Italian Constitutional Election - Dec 4th. Potentially another BREXIT/Trump moment?

larus · Nov 28, 2016

With the last 4 polls all pointing towards a rejection of the constitutional changes being requested by Renzi, how serious an impact to the EU, EURO and financial markets will this be if this happens?

Are the warnings being over-played by the Yes side (as per both sides in the Brexit debate) or could this really impact the stability of the EURO and Italian banks, which have very high levels of non-performing loans (about a third of the entire EURO area non performing loans)?

Putting the Brexit/EU debate to the side for a while, this does feel like a continuation of the 2007/8 Financial Crisis, as all that seems to have happened is the bad debts from the banks have been moved to governments (which Italy hasn't done and therefore the banks are more exposed), and led to more indebted nations and an insane policy of QE (money printing in reality) and negative interest rates.

The national debt in Italy is circa 130% of GDP, it's economy has performed badly since it joined the Euro in 1999.

Year GDP Growth Rate
1999 1.464
2000 3.693
2001 1.773
2002 0.251
2003 0.153
2004 1.583
2005 0.95
2006 2.006
2007 1.474
2008 -1.05
2009 -5.481
2010 1.711
2011 0.587
2012 -2.77
2013 -1.698
2014 -0.417

There appears to be concerns that the markets will not want to buy Italian debt with the political instability likely to ensue in the case of a No vote.

beorhthelm · Nov 28, 2016

so you're suggesting the polls are wrong again and they will accept the constitutional changes?

mothy · Nov 28, 2016

Pollsters have got 2 out of 2 wrong so far - so maybe they will make it a hat trick & Italy will accept the changes their pm wants

yxee · Nov 28, 2016

Not so much the 2008 crisis as the current and ongoing eurozone crisis since 2011. Country gets into debt, cannot devalue is way out, cannot bail is banks out, trapped between a rock and a hard place with nothing to do but raise taxes and endure more hardship. That's monetary union without fiscal or political union in practice.

ManOfSussex · Nov 28, 2016

All happening on Sunday as it's the re-run of the Austrian Presidential election on December the 4th too. The far-right Norbert Hoffer is the favourite to win.

Gwylan · Nov 28, 2016

mothy said:
Pollsters have got 2 out of 2 wrong so far - so maybe they will make it a hat trick & Italy will accept the changes their pm wants

The pollsters got the UK election very wrong, were split on Brexit (for the last polls, two called it for Leave, one for Remain and one a dead heat ... but all within margin of error) and were out on the US election (but again, generally within margin of error) - the pollsters haven't done too badly - UK aside.

This isn't really a Brexit moment though as the referendum has no effect on EU membership, a survey in the summer suggested the majority wanted to stay in the EU, while a survey last week suggested that two-thirds of Italians thought decision about membership should be left to the politicians ... and we know which way they'll go

Badger · Nov 28, 2016

ManOfSussex said:
All happening on Sunday as it's the re-run of the Austrian Presidential election on December the 4th too. The far-right Norbert Hoffer is the favourite to win.

A far right Austrian taking power? I don't see what could possibly go wrong with that.

Green Cross Code Man · Nov 28, 2016

Gwylan said:
This isn't really a Brexit moment though as the referendum has no effect on EU membership, a survey in the summer suggested the majority wanted to stay in the EU, while a survey last week suggested that two-thirds of Italians thought decision about membership should be left to the politicians ... and we know which way they'll go

It could be considered a Brexit moment as voting against the government could possibly undermine the stability of Italy's banks even further. Italy being forced to leave the Euro could well cause the whole project to come crashing down. I would rather that than the Le Pen scenario.

larus · Nov 28, 2016

beorhthelm said:
so you're suggesting the polls are wrong again and they will accept the constitutional changes?

No. I thnk this will be another anti-establishment vote and they'll reject the changes.

larus · Nov 28, 2016

yxee said:
Not so much the 2008 crisis as the current and ongoing eurozone crisis since 2011. Country gets into debt, cannot devalue is way out, cannot bail is banks out, trapped between a rock and a hard place with nothing to do but raise taxes and endure more hardship. That's monetary union without fiscal or political union in practice.

I agree with you about the EURO structure not being viable, and the solution is not palatable to the nation states (i.e. fiscal transfers from the successful/rich to the failing/poorer countries). However, we aren't out of the financial crisis IMO. The "growth" being achieved is on the back of QE, low interest rates (which are being reduced even though we are supposedly in a growing scenario).

There are very few counties which are in a good position to withstand the next downturn when it comes. Look at the "taper tantrums" the financial markets have when the Fed threatens to raise interest rates.

ManOfSussex · Dec 4, 2016

The first result of today's double-header appears to be in - the far-right have not won the Austrian Presidential election - http://www.bbc.co.uk/news/world-europe-38202669

Green Cross Code Man · Dec 4, 2016

Interesting result that. From the BBC:

'The result is sure to be welcomed by establishment parties and officials in the European Union.'

Interesting to me anyway as there are remainers on here protesting that Brexit was not an anti establishment vote.

larus · Dec 5, 2016

Well, after the no vote, Italian banks are being hit (but not as bad as had been expected). Slow burner here I think, as the Italian economy is weak anyway, so political instability will cause further issues.

Major problem will be if there is a run on the banks, as Italy is far too big to be bailed out by the ECB and Italian national debt is too high for a bank bailout.

nicko31 · Dec 5, 2016

ManOfSussex said:
The first result of today's double-header appears to be in - the far-right have not won the Austrian Presidential election - http://www.bbc.co.uk/news/world-europe-38202669

No comment from Farage, he must be gutted

Lord Bracknell · Dec 5, 2016

The interesting thing about the Italian referendum result was that supporters of the NO vote (the anti-establishment winners) were out on the streets singing "La bella ciao" - the well-known communist anthem of the 1940s. I doubt they have that much in common with Trump or Farage.

happypig · Dec 5, 2016

I may be very niaive but what is wrong with letting the banks flounder and go to the wall ? They have lent money to people who can't/won't pay.

ForestRowSeagull · Dec 5, 2016

happypig said:
I may be very niaive but what is wrong with letting the banks flounder and go to the wall ? They have lent money to people who can't/won't pay.

They're pivotal to the way a modern society lives their lives - debit cards, cash points etc. If you had no access to cash, beyond what you had in your wallet there'd be quite a big problem. 'Too big to fail' is the term used a lot, and is one of the many reason's our banks were bailed out. It's an interesting topic with strong arguments on either side, but in general our day to day lives have become very reliant on a functioning banking system.

deletebeepbeepbeep · Dec 5, 2016

The no vote doesn't necessarily mean the centre left will be replaced by the hard right.

nicko31 · Dec 5, 2016

deletebeepbeepbeep said:
The no vote doesn't necessarily mean the centre left will be replaced by the hard right.

Think way too much it being read into this. Italy has had 63 governments since WW2, business as usual

beorhthelm · Dec 5, 2016

happypig said:
I may be very niaive but what is wrong with letting the banks flounder and go to the wall ? They have lent money to people who can't/won't pay.

if they write off debt they have to fill the missing holes in their balance sheet, by either borrowing more themselves or not lending so much out. with problems on their balance sheet, the first is difficult to ruled out, and the later means less revenue (so compounding their problems) while stagnating the parts of the economy that rely on credit for investment or general business. dont treat the banks as some nasty business out to take everything, they facilitate and grease the wheels of the entire economy, without them you have no industry or commerce. (they just happen to take a fat profit too in good times).

the problems with Italy is a lot of the bond holders are normal, everyday people who buy bonds from their local bank rather than simple savings or shares. so defaulting or a hair cut on those bank debts is extremely more unpalatable if it were large multinational investment fund or other banks.

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