But the contagion that started in the euro zone’s smaller countries is suddenly moving to some of its largest. As Greece teeters on the brink of a default, the game has changed: Investors are taking aim at any country suffering from a combination of high debt, slow growth and political dysfunction — and Italy has it all, in spades.

In recent days, Italy has become Europe’s next weak link after Greece, Ireland, Portugal and Spain, harmed in particular by a power struggle between Prime Minister Silvio Berlusconi and his finance minister, Giulio Tremonti. The dispute threatens to turn the euro zone’s third-largest economy, after Germany and France, into one of its biggest liabilities.

On Monday, the Italian government struggled to rein in the tensions, as fears rose that political paralysis could make it harder for Italy to embrace the austerity demanded by outsiders to reduce one of the highest debt levels in the world. European policy makers also sought to figure out how they would put out a bigger fire if Italy were to succumb.

Those jitters hit stock markets on Monday not just in Italy, where the major index fell nearly 4 percent, but across much of Europe as well, with the markets in France and Germany off more than 2 percent each. The United States was affected, too, with the Standard Poor’s 500-stock index down about 1.8 percent on European debt fears and worries about the showdown in Washington over raising the United States debt limit.

“Italy is too big to fail,” said Moisés Naím, a senior associate in the international economics program at the Carnegie Endowment in Washington. “If Italy really gets hit by contagion because of political mismanagement, it would be a threat not only to the euro zone, but to the global economy.”

Political soap operas in Italy — especially those featuring Mr. Berlusconi — are nothing new. Nor do they usually matter much to financial markets, even after the debt crisis hit Europe. The widespread problems in Italy’s economy, which has been sluggish for the better part of a decade, also rang few alarm bells.

What’s more, Italy’s banks are sound; they never speculated in a housing bubble. The current annual budget deficit is low, at about 4.6 percent of gross domestic product. And while Italy issues the largest amount of bonds of any euro zone country, Italians own about half the debt, making it less vulnerable to the follies of financial markets.

But with interest rates rising, Italy’s economy is not growing fast enough to cover an accumulated debt load of 120 percent of gross domestic product, the second-highest in Europe, after Greece. The International Monetary Fund expects growth to pick up only slightly, to 1.3 percent in 2012.

In a sign of how quickly things have turned against the country, the stock market regulator imposed emergency rules on Monday against speculation after shares in Italian banks slumped for a fifth consecutive session. The cost of insuring Italy’s sovereign debt against default surged to a record high, and the interest on its 10-year bond leaped to a record 5.67 percent.

While that is still well below what Greece pays, analysts say Italy will have serious problems if its borrowing costs exceed 6 percent.

“Italy is a banana republic that didn’t depend so much on foreign capital in the past, but now it does, and markets are less forgiving,” said Daniel Gros, the director of the Center for European Policy Studies in Brussels. “Italy is in the danger zone; that is quite clear now.”

Italy tends to function best in crisis management mode, analysts say, and Mr. Berlusconi has begun to acknowledge the seriousness of the dangers facing the country after a phone conversation with the German chancellor, Angela Merkel, on Sunday.

Today, Mr. Berlusconi “understands the risks objectively because the situation is dramatic,” said Stefano Folli, the chief political columnist for the financial daily Il Sole 24 Ore.

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