Why Italy's banking crisis will shake the eurozone to its core; EUR 50 bln "Bad Bank" Being Modeled With JPM

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Now they have spread to the wider economy, and are morphing into a political crisis with implications across the EU. It could bring down Italy's government.

If no compromise is reached between Rome, which wants to protect bondholders, and the EU, which wants to enforce the rules, it could even bring down the eurozone.

"This could be a bigger risk than Brexit," says a lawyer who is close to the situation.

"The Greeks are desperate to be anchored into Europe, they are willing to suffer and suffer and suffer to stay in -- I am not sure that Italy is willing to suffer." The stakes are that high, and nobody knows whether the EU can muddle through another crisis, or if shock waves from Italy will split the union. Long nights and fraught nerves lie ahead.

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As Rome has delayed taking action to solve the problem, not only has the scale of dodgy debts grown, but so has the barrier posed by tough new rules and a more hostile political environment.

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