A rejection of the referendum on Dec. 4th could rattle global markets and the euro and set a damaging tone for Europe states Exante’s Patrick J O Brien who has just returned from Italy witnessing public protests at recent government reforms

 

There is international concern about Italy‘s future political course, as turmoil could bring the opposition Five Star Movement (M5S), an anti-establishment party that wants to take Italy out of the eurozone, closer to power.The Bank of Italy said last week it expected "a big increase in volatility" on the financial markets "around the first week of December, in conjunction with the referendum on the constitutional reform."

Opinion polls are making increasingly grim reading for Italian Prime Minister Matteo Renzi ahead of the referendum on constitutional reform on which he has staked his political future. Of 32 polls published by 11 different pollsters since Oct. 21, everyone has the 'No' camp ahead, and generally by a widening margin

If rejected, the Dec. 4th referendum has the potential to send the country’s bank shares tumbling, push bond yields up and further weaken the euro. This result could have global implications with a defeat leading to social turmoil in other countries that are already facing a strong resistance to changes with elections across Europe scheduled next year.

The vote is on a constitutional overhaul presented by Prime Minister Matteo Renzi that aims to speed up lawmaking and produce more stable governments. Mr. Renzi has pledged to resign in case of a “no” vote. With the economy in the doldrums and the 41-year-old premier’s popularity waning, the referendum has effectively become a confidence vote on the government and its efforts to revive the economy.

 Currently, Italian laws need to be approved by both houses of the Italian parliament: the Chamber of Deputies and the Senate of the Republic. This system pits the state against the regions, which frequently leads to the delay or scuppering of new laws, and undermines the stability of the Italian government. In an attempt to rectify this situation, Italy’s prime minister and reform minister have proposed key changes to the constitution, effectively reducing the power of the Senate. On 4 December, Italy will vote ‘Yes’ to approve their reforms or ‘No’ to maintain the status quo

Summing up his record in office, Renzi claimed credit for reviving Italy‘s economy and jobs market, albeit by an insufficient degree."When I got here I said: We don‘t want to be told we will end up like Greece, we want to do better than Germany, and unfortunately the road ahead is still long," he said. "Italy is back on the road, but I am the first to say it is still going too slow."

No more surveys are to be published because, in Italy, they are banned in the last two weeks of election campaigns.

 

PhotoItalian Prime Minister Matteo Renzi at a recent conference with Maltese PM Joseph Muscat.