Italian woes could spread through lack of political will

Italian markets dropped and bond yields increased as the government created a budget outside the agreed upon fiscal policy measures. This will no doubt cause tensions between the EU and Italy in the coming month when they have to submit the finalized budget. How this gets resolved will be important to watch as a gauge of the political unity within the Eurozone.

Political concerns are creeping up all over Europe with Brexit and populism growing in traditionally stable countries like Germany. The immediate fallout from the Italian budget getting passed will not be severe, but it would show the willingness of other Euro countries to enforce agreed upon measures with a new government. Failure to do wo would empower far right groups elsewhere to push for more nationalistic economic measures. Should this happen the fiscal issues that are isolated to Italy could be factored into markets on a country by country basis. 

The Euro countries see this and will most likely try to contain the measures that Italy is proposing. By rejecting their plan they will show there is a 'penalty' for not agreeing to historical agreements. This is bad news for Italy and expect more volatility in the month ahead.