Italy has lots of walls, particularly in the north and center where towns and cities cluster on the high ground. The Italians did not build on mountain tops for the view. What is picturesque now was safe haven from the barbarians back then.

Italy is in deep trouble, though it is hardly alone. While the headlines go to Greece, Portugal and Spain, Italy has the second highest rate of debt in Europe and one of the lowest growth rates. On July 8, Italian bond yields jumped to a nine-year high, and the country’s stock market tanked. Given that Italy has the third largest economy in the Eurozone, if it is in trouble, so is the Euro. And, unlike Portugal, Greece or Ireland, Italy is far too big for a bail out (not that the thuggish austerity programs being forced on all three of those countries have anything in common with “bail outs.” They are simply taxpayers covering ruinous speculation binges by French, German and Dutch banks).

There are signs that the Italian economy is running off the rails, but the signs are subtle. Lots of locked houses and long grass, for instance.

The locked houses are in Pompeii, where the government no longer has the money to shore up the walls of the 2,000 year-old city. From the Pompeii of glorious mosaics and stunning frescos it has become a ghost town that one views from roads and sidewalks.

The immense Doric temples at Paestum are wonderfully preserved, but grass has reclaimed much of the rest of the site. It is charming to wander through the ruins, finding lovely mosaic floors, peristyle gardens or swimming pools, but the Italian authorities did not let the grass grow in order to stimulate the curiosity of tourists; they don’t have the money to cut it.

There is a sense in this country that people are holding their breath. The current center-right government is pushing through a $68 billion austerity package that will increase the retirement age, cut medical benefits, and lay off state workers, but many of the cuts will not take effect until 2013 and 2014. Hoping to avoid the wrath of voters, the current finance minister, Giullo Tremonti, has back loaded the cuts so they won’t take effect until after next spring’s elections.

As in ancient Rome, there are graffiti everywhere. There are hammers and sickles painted on the walls in Naples, as well as scrawls threatening “death to the Communists.” The left took power here in the last elections and is currently locked in a battle with the local Mafia over corruption. A cursory glance at this teeming, energetic, and most Italian of cities suggests the left is holding its own: the Mafia’s tactic of flooding the place with garbage is not working. The streets are chaotic, loud, and anarchic, but clean.

Sometimes it is hard to decide if Italians are holding their breath or their noses. For instance, Tremonti’s political advisor, Marco Milanese, a member of parliament, was arrested last week as part of a corruption investigation, forcing Tremonti to give up using Milanese’s luxury flat in Rome. In the meantime, Prime Minister Silvio Berlusconi secretly tried to slip a clause into the budget bill that would delay paying a huge $1.5 billion fine against his flagship media company, Fininvest.

Compared to social unrest in Greece, Spain, Britain and Portugal, Italy has been relatively tranquil. While the Greeks are in open rebellion against the austerity packages of the IMF and the EU, Italian demonstrations have been big but generally quiet. Tremonti told the Financial Times that Italians are different than Greeks and would accept austerity, because “The Italian people understand,” he said, “their demand is to be serious and rigorous. People are strongly in favor of this discipline.”

Tremonti is whistling past the graveyard, his words an eerie echo of Greek Prime Minister George Papandrerou’s comment that Greeks were “unified” behind the government program.” Outside the parliament Athens seethes with rage, and hundreds of thousands of Greeks battle tear gas and police batons to demonstrate quite the opposite. A recent poll found that 80 percent of the Greeks oppose the austerity plan.

There is nothing to indicate that Italians won’t follow the Greeks into the streets once the cuts hit home here. A stencil on a wall in Citta de Castello shows two stick figures, one firing a gun at the head of the other. Underneath the picture is one word: “capitalism.”

Europe (and much of the world) is currently in the throes of a counterrevolution led by a combination of local capitalists and international finance. Using the crisis sparked by bank speculation, its goals are to weaken trade unions, roll back social services and pensions, and privatize as much as possible. Wages have fallen across the continent, and temporary jobs with sketchy or non-existent benefits have grown at the expense of regular employment.

The “crisis” is a one-way street. As a Financial Times analysis pointed out last month, “Millionaires across the world are richer they were before the financial crisis, the latest sign that the wealthy have weathered the downturn far better than other groups.”

The number of millionaires in North America went from 2.7 to 3.4 million from 2008 to 2010 and, in Europe, from 2.6 to 3.1 million during the same time period. Italy was the only EU country that saw a slight drop in the number of millionaires: 179 to 170. The countries with the largest number of millionaires are, in decreasing order, the U.S., Japan, Germany, China and Britain.

Capital is playing hardball in this counterrevolution.

On one level, governments like in Greece have unleashed their police in an effort to drive the hundreds of thousands of young people, teachers, government workers and trade unionists off the streets.

On another level, rating agencies like Moody’s, Standard & Poor’s, and Fitch deliberately downgrade bonds in order to protect private investors. When investors are asked to absorb some of the losses that their speculation generated, the rating agencies step in and make an offer no country can refuse: drop efforts to make private speculators pay or we tank your bonds and drive up the cost of borrowing money. “The credit rating agencies are playing politics not economics. The timing of the downgrades are not a coincidence,” one “senior EU official” told the Financial Times.

The “bailout” will not stop Greece from defaulting on its debt (with Ireland, Portugal and Spain likely to follow). Nor is there any way for a country like Greece to climb back out of the debt pit as long as its currency policies are dictated by Germany and France. 

Italy has some experience with this business of crisis and currency, although its current leaders choose to ignore it. Back in the early 19th century, Naples was the largest city in Italy, and the south had a diverse and dynamic economy. It was the first region in Italy to build railroads, but the madness of the Catholic Church derailed the effort by blocking passage through the Papal States. Pope Gregory XVI called rails “roads to hell.”

According to Sir Martin Jacomb, former Chancellor of the University of Buckingham, the sabotage of railway development marks the beginning of the south’s decline. But it wasn’t until the lira was made the national currency in 1861 that “it [the south] lost its ability to correct its uncompetitive position. Able and enterprising people moved to the north or emigrated, and the situation became permanent, as it remains today. The tragedy endures.” 

Southern Italy has been locked into poverty for close to 200 years, a fate that is almost certain to befall other periphery members of the EU. Generations of poverty and emigration will be the price tag for protecting the investments of the very people who brought the current economic crisis on. The Citta di Castello stencil was, if anything, an understatement.

So far Italy is quiet, but everyone is aware that the coup of capital is being contested in the streets of Greece, Spain, Portugal and Britain, as it will eventually be in Rome, Naples, and Milan.

In the aftermath of the Peterloo massacre in 1819, where the British government sent cavalry to scatter a massive demonstration demanding political reform, an enraged Percy Bysshe Shelly penned “The Mask of Anarchy,” which ended in words that today’s powerful would do well to consider: