You make excellent points, and I hope that your conclusion about a technocrat government appointed by President Naplitano is correct.
Unfortunately, logic doesn’t always move markets. Quite often, it’s emotion based. Even though I didn’t always agree with former Fed chairman Greenspan, I do agree with his observation about “irrational exuberance.”
It works both ways; in this case, hysteria. There’s the market’s perception (and cultural stereotype) of typical post WW2 Italian politics, i.e., bumbling, corrupt, fractious and inept.
There is a significant divide between Northern/Central Italy and the South. The North/Central regions are actually doing well; it’s the South that’s the overall drain on the rest of the country.
The post-WW2 italian political crisis is at least 50 years old: a different government each year, with no real alternation (since the largest left-wing party was communist: mainstream parties corruption was publicly uncovered only after the fall of Berlin Wall). I hope this will change. One of the reasons of Berlusconi being voted was that he brought something similar to a two-party system.
In any case, even if italian risk drops, the financial crisis will go on. They would likely target Portugal or Ireland again, or Spain (22% unemployed) or add a new country like Belgium, which suffers from some “italian” issues (regional dualism, high public debt, political instability).