Brussels and Rome are in a constant back and forth over budget negotiations but analysts told CNBC that it is the markets that matter the most.

Officials from the European Union (EU) and Italy have found themselves in a deadlock after the former's economic forecasts showed the Italian economy would grow at a slower pace in the next two years than Rome thinks.

The Italian government was quick to dismiss, blaming the EU for its "inadequate and partial" analysis of the country's spending plans.

These comments came after Brussels said earlier on the day that Italy's 2019 deficit will reach 2.9 percent and not 2.4 percent as Rome insists. Both sides have clashed over Italy's 2019 budget plans after the anti-establishment government promised to increase spending, challenging European fiscal rules.

On Friday, Italy's Economy Minister Giovanni Tria said Brussels' proposed deficit cuts would be "suicide" for the country's economy. The unyielding stance from Rome triggered a rise in the yield spread between German and Italian debt, a common measure of risk for European investors.

Analysts told CNBC the standoff looks set to continue, and that the EU is laying the ground to open the process that could eventually lead to sanctions — though no EU country has ever been fined for breaching spending limits.

But, the big question in front of investors is how the markets will react to this noise.

"Continued pressure from the EU, further ratings downgrades and even higher risk spreads will force Rome to soften its policies by just enough in coming months to stave off an immediate debt crisis," Florian Hense, economist at Berenberg told CNBC Friday in an email.