If the German filters only apply to ISPs in Germany, they have no effect on users in foreign countries. Moreover, Cloudflare is obviously not an ISP.
Do you think the Italian bureaucrats really want to ban something in France or Germany?
The Cloudflare CEO is clearly misinterpreting something that was lost in translation, which is the bureaucrats stating "Cloudflare must prevent access to XY from everywhere". For bureaucrats "everywhere" means "in my jurisdiction". I cannot believe that the Cloudflare CEO is trying to nitpick around a single word that he so clearly misinterprets.
I'm pretty sure Cloudflare is an ISP according to German law ("Diensteanbieter" according to DDG). You might confuse "ISP" with the terminology of "Access Provider" according to the (now defunct) §8 TMG.
the filters the Italian authorities complain about also only apply in italy.
It's likely a process thing, Italy has had website bans since forever, but the new regulation applies _without going through a judge_. Some copyright holders can say "this website is infringing" and ISPs, CDNs etc.. are required to shut them down immediately.
A similar system was introduced in Spain, with the same problems, for the same reason (football $$$).
EDIT: to be clear, CF argues that they need to block the DNS globally, and that's unreasonable. The Italian authority argues that they have the skills to do a local block and are just being uncooperative.