Catalonia: Eurozone on brink as Catalan independence distracts chiefs from REAL crisis

With the focused on Catalonia and its drive for independence from Spain, investors have urged banking chiefs to remember the disaster brewing in .

Italian voters head to the polls next year with populist Five Star Movement, which wants to leave the eurozone, predicted to make significant gains. 

But investors have warned the success of the party could spark fresh chaos with Five Star’s stance on European fiscal rules at odds with Brussels. 

Andrea Cicione, head of strategy at TS Lombard, told CNBC: “Beyond Catalonia, it is the Italian election we are concerned about.” 

He warned Five Star’s policies in favour of increased spending and the rise of populism in Italy is a major risk to Rome’s fiscal policy. 

Claus Vistesen, the chief euro zone economist at Pantheon Macroeconomics, said: “It’s certain that the Five Star Movement will do very well in the upcoming election.”

Currently Five Star is leading opinion polls ahead of the 2018 election spelling uncertainty for Brussels. 

A Brussels-based official told CNBC: “The euro zone is growing, even Greece is growing … But let’s not get carried away with the short-term success.”

But Italy’s economy is expected to grow just one per cent this year according to forecasts from the European Commission.

In a further blow Italy’s government debt is already above the EU’s limit.  

And in a threat to the EU, Five Star leader Luigi Di Maio says he wants to renegotiate treaties with the bloc that he claims “are capping the growth of Italy”. 

It comes as bank stocks in Italy were sinking, with Ubi Banca, Banco BPM, BPER Banca and Unicredit the worst-performing. Italy’s FTSE MIB fell 0.6 per cent, set for its worst week in two months.

Eurozone finance ministers will discuss labour tax cutes on Monday as the EU’s member states prepare their budgets for next year.

A report from the European Commission will urge governments to cut taxes on labour and offset the dip in revenues by shifting taxation to houses or consumption.

Although the technical report is addressed to all governments, it is likely to be read with particular care in Italy, which has some of the highest labour taxes and unemployment levels in the bloc.

The report said: “Several member states could explore the possibility to finance a labour tax cut by increasing other less growth distortive forms of taxation.”