If Brexit is a headache for the EU then events in Italy must be giving it a heart attack with an unholy coalition of the two populist parties the left-wing Five Star and the far–right Northern League now in government. The political earthquake has woken investors up to the risks of their policies and Italian bond yields initially spiked sharply upwards, which in turn threatens the solvency of the Italian banking system. Italy is not Greece; it has an annual budget surplus before interest payments, an average bond maturity of around seven years and much of the debt is held by domestic investors. The Italians may have converted form Europhiles to Eurosceptic in recent years but even the populists know that Il signore on the Roma autobus does not want to see his savings decimated and job axed by leaving the single currency. With the ECB still hanging in there for the time being as buyer of last resort then the position is manageable for now, but could get dangerously out of hand very quickly, with ‘contagion’ risk into other European bond markets the other shoe to drop.