So Chris, basically you are a Google fanboi. Great. At least we know where we stand.
However it is unlikely that your proposed solution would work for Google.
1. Video hosting is a very minor issue, especially on the political agenda of a country with such serious problems elsewhere. As such no major party would make it an electoral issue. And unless they did nothing would change.
2. There are other video hosts and search engines. People would just use them and find they are just as good, and indeed often better.
3. If people wanted to use Google services they would use proxies. However the inconvenience would probably prove too much and they would revert to #2.
4. Google lives and dies on advertising revenue, they would not want to lose the revenue from even one country if they could afford it.
5. Blocking Italian users would probably be a breach of contract with their paying customers (ie advertisers) in Italy. Lawsuits would follow and Google would undoubtably lose them.
6. Google would not want to risk setting a dangerous (for Google) precedent. What if the Italians found they could cope just fine without Google (I do). When Google were prosecuted in other territories (and they already are) they would almost have to take the same action as they did in Italy. If they did those countries would not bat an eyelid having already seen what happened with Italy.
7. Do you really think that trying to force a change in a wide ranging law to suit the business needs of a single company is reasonable? Do you think even Google would think that?
8. Attempting to blackmail a national government is not disimilar to an act of terrorism. How well would that fit in with Google's "do no evil" creed.
9. Acting like that would almost certainly land them in a lot of trouble in the European courts. What then block the whole of Europe?
If you do business in a country you do so by the laws of that country. I'm trying to avoid saying "when in Rome". You should check the law before you start to operate, not later. Assuming the same laws apply worldwide as in your home country is a very stupid thing to do, but it's a mistake made by many American businesses.