when the nation agreed to a shameful surveillance clause from the IMF and EU to check whether it is implementing reforms - all to assure investors that Italy will not go the Greek way. While Italian politicians are blaming markets for the present crisis, investors can't be blamed to have low confidence in Italian debt - given that numbers on paper don't give confidence - least of all Berlusconi's economic management of Italy in the last 17 years when he was in power or the fractured political formulation that will take over from Berlusconi and his coalition.

The markets' lack of confidence comes from the fact that Italian governments can't be relied on implementing tough reforms, which involve slashing public spending and raising taxes. The worrying thing is that the Italian government has already passed two austerity packages - one, on July 15, 2011, worth $66 billion, and the other on September 14, involving raising sales tax, and imposing tax on the rich. Still, the Eurozone markets don’t feel pacified - given Italy's 1.6 trillion euro borrowings and 350 billion dollar debt, as per CNN.

Now that 75-year-old Berlusconi will exit as Prime Minister after hand-holding reforms, markets will keep a sharp eye on bond yields, which is a macro barometer for a country's credit standing. Already, cost of borrowing for Italian bonds is at a 14-year high - shooting up 10-year yields at 6.79 per cent, which means that any country or company that wants to buy government bonds will have to pay more interest and would want returns sooner - given that bond yields are directly tied with term of borrowing.

With negative sentiment mounting, Italy is on the verge of going into a spiral of low market confidence and increased government debt - the more bond yields rise, the more the interest payments increase - which raise government debt, and encourage inflation. This cycle, if it takes place in a continuous vicious circle, can wipe out Italy's savings in a matter of weeks - especially when Italy can't print its own currency - being part of the Eurozone. With the writing on the wall, it's likely that Italy's fractured polity will rally and think of tough political measures to set an example for the larger public to create political space for welfare cuts and freezing salaries - the way French president Nicolas Sarkozy has done in France to counter and preempt Greece-like market speculation.

More than the economic crisis, people of Italy are showering their ire on the country's politicians. In a striking similarity with the raucous Indian political system, the Italian parliamentary democracy, too, suffers from ineptitude, corruption, and hold your breath - horse-trading. After Berlusconi lost the trust vote, a politician told Reuters, "Politics here is based on loyalty to leaders, not on merit, and the transfer market for MPs will continue for a few days. But for me this is the last day I'm interested in politics." Amar Singh would have had a field day, had he been an Italian politician.

The fact that almost 14 per cent of Italians live in poverty, one-third of young people are out of work, Italy's virgin olive oil economy stands to be besmirched with a crisis that's going to test the very fundamentals of the Italian republic. Perhaps, Italians can take inspiration from their outgoing prime minister, who, apart from having numerous sexual escapades, also survived a heart-stopping 51 no-confidence votes in the Italian parliament. There's no better time for EU to watch the Indian film, 3 Idiots - for Europeans need to say to themselves All Is Well to survive frying-pan like situations in their countries.