ROME — Behind the high gates of his lavish 16th-century villa in Italy’s wealthy Po Valley, Silvio Berlusconi is plotting. His People of Freedom party is currently the most popular in Italy. He just won a victory by getting rid of a disliked property tax. And yet he could be facing his political end.

Mr. Berlusconi, 76, the polarizing former prime minister and billionaire media mogul, has dominated Italian politics for two decades, even as he maneuvered past sex scandals and corruption trials. Then, in July, he ran out of maneuvering room: Italy’s highest court upheld a prison term against him for tax fraud. On Monday, a parliamentary commission will debate whether to strip him of his Senate seat.

And that has thrown Italian politics into a state of turmoil that threatens the survival of the country’s fragile coalition government while also posing risks to the tentative economic recovery under way in Europe. Analysts warn that political instability in Italy, the Continent’s third-biggest economy, could unsettle financial markets, further sour investor confidence and possibly stoke the angry brand of anti-austerity populism that has periodically erupted across southern Europe.

Italy’s postwar politics have always had an operatic flourish, with governments regularly falling, even as the rest of a bemused Europe watched from a distance. But the travails of the euro and the fitful project of European integration have changed that: just as a banking crisis in tiny Cyprus can threaten the stability of the 17-nation euro zone, so now must Brussels and Berlin be wary of any outward ripples from Italy’s political machinations.