Few in Europe are happy to admit it, but Italy is looking disturbingly similar to Greece these days. Mass youth unemployment, an over-regulated bureaucratic economy and a shaky financial sector have crippled the fiscal health of both countries; both now face a future of austerity and stagnation. And the similarities became even more pronounced late last year, when technocratic governments (charged with implementing European policies) replaced popularly elected leaders in both countries, becoming caretakers until the next election.

For the Greeks, that election was chaotic. The center-right New Democracy party won a victory that wasn’t really a victory, failing to achieve a majority and setting the stage for fringe parties to gain even more in the next election. Greece faces the prospect of divided, fractious government for years to come, and investors are running scared.

Italy now appears poised to follow suit. The FT reports that the major parties of the center-right and the center-left lost seats in recent local elections to representatives of a motley assortment of anti-bailout, anti-Europe parties, ranging from fly-by-night novelty acts to hard leftists:

The local elections indicated that the Democrats, who also support Mr Monti in parliament, would be dependent on a coalition with smaller, more leftwing parties opposed to the technocrats if they are to win next year’s general elections.

This raises the worrying prospect for financial markets of a fractured left-leaning government divided over economic policies. Another possibility is that the weakness of the Democrats and Mr Berlusconi’s centre-right party could drive them in the direction of forming a “grand alliance” that would ask Mr Monti or a similar technocrat figure to take the helm.

Italy is a much bigger potential problem than Greece. If a Greek meltdown merely threatens to wreck the Eurozone and economies of its larger neighbors, an Italian collapse all but guarantees that outcome. Italy’s general elections are not until next year, but if the major parties continue to lose ground to the fringe, there could be some nasty surprises ahead.

Greece’s exit from the Euro is looking more likely by the day, and increasing numbers of analysts now believe that that may be the best way forward—at least for the Greeks, if not the rest of Europe. Many countries stand to lose significant investments should Greece bail on the common currency.

A new piece in French daily Les Echos argues that France may have more to lose than any other European nation. This is partially due to its exposure to Greek debt. France currently holds nearly 65 billion euros in Greek debt, on top of a further 37 billion euros held by French companies. If Greece departs the euro and defaults on its debts, French losses could exceed 100 billion euros.

And this doesn’t take into account France’s exports to Greece or French investments in the country, which are valued at more than three billion euros. France retains a large trade surplus with Greece amounting to 1.87 billion Euros.

These figures help explain why President Hollande wants so badly to forestall a Greek exit from the euro. Bailouts may cost Europe a fortune, but the costs of letting Greece go could be far worse — and, from the French point of view, there’s another advantage. Germany will pay more money in to any new efforts to save Greece, but the benefits will flow disproportionately to France. Using German money to support French economic interests is exactly what many French politicians think the EU should be doing; Charles de Gaulle would be pleased.

Together with the election of François Hollande in France, a European bank walk (more and more depositors moving money out of the banking systems of countries they think might be at risk of leaving the euro) is steering Europe toward a new set of policies. As the Financial Times details, Germany in particular is being forced to reconsider ideas they had previously declared non-starters:

The proposals, which could include empowering the eurozone’s €500bn rescue fund to directly recapitalise faltering European banks and commonly backed eurozone bonds, have been backed by some leaders in the past but forced off the agenda by the German chancellor’s objections.

Since the beginning of 2010, deposits in Greek banks have fallen by about a third, and the pace of withdrawal has accelerated sharply in recent days: on a single day last week Greek depositors withdrew €700 million. Meanwhile, deposits in Irish and Spanish banks have also been falling. In Spain, rumors of a bank run led to a fall of 30 percent in the value of Spanish bank shares. The banks recovered their value the next day, but the episode illustrated the alarming speed with which a modern bank panic can unfold.

That’s the thing about bank runs: They can go viral. The more you hear about other people taking their money out of the bank, the more you think you ought to do the same thing. When this snowballs, you have a true panic. It’s the kind of disaster that can wipe out big banks overnight, throw weak governments over the edge, and generally wreak havoc on the European and even world economy. No wonder European policymakers are scrambling for yet another set of contingency plans.