The reference is undoubtedly to a Spanish Sailor. Remember, they sent the Armada, they colonised a lot of the New World by sea. The Italians, as a Mediterranean Coastal Nation never really had a Ocean Navy for the British Sailors to have to fight. Sailors from shanty times were a hardbitten, rough old lot. Many of the references to "Niggers" stem from the Plantation Owners habit of signing slave labour onto merchant ships out of planting and harvest season. Quite a number of great shantymen came out of these black crews and many of the songs referring to "Niggers" were innocently authored by black seamen themselves. The fact is that Shanties are just about the most politically incorrect art form on the planet. If you sing enough of them you will probably end up offending pretty well every nation in the world. You either adapt them or leave them well alone. I just use my common sense. References to "Brown" or "Darky" girls easily translate to "young" or "pretty" and "Dego" or "Dago" fiddler can become simply "shanty" fiddler. Unless there is some historical provenance that specifically connects the shanty to some inter-nation event or conflict I cannot see the problem. As long as the original is preserved and recorded for the serious musicologist to note attitudes and prejudices historically reflected in the words, you can do what you like with them. In Britain we've been changing words for thousands of years. Its called the "tradition". The Americans have been adapting our songs for at least two centuries, and when Dylan does it they call it "genius".