The Italian Malaise

Matteo Renzi has well and truly lost the referendum that took place on December 4.

Turnout was very high at 70%, and the referendum showed a considerable difference in the number of voters for the no and yes camps. The no campaign clearly won a clear majority with 59.1% of votes vs. 40.9% for voters in favor of constitutional reform, so it is certainly not a close call that fails to garner attention.

However, the markets’ reaction was not extreme. The euro fell below the 1.06 mark against the dollar, while the equity markets in Asia saw only on a moderate drop, with Tokyo closing down 0.8%. Yields on Italian bonds rose, wiping out the drop seen at the end of the week.
Investors are adopting something of a wait-and-see attitude, which is reassuring in one sense as there is no major backlash following the result. But the whole affair is far from over.

Matteo Renzi will present his resignation, which will very probably be accepted, and in the meantime, the current government can no longer operate effectively following yesterday’s result.
Italian president Sergio Matarella will have to consult and appoint a new prime minister to form a new government, and this could be Matteo Renzi. This whole process will take several weeks.

We would raise a number of points: Continue reading