This is a tale of two countries, one small, the other tiny. The tiny country, population 826, occupies just 110 acres of territory inside the capital city of the small country. But it is by far the more commanding of the two. It dictates beliefs about the divine held sacred by a billion people worldwide. Its leader is considered a respected moral arbiter. While the Italian state is nearly 150 years old, the pope has ruled from his perch in Rome for all of 1,600 years. Small wonder then, that the Church of Rome often behaves as if Italy were not really a sovereign nation but a small province that needs to be kept in line.

All the same, Italy could use some guidance these days. God knows.

It’s much too late for a quiet word in the ear of Prime Minister Silvio Berlusconi, a man growing more and more unbalanced as political consensus begins to slip away from him, taking potshots at the magistrates homing in on his disorderly sex life as well as on his rumored Mafia ties. The tension seems to be taking its toll, not only on Berlusconi but on some of his loyalists, like Minister for Public Administration Renato Brunetta, who recently denounced a mysterious “elite” he said was planning a coup to bring down the government.

Next month the Constitutional Court will rule on whether a tailor-made 2008 law granting Berlusconi full judicial immunity is constitutional. If the measure is knocked down, the prime minister could be exposed to prosecution in a corruption case. His leading ally in his Popolo della Libert party, Chamber of Deputies president Gianfranco Fini, has been marking his distance from Berlusconi and signaling he’s ready to replace him. Berlusconi’s European partners and the Obama administration are said to be annoyed about his effusive displays of friendship to Vladimir Putin and Muammar Qaddafi. The European Union has censured Italy for towing boatloads of desperate Eritreans and Somalis, many of them certainly eligible for refugee status, back to Libya from where they set out–and where they will be interned in barbaric prison camps. And the worst of the world economic crisis is expected to hit Italy this winter.

For the first time, there is talk about the end of Berlusconi. And for the first time, comparisons of this regime to Fascism are being advanced not just as rhetoric but in all seriousness.

In a cringe-making bilateral press conference with Spanish Prime Minister José Luis Zapatero, the Italian prime minister lost his cool when asked whether he had considered resigning because of the scandal that has arisen over paid “escorts” who spent the night at his residences. Never, he said in a manly show of verbal chest-pounding; he would never resign, and not only that but he had “never even once in my life had to spend one lira, one euro, for a sexual performance,” because otherwise “what’s the joy of conquest?” And furthermore, Berlusconi added, “I sincerely consider myself by far the best prime minister that Italy has ever had in its 150 years of history.” Not only that, but his polls tell him he has “a 68.4 percent approval rating.” He then turned to Zapatero and apologized for the detour the press conference had taken.

“Not at all,” said Zapatero, heroically keeping a straight face. “Very interesting…”

Berlusconi is on the offense this fall after months of enduring photos and other disclosures about his sex life. First, he sued the left-leaning La Repubblica, arguing that the “10 Questions” the paper had posed about his sex life (questions that would be considered perfectly legitimate in any country with a free press) were invasive of his privacy and intended to smear him. Then he sued the French weekly Le Nouvel Observateur, as well as Spanish daily El Pas.

Berlusconi also filed suit against the left-wing Italian paper l’Unità for having harmed his “honor” and “personal identity” by depicting him, among other things, “as an individual…with erectile dysfunction.” Yes, it sounded comical, but the damages he is asking are brutal: in addition to a flat 2 million euros (about $3 million), he wants an extra 200,000 euros each from editor in chief Concita De Gregorio and from four of the paper’s writers and journalists, all women. “The richest and most powerful man in Italy” was asking for what amounts to “eleven years of work for the average Italian and even more for me,” wrote novelist Silvia Ballestra, one of those named in the suit.

The prime minister’s next target is likely to be RAI-3 TV, whose news and public affairs programs are the last remaining slots where critical opinion is heard. Silencing RAI-3 would reduce all Italian TV coverage to not much more than fawning and flattery in a country where 80 percent of Italians get their information exclusively from television.

The most ferocious attack on the free press, however, came from the press itself: from the right-wing paper Il Giornale, owned by Berlusconi’s brother Paolo. In a prominent page-one article, Il Giornale launched a sleazy attack on the editor of the Catholic paper Avvenire, Dino Boffo, who had timidly criticized both the prime minister’s personal behavior and the government’s treatment of immigrants. How dare Boffo criticize Berlusconi’s morals when he himself had been charged with harassing the wife of his (male) lover? The sole purpose of the attack seemed to be to out Boffo as gay. A few days later he resigned.

But perhaps there was a deeper motive behind Il Giornale‘s smear: to demonstrate that everyone in Italy has something to hide, that “we’re all thrashing around in the same mud, with the same low purposes, the same opportunism,” wrote Michele Serra, a shrewd social commentator. It was nasty philosophy of life, he added, and of course one that automatically disqualified anyone who raised questions about the prime minister. In the same vein, Il Giornale, ostensibly a family paper, recently floated a Mafia-style warning to Gianfranco Fini: instead of criticizing Berlusconi, Fini “would be wise to let sleeping dogs lie,” because Il Giornale is ready to mount a sex scandal involving him too, the editor wrote.

If that paper is clearly doing Berlusconi’s bidding, no one can quite figure out why Berlusconi would want to offend his somewhat unlikely allies in the Church. The attack on Boffo was perceived as “a completely senseless act of aggression,” “like being hit by a tank,” said one bishop. Perhaps the prime minister had deluded himself that he could drive a wedge between those in the influential Italian Bishops Conference who are alarmed at the bad example he is setting for Catholics, and those who pragmatically prefer a right-wing government that will guarantee Church privileges and promote its conservative agenda on issues such as contraception, abortion, stem-cell research and the like. But despite rumors of a power fight inside the hierarchy, no institution moves with more unanimity than the Church of Rome.

If veteran observer Eugenio Scalfari, founder and editor emeritus of La Repubblica, is right, the Vatican, and especially the Bishops Conference, are not ready to abandon the prime minister yet. “But the Boffo wound still smarts, and thus Berlusconi must pay the price (which, however, costs him nothing),” although it belies any pretense this is a secular republic. The price: more government funding for Catholic private schools (even as the government slashes funds for public schools); a bigger role for religion classes in public education; tough legislation on living wills that would rule out any “do not resuscitate” clauses; bureaucratic obstacles to “day-after” birth control pills and other emergency contraceptives, not to mention to abortion; and no civil unions for straight or gay couples.

Meanwhile, conservative Catholic politicians are hoping they can expand their base and perhaps join forces with Fini in a new center-right alliance. As Berlusconi grows more erratic, such an alliance, possibly acting with the center-left in a government of national unity, is considered a realistic post-Berlusconi scenario. It would effectively mean reviving the Christian Democratic Party, which ruled Italy for almost half a century until it dissolved with the corruption scandals of 1992. And that would be a very sad comedown for the center-left opposition, which remains leaderless until party elections are held at the end of October, and which has failed to rally what is actually widespread opposition to the prime minister. And yet, although he certainly doesn’t have “a 68.4 percent approval rating,” Berlusconi does have some 50 percent of Italians on his side. In other words, Italy is evenly, and very bitterly, divided.

That does not bode well for Italians and their democracy.