The year of 2016 has been characterised by a multitude of unexpected events from the likes of Brexit to the victory of Donald Trump in the United States. Italy could be the next shock to the political and economic foundations of Europe and the global system if the ‘no’ vote prevails in the December 4th referendum.
The Almanis crowd is wondering what the outcome of the referendum will be? And what scenarios could result from the referendum result?
The Italian referendum is yet another test for European stability and potentially poses a threat to the survival of the Euro. Prime Minister Matteo Renzi called the referendum to weaken the Senate’s powers in relation to the parliament’s lower house, the Chamber of Deputies, and free Italy from institutional paralysis. Renzi has also staked his political future on the ‘yes’ vote, stipulating he will resign if the referendum fails. So why is the Italian referendum significant for forecasting and what are the possible scenarios?
Understanding the flow on effects of a ‘no’ vote for Italy and Europe is crucial, with a wave of scenarios possible. The ‘no’ vote could not only exacerbate the political and economic crisis that currently engulfs Italy, but could add fuel to the populist movements across Europe, with 2017 elections in France, Netherlands and Germany. Beppe Grillio, the leader of the Five Star Movement, epitomises the populist stance in Italy, a coalition that calls for Italy to exit the Euro. A defeat for PM Renzi could lead to an early election, potentially bolstering the supporter base of the Five Star Movement and a subsequent push for an ‘Italexit’. Although Article 75 of Italy’s constitution ensures Italy cannot hold a referendum on anything related to international treaties.
The financial risks accompanying a ‘no’ vote could be disastrous for Italian banks, with an atmosphere of uncertainty around political leadership in Italy. There is large scale fear that the failure of Italian banks could trigger panic throughout the eurozone. Evidently the possibility of a ‘no’ vote sparks further questions for Italy and the future of Europe. A wave of scenarios are possible and thinking beyond the result is paramount.
Now, what if the ‘yes’ vote prevailed? On the premise that the referendum is approved Italy would undergo substantial changes to its Constitution and political apparatus. The ‘yes’ vote would weaken the Italian Senate, ensuring a majority in the Chamber and as a result for laws to be passed more easily. Investor confidence could rise with the ‘yes’ vote, as well as improved business conditions for larger companies with changes to specific laws through the enhanced mandate of the Chamber.
The possibility of a ‘yes’ vote brings optimism for Italy and financial recovery. Although the assumption that a ‘yes’ vote will lead to positive economic and political outcomes for Italy should not be taken for granted.
The rest of Europe looks on. Populism is growing. Uncertainty rises.
What will happen in Italy?
Visit Almanis and share your forecasts on the questions we have already, or perhaps suggest a question to the crowd.
- Will the proposed reforms of the Italian Senate be passed in a constitutional referendum on December 4th?
- Will nervousness over Italy’s upcoming referendum on constitutional reform lead to a bond market sell-off in anticipation that the government’s proposed recommendation is rejected?
- Will Italy introduce a new domestic currency by the end of 2018?