Could the next euro crisis come from Italy?

While it's easy to get distracted by trade wars or Brexit uncertainty, there's a financial iceberg on the horizon that could threaten all our well-being.

Over the years, Italy's government has built up more than £2 trillion of debt - more than 130% of its annual income, or GDP.

A spending binge in the 1970s and 1980s, together with a host of other factors, has resulted in the third-largest national debt in the world.

That's way above the amount that the European Commission - which sets rules on how much members of the eurozone can borrow - is comfortable with.

The current populist government's intention to tax less and spend more, resulting in a hefty annual deficit, has put it on a clear collision course with Brussels.

The Commission decided not to fine Italy for its profligate ways for now, but on the basis that the government should look at ways to reduce its borrowing.

In an exclusive interview with the BBC, the governor of the Bank of Italy agreed his government's debt was too high and needed tackling.

But Ignazio Visco admitted: "There is uncertainty now on how to deal with it. And the markets are making us pay for that."

More investment?

Curbing public debt means reforms to tax and/or spending, both of which will be hugely unpopular in a nation where wages have failed to keep up with the cost of living in recent years.

Italy has struggled to remain out of recession. Mr Visco labelled economic growth in his nation over the last 20 years "dismal".

To safeguard Italy's future, he admits more public investment in infrastructure is needed.

But that may not be possible. Brussels isn't being fussy: the highly integrated nature of Europe and the global financial system means that loose money management in Italy isn't an option.

• EU warns Italy over rising debt

• Warning over 'new eurozone crisis'

The vast majority of Italy's debt is held by banks, the majority within its own borders. But a significant chunk is held by banks in other part of Europe.

Concerns about Italy's financial position have already driven up the government's cost of borrowing.

A full-blown crisis of confidence among investors over Italy's credibility could hit the fortunes of all those banks, as well as their ability to lend to businesses and households across the region.

Strong tensions

All this comes at a time when Europe's other major economies - Germany, France and the UK - are seeing lacklustre growth.

The Bank of England has warned of a doom loop. That's the risk of a budget crisis spilling over into a financial one which threatens stability across the region.

So the pressure to play by the Commission's rules is immense - much to the frustration of ordinary Italians. Mr Visco acknowledges the system is problematic, saying: "We are in a moment in which the European design certainly is not at its height.

"So there are tensions, there are strong tensions, and each country has its own tensions."

He is confident that Italy can get to grips with the issue in time: "It is a country which has somehow proved that it can put its act together."

If not, it won't just be Italians who pay the price.