Analysts say the warning signs are there ... Italian 10 and 30 year government bond yields hit four-year highs on Friday.

And the euro fell towards a 2-month low.

As concerns build over Italy.

And not just Italy - the bond market sell-off was felt in Portuguese and Spanish debt - a first hint, perhaps, of contagion.

But - rewind to Thursday, and Italy's prime minister was defending Rome's plans for the free-spending budget that's raised the alarm.

(SOUNDBITE) (Italian) ITALIAN PRIME MINISTER GIUSEPPE CONTE, SAYING: "I perfectly realise that this is not the budget plan that the European Commission expected, it is understandable that there are reactions.

I expect criticisms.'' The European Commission has labelled the draft budget an "unprecedented" breach of EU fiscal rules ... Over its plans to hike deficits at a time when EU regulations say they should be falling.

EU authorities will send a formal warning letter before the end of the month - it could lead to Brussels rejecting the draft.

(SOUNDBITE) (French) EUROPEAN COMMISSIONER FOR ECONOMIC AND FINANCIAL AFFAIRS, PIERRE MOSCOVICI, SAYING: "I must say that the choice to increase public spending and bring the deficit to 2.4% of GDP in 2019 remains a source of concern for the Commission and for several member states of the euro area." And for the markets too - where some weighing the possibility that the spat could stay the hand of the ECB's plans for a first rate rise.

SOUNDBITE (English) SENIOR FX STRATEGIST, RABOBANK, JANE FOLEY, SAYING: "Italy is not the only only country in Europe where there's been a populist movement.

And if populism means that there is a looser fiscal stance and if the European Parliament accepts that then that has significant detrimental concerns for the EMU project." Though even some populists fear the fallout - including Austria's chancellor Sebastian Kurz ... Who warned that indebtedness, in his words, is 'dangerous'.

And that - as in Greece - it's the poorest who most suffer from the consequences.