Its budget, which was released one week late on Friday, reflects that split.
A mix of tax cuts proposed by Deputy Prime Minister Matteo Salvini, of the League, and spending increases led by Five Star Prime Minister Giuseppe Conte and Deputy Prime Minister and party leader Luigi Di Maio have meant the plan comes in with a projected deficit of 2.4 per cent for 2019.
When this headline figure was announced it was criticised by European leaders, who said it was too high.
Although it falls below the EU's deficit limit of 3 per cent, Italy's overall debt burden is already in breach of regulations. Total debt is not allowed to go beyond 60 per cent of GDP; in Italy it is 132 per cent, or €2.3 trillion ($4t).
A higher deficit will add more even to the total debt.
After criticism from European leaders, the government rowed back a little on the budget, saying that the deficit would be lower than 2.4 per cent in subsequent years.
However, some are worried that the situation is even worse than they appear on paper, as the deficit projections are based on overly optimistic forecasts of economic growth and spending cuts.
"They only come to this 2.4 per cent budget deficit number because they calculate with a high nominal GDP growth, which is very unlikely. They think there will be 3.1 per cent nominal growth", said Carsten Hesse, a European economist at Berenberg Bank.
"They expect a big boost in inflation, which we believe will not happen. We expect next year [will see] 2.4 per cent GDP growth.
"In the end we believe the budget deficit will be significantly higher than that - we expect 2.8 per cent."
The problem of high debt could be intensified if investors lose faith in the Italian economy, which would lead to the government having to pay more in interest as its borrowing would be considered riskier.
The Doom Loop
One of the main concerns is the potential for a so-called 'doom loop' to grip Italy's economy. This describes a vicious cycle where markets lose confidence and a self-fulfilling downward spiral takes hold.
In this scenario, investors would abandon the over-indebted government and, in turn, the fragile lenders that support them.
Europe's sovereign debt crisis six years ago, which engulfed countries including Greece, Portugal and Spain, was made worse by this phenomenon.
Investors are concerned Italy could be heading for a similar ordeal as Italian banks, including Unicredit and Intesa Sanpaolo, are major buyers of Italian sovereign bonds.
Yields on Italian government bonds hit a more than four year high last month of just over 3.7 per cent, reflecting a lack of buyer appetite.
Meanwhile, the cost to insure both the country and its banks' debts through credit default swaps have spiked since the political turmoil began.
Shares in both Unicredit and Intesa Sanpaolo are well down on the Milan stock exchange, having lost around a third of their value over the past five months.
"Investors are really concerned," says Hugo Cruz, an analyst at Keefe Bruyette & Woods.
"Banks are the most obvious weak point in Italy as they are the most exposed to the economy. Higher funding costs for the Italian Republic could feed through to banks as well.
"The banks are sensitive to bond spreads and they can still take further hits. It then becomes a question for the regulator [the European Central Bank] as to whether they treat these as exceptional circumstances or require them to increase capital buffers."
Despite the worsening conditions, Cruz believes the Italian banks should avoid collapse or needing a taxpayer bailout.
"That would require a decision that these banks are no longer a going concern and we are quite far away from that. But it's all political at the end of the day and ECB stress tests in early November could change things."
How does the EU affect this?
Europe could fine, or threaten to fine, Italy if it breaks budget rules. Imposing a fine could be counter-productive if it adds petrol to the fire of Italy's populist leaders, giving them something to complain about in campaigning.
If Italy gets into worse financial trouble it could receive help from the European Stability Mechanism (ESM), a lender of last resort for the eurozone.
However, a loan of this sort would come with stipulations to clean up the economy, similar to those imposed in Greece.
These stipulations would likely be polar opposites to the path of tax cuts and spending increases that Italy is currently on.
This is not likely to be politically popular with a populist government whose leaders flout their independence from Brussels as a campaigning tactic.
It may fan the flames of populism as happened in Greece, where an EU-mandated budget cuts helped far-left party Syriza flourish.
Could this lead to Italexit?
Italy - the third largest economy in the eurozone - leaving the European Union could be even trickier than Brexit. However, if Italy continues to break EU rules it may have to.
"If they don't go for a bailout then Italy could leave the eurozone", said Hesse.
"An Italexit you would have to do overnight, you can't do it beforehand. You would have to close the banks for a few days and start the printing machines for money.
"If you announce it you'll end up in a bigger hole - everyone will try to transfer their euros to another country - nobody wants the Italian lira.
"There would be a massive bank run and then they would be kaput."
Although the EU is not particularly popular in Italy, nor is the country's government, according to Hesse.
"Italians were asked if they trust the EU and only 35 per cent said yes. But then they asked if they trusted the Italian government and only 12 per cent said yes. So the EU is trusted three times more.
