Italy expected to retain key "broker" role on Brexit if Renzi quits

  • Italy expected to retain key

Italy expected to retain key "broker" role on Brexit if Renzi quits

Most investors expect a further sell-off in Italian bonds and a knock-on effect on stocks if the referendum is defeated.

The financial markets clearly are anxious that a defeat for Mr Renzi would prompt a period of government instability, which in turn could have a negative impact on the Italian economy and, especially, its ailing banking system.

Bets on falls in Italian stocks and demand for insurance against sovereign default have both picked up markedly this year on growing investor concern ahead of the referendum, data company HIS Markit said.

"In the case a proactive systemic solution is implemented we would significantly revise upwards our GDP forecasts". Renzi, 41, also wants to wrest back power from Italy's 20 regional governments.

"It's a nervous market at a time when liquidity isn't great", said Kevin Lilley, a manager of euro-area equities at Old Mutual Global Investors in London.

Italy's lenders hold around £270bn of so-called non-performing loans - a third of the eurozone's total - and need fresh funds to restore confidence.

A "yes" vote on December 4th should reinforce Renzi's mandate and allow him to push forward with his economic reforms.

"Sunday's referendum on constitutional reform is Italy's Brexit moment and a "No" vote would send tremendous shockwaves through the markets and the banking system".

Major risk is posed by the possibility of resignation by Renzi as Prime Minister on the off chance that he loses the vote.

Meanwhile in the US, the Dow Jones industrial average was lower on Monday on the back of record highs the previous trading week.

The situation is being closely watched by financiers and policymakers across Europe and beyond, who worry that a mass failure of Italian banks could trigger panic across the eurozone banking system.

Shares in the bank fell a further 13.8 percent yesterday and have lost 86 percent of their value over the past year. But lately, polls have been unreliable bellwethers of election results, and many factors will influence the vote's outcome. "I made an error in the beginning by personalising the referendum", he said. Other metals were also ended trading higher giving a boost to the broader mining sector.

But opinion polls indicate defeat is likely to be the outcome, with the "No" vote leading by six percentage points. However, let's not forget that some of the other large Italian banks are intrinsically robust - they did no worse than some of their European peers in the EBA stress test in July.

Whether or not early elections are held, the possibility that the Five Star Movement will eventually triumph at the national level can not be discounted, because more and more Italians have grown tired of traditional political parties.

Speaking in public, European Central Bank officials remain sanguine.

"The real problem for Italy is that since joining the euro it has enjoyed pitifully low rates of economic growth". Gross domestic product per head is 9 percent below where it was in real terms in 2007 and remains near levels achieved two decades ago.

Although business leaders support Renzi's reforms, they have kept quiet during the referendum campaign, fearing they would prove the kiss-of-death in an era of anti-establishment angst.