ROME - Interest rates on Spanish and Italian bonds have been converging in recent weeks, which is good news for Spain and bad news for Italy, for Europe and for the world. The situation in Spain is far for clear, and yet Spain is far less of a problem than Italy.

Last week, Italy's Treasury failed to reach its maximum target at a bond auction and demand for its 30-year securities fell after Standard & Poor's cut the country's credit rating. The Italian economy is too big to be rescued by the rest of the eurozone members; its default could topple the united currency and trigger a global financial crisis.

The convergence of Spanish and Italian bonds interests should have started to worry many people in financial circles, proving the hard-wearing difficulty for Italy to handle its economic woes. That many are not worrying and fleeing the Italian market is possibly because of the hope pinned on the recently appointed Italian Prime Minister Enrico Letta; it may be because Germany does not want its electoral campaign to be too swayed by the already huge debate about what to do about Italy; or perhaps it is just old-fashioned distraction.

Things could change very fast because of a new critical, yet murky, development in Rome. Last week, the Italian Supreme Court said it would hear the final appeal of former prime minister Silvio Berlusconi against conviction for tax fraud on July 30. This could lead to a profound break in Italian political life, as confirmation of a 2012 guilty verdict would likely impose his dismissal from public office.

This would not be the end of Berlusconi's political life, since he could continue to operate as comedian turned opposition leader Beppe Grillo does, from outside of parliament. But with his dismissal, the judges would be able to more easily investigate him with far fewer legal restrictions. He would be less protected and face more pressure from investigators.

The dismissal of Berlusconi from Italy's parliament would create a bizarre situation: the leaders of two of the three main political forces in Italy, Berlusconi and Grillo, would be outside of parliament, the place that from 1945 onward has decided Italy's future.

The "extra parliamentary" rule in Italy is only one aspect of the new incongruity in the country. Many believe that after the July 30 decision, Berlusconi, part of the present ruling majority, will not topple the government by withdrawing his support for Prime Minister Enrico Letta since he would have too much to lose.

Today, inside or outside of parliament, Berlusconi is in the ruling coalition and therefore able to influence the government. If he left, the prospect might not be an early election where his party, the PDL (Freedom Party) could triumph. Grillo's party, The 5 Star movement could join the government and thus avoid the risk of early elections, and therefore they could form a government that could last a few years. Out of government and outside parliament, Berlusconi would be ill-equipped to be involved in laws that affect his political and financial interests. Such laws could hurt him and even lead to seeing him in prison within a year or two.

Or not - and this depends on the assumption that Grillo might instead prefer to go to early elections, calculating on an advantage in the present electoral law that could give him a majority in parliament. Even then, a defeated Berlusconi could find himself in the hands of Grillo, who is perhaps worse than the judges.

In any case, it is a gamble, and another step in the end of this Italian second republic, dominated by the presence of Berlusconi for the past 20 years.

This second republic started in the early 1990s with the wave of scandals that engulfed the Christian Democrats and the Socialists, who dominated Italian political life, because of an anti-corruption movement lead by the judiciary. This time, the fall of Berlusconi and the end of the second republic will also take place because of the action of the judges.

Therefore, twice Italy is changing its political system not through a popular vote or a military coup, but at the hand of the courts, which is objectively not the means to change government in democratic countries. In fact, in the past 25 years in Italy, for a variety of historical circumstances, the courts have assumed a power without equal in the world.

In non-democratic countries, or those that become such, political changes occur by coups or internal plots, and judges are subject to strict government control. In democratic countries, the courts have more power than in authoritarian countries, but in the great majority of cases, their actions are based on a common ethical ground held among the ruling class.

Generally when a politician is overwhelmed or even simply touched by a judicial scandal, he resigns. In return, the prosecution is de facto halted and the man can retire peacefully to save the sanctity of the institutions. In Italy, this does not happen. Former Socialist leader Bettino Craxi and former Christian Democrat leader Giulio Andreotti did not resign at the first signs of the scandal in the 1990s. They resisted, and in doing so condemned themselves, their parties, and the country. The same thing is happening today with Berlusconi.

Conversely, the same story can be told in reverse. Faced with government resistance, the judiciary has not wavered but has marched forward, and thus it has shaken the foundations of the Italian state, which should be a careful balance of powers between government and judiciary. In fact, the force of the judiciary appears greater than that which their rulers can exercise, and then there is the stubbornness of the rulers who refuse to resign.

The system is locked because it lacks the ethical basis of democratic systems: the idea of accepting compromise to preserve the common good and the idea that when one person wins the person who loses in turn leaves the other to govern. Somehow the real issue is that there is a profound ethical crisis in Italy where there are no common values in the country and for the country.

For 20 years, Italy has lived in a fight around Berlusconi without winners or losers, as some kind of continuation of the woes from the First Republic. Now that the end of Berlusconi seems close, and the man, even though defeated, is already a legend, can everybody begin to build a base of common understanding?

This agreement could be the basis for the near future. In fact, the real deadline is September 22, the date of the German elections. Then the new government in Berlin will decide what to do with Italy - whether to eject it from the euro or keep it while imposing widespread reforms. In Berlin's view, Italian accounting will have to make sense and radically improve, no matter how. Germany as a state is richer, with less public debt, but the Germans are poorer than the Italians, since they have less savings and only 40% of them (compared to over 80% in Italy) own a home. With inflation, an expansionary policy would bankrupt the Germans, but Italians would survive better. Why should the virtuous Germans suffer for the profligate Italian?

So, in or out of the euro, October and November will be tough times, and no one knows who will shoulder the burden of this government in Italy. Meanwhile, however, the story of Berlusconi could actually accelerate the process. The findings of the Supreme Court on July 30 will come at the close of a month of high risk for stocks. In August, with limited trade, the stock market may be extremely volatile and waves of panic or speculation about Berlusconi could drag down the index in Milan. Italy, then, by the German elections in September, may already be exhausted.

Right now, Italy should find a compromise regarding Berlusconi and have different policy options to deal with Germany in September. Will Italy be ready? That is unlikely.

There could be another way, represented on the other side of the Mediterranean Sea. Italy in this situation would go down with riots and violent protests. Demographics, however, are against this. Young people are a minority and, although many are unemployed, they are supported by the bloated pensions of their retired elders.

Then it is more likely that each party in Italy will just look at its own small turf and the big decisions will be taken by Berlin. If that happens, Italy will become a "German colony" by Christmas - in or out of the euro - and not by the will of Berlin, but for lack of its own volition. Maybe Italy, Europe and the world will be better that way. Two centuries ago at the Congress of Vienna, when the European powers decided on the post-Napoleonic map of the continent, Austrian chancellor Klemens Metternich said Italy was only a geographic expression, not a political one.

Maybe we are back at that time and the peninsula will return to its destiny. This is a perhaps a sad realization that what I having been writing over the past three years (see Give us back the German empire (http://www.atimes.com/atimes/Global_Economy/LE06Dj05.html), Asia Times Online, May 7, 2010, and China can fiddle as Rome burns (http://www.atimes.com/atimes/Global_Economy/NF14Dj03.html), Asia Times Online, June 14, 2012) was right. (2013-07-18 Asia Times)