A primer for the uninitiated:
Italy's referendum could be a bigger deal than Brexit
Friday, 2 Dec 2016 | 5:00 AM ET | 01:29
Italian citizens will vote on constitutional reform on Sunday in what is seen by many analysts as the most significant European political event of 2016. Yes, even bigger than Brexit.
What are Italian citizens voting on?
Constitutional reform. Prime Minister Matteo Renzi is campaigning for a "yes" victory in an effort to make it easier to govern the nation moving forwards.
The reforms would remove power from the Senate and mean that proposed laws would only require the approval of the lower house of parliament, as opposed to the current system which requires approval from both houses.
Renzi has even gambled his political future on the referendum having said he would resign if a "yes" vote is rejected.
A "no" vote, as championed by populist party Five Star Movement (5SM), would block the reforms to streamline Italy's public administration and would mean the extensive checks currently required stay in place.
Francesco Oggiano, the author of "Beppo Grillo Parlante", told CNBC on November 14 that he believed 5SM's opposition to the proposed reforms boils down to a new electoral system perceived to be attached to the reforms.
"According to the 5SM, people won't be able to choose their own representatives in the parliament and this is the most important point," Oggiano explained.
"The result (of a 'yes' victory) would be a parliament full of bureaucrats chosen from their parties that, once elected, will just get to satisfy their leader instead of people's needs," he added.
Will the reforms be accepted or rejected?
The latest opinion polls, published before a two-week blackout phase of polling in Italy, indicated a 53.5 percent to 46.5 percent in favor of the "no" camp.
Holger Schmieding, chief economist at Berenberg Bank, said in a note on Tuesday he believed the likelihood is that Italy's citizens would reject the reforms.
"Some whispers suggest that more than half of the up to 20 percent of undecided voters may back Renzi in the end," Schmieding said.
"Also, many of the rebellious young people who oppose Renzi may not bother to vote. Whereas the outcome is thus no foregone conclusion, I put the probability of a 'no' vote at 60 percent," he added.
What happens after the result is announced?
Whatever happens, Adolfo Laurenti, global economist at J. Safra Sarasin, described the post-referendum scenario in a note as "uninspiring".
"While the reform has some intrinsic merits, the domestic debate is centered on the effort to unseat the prime minister. At the same time, financial markets see the vote as a test of the appetite of reform in the country," he concluded.
Analysts from Barclays published a note on Monday to forecast the circumstances in the aftermath of a "yes" or "no" outcome.
If the referendum is approved and the majority of voters opt for "yes" on Sunday, then the U.K. bank expects Renzi to stay on as prime minister, for the voting system to be amended and for an election to take place in the second or third quarter of 2017.
Barclays analysts also anticipated a resilient market reaction on Monday with little movement in Italian spreads.
If the reforms are rejected and the outcome of the referendum is "no" then Barclays analysts anticipate Renzi will resign, the voting system to be modified in order to avoid a hung parliament, early elections to be called in the second or third quarter of 2017 and for Italian spreads to perform poorly in the following day's trading.
Could this spark an early election?
Definitely a maybe. Larissa Brunner, analyst for Western Europe at think tank Oxford Analytica, argued that the likelihood of a snap election as a consequence of the referendum is totally reliant on the outcome.
"If the outcome is a win for the 'no' camp, which appears the most likely, then it is dependent on the margin of the victory. Any clear victory for the 'no' camp would mean an election is inevitable," Brunner told CNBC in a phone interview on Tuesday.
Should a national election be called in Italy in 2017 then 5SM appear to stand a strong chance of winning the majority of votes.
Opinion polls suggest they are five percentage points behind Renzi's Democratic Party, however, a referendum loss, party infighting and even a potential split could hand the initiative to 5SM.
"(In the context of Europe), if Renzi wins then he may well become more confrontational and stretch EU deficit laws even further while pursuing a more expansionary monetary policy which could be interesting but if he loses … Well, it's anyone's guess," Brunner concluded.
How vulnerable are Italy's banks?
Very. Officials and senior bankers according to various media reports anticipate that up to eight of Italy's troubled lenders are at risk of failure should Renzi lose the upcoming referendum.
Megan Greene, chief economist at Manulife Asset Management, believed that the referendum in Italy could provoke another banking crisis in Europe.
"In my view the biggest risk is actually for the banking sector, even more so than political risk, and there will be some political instability," Greene told CNBC on Tuesday.
The third-largest euro zone economy had been weakened by a deep recession which left behind 356 billion euros ($377 billion) in gross problem loans and Italian banks need at least 20 billion euros in capital in the coming months to cover losses from fresh loan write-downs and planned bad debt disposals, according to a Reuters report.
A "no" vote could conceivably cause financial instability and possibly even panic among investors which would therefore be significantly detrimental to Italy's banking sector.
Also, some (hyperbolic, perhaps) commentary from our pals at Zero Hedge:
http://www.zerohedge.com/news/2016-12-0 ... just-start
Tomorrow's Vote In Italy Will Be A "Wide-Ranging F**k Off", And It's Just The Start...
Tomorrow, December 4, Italy is holding a referendum that will determine the fate of the entire European Union.
Donald Trump’s victory—which shocked Europe’s political and media elite—gives the populists backing the “No” side of Italy’s referendum the political rocket fuel they need for a virtually guaranteed win.
That momentum will be all but impossible to reverse. Anti-elite sentiment is rising on both sides of the Atlantic. And I bet the global populist revolution will continue.
If Italians buck the establishment—and it looks like they will—it will clear a path for a populist party to take power and for Italy to exit the euro.
If that happens, the fallout will be catastrophic for global markets. The Financial Times recently put it this way:
An Italian exit from the single currency would trigger the total collapse of the eurozone within a very short period.
It would probably lead to the most violent economic shock in history, dwarfing the Lehman Brothers bankruptcy in 2008 and the 1929 Wall Street crash.
If the FT is even partially right, we’re looking at a possible stock market crash of historic proportions. This is why we’re watching the December 4 referendum so closely.
The referendum is meant to concentrate more power in Italy’s central government. On that point alone, everyone should oppose it. The centralization of power never leads to good things.
A “Yes” vote is effectively a vote of confidence in the current pro-EU Italian establishment. This is what the global elite wants.
A “No” vote is how the average Italian can give the finger to the faceless EU bureaucrats in Brussels, whom many blame—quite correctly—for their problems.
Trump’s win has been a double whammy for Italy’s pro-EU establishment.
First, it emboldens the populist forces fighting the referendum.
Second, it humiliates and politically castrates Matteo Renzi, the current Italian prime minister. Renzi took a rare step when he openly endorsed Hillary Clinton. He was the only European leader to do so.
As one of Renzi’s rivals said after Trump’s victory, “Matteo Renzi is politically finished from today, he’s a dead man walking.”
Other Italian politicians are furious that he weakened Italy’s standing with the new Trump administration.
It’s hard to see how Renzi could get himself out of the hole he’s dug.
It Started as a Joke
In 2007, Beppe Grillo, an Italian actor and comedian, launched Vaffanculo Day. “Vaffanculo” is Italian for “f*** off.”
Grillo and his followers used V-Day to bluntly express their displeasure with Italian establishment politicians, using imagery from the movie V for Vendetta.
Now, what started out as a joke has become Italy’s most popular political party…
V-Day helped organize Italians frustrated with their political system. It gave birth to the Five Star Movement, Italy’s new populist political party.
Grillo’s Five Star Movement—or M5S, its Italian acronym—is anti-globalist, anti-euro, and anti-establishment. It doesn’t neatly fall into the left–right political paradigm.
According to the latest polls, M5S is now the most popular party in Italy. It won mayoral elections in Rome and Turin earlier this year.
M5S is riding a wave of populist anger at entrenched political elites over economic stagnation. Italy has had virtually no productive growth since joining the eurozone in 1999.
M5S blames Italy’s chronic lack of growth on the euro. A large plurality of Italians agrees.
M5S has promised to hold a vote to leave the euro and return to Italy’s old currency, the lira, as soon as it’s in power. Under the current circumstances, it would probably pass.
After the Brexit vote and Trump’s win, M5S has joyfully predicted that Renzi will be the next casualty in the global populist revolution.
Grillo recently wrote:
It's crazy. This is the explosion of an era. It's the apocalypse of the media, TV, the big newspapers, the intellectuals, the journalists… This is a wide-ranging F*** off. Trump has pulled off an incredible V-Day… There are similarities between this American story and the Movement.
A “No” vote in the December 4 referendum means M5S could come to power in a matter of months.
Melting Like a Gelato in the August Sun
A populist tsunami is about to wash through Europe. It will drastically change the Continent’s political landscape in a way not seen since before World War II.
This wave will flush away traditional “mainstream” parties and usher in anti-establishment populists who want to leave the European Union.
It’s already hit the UK in the form of Brexit, killing David Cameron’s pro-EU government in the process.
Croatia, Hungary, Poland, Slovenia, and Greece already have populist, Eurosceptic—or “non-mainstream”—parties in power.
Italy is the next flashpoint.
A “No” vote in Italy is virtually assured at this point.
But it won’t be the end of the anti-elite surge. Voters in Europe’s biggest countries could soon throw out their “mainstream” parties in favor of populist and Eurosceptic alternatives.
Here’s the rundown…
Austria
Austria is holding a presidential election, also on December 4. It’s actually a redo of an election held in May, where a populist candidate, Norbert Hofer of the Freedom Party, barely lost.
Austrian courts found irregularities in the results and ordered a prompt new election. But when opinion polls showed the populist candidate in the lead, the government delayed the vote until December 4, giving a lame excuse about faulty adhesive on absentee ballots. Despite the foot-dragging, Mr. Hofer looks set to win the December 4 vote.
France
France has a presidential election next spring. There’s a chance that Marine Le Pen, leader of the Eurosceptic National Front party, will do better than many expect. After more than a decade of disappointment under presidents François Hollande and Nicolas Sarkozy, French voters are clamoring for something different.
Spain
Spain recently re-elected incumbent Prime Minister Mariano Rajoy. However, Spanish voters fled traditional political parties en masse for new populist upstarts Podemos and Ciudadanos. So Rajoy was unable to form a majority government.
Rajoy now leads a severely weak minority government. The political power of the Spanish populist parties is only expected to grow.
Germany
Angela Merkel, the chancellor of Germany, embodies the European establishment more than any other politician. Her party suffered a series of stinging defeats in regional elections this year, mostly because of her signature lax immigration policies, which have flooded Germany with migrants.
Merkel’s troubles have only helped the Alternative for Germany, a new populist party surging in popularity. The party could pose a real problem for Merkel in the 2017 federal elections.
The Netherlands
As the Netherlands approaches elections in March, Geert Wilders’s Party for Freedom, which advocates leaving the EU, is basically tied in opinion polls with the establishment parties.
How to Profit from the Tsunami…
As populist, Eurosceptic parties surge, the entire European Union is looking shakier by the day.
One Italian politician correctly put it this way: “The euro is melting away like a gelato left out in the August sun.”
Our thesis for the collapse of the EU not only stands… it’s getting stronger and stronger.
There are potentially severe consequences in the currency and stock markets. We are approaching a global financial meltdown of historical proportions. It could strike America on December 4, 2016, as Italian voters decide the fate of the European Union itself.
It could either wipe out a big part of your savings... or be the fortune-building opportunity of a lifetime.
New York Times best-selling author Doug Casey and I just released an urgent video with all the details. Click here to watch it now.
EDIT to add the following in the comments section of ZH:
The author of the ZH article has it quite wrong. The truth of the matter is, a "yes" to the referendum would be far more likely to ultimately result in an exit from the Euro than would a "no". Why? because if adopted, the new electoral system would substantially remove current checks and balances. IF five star came to power under the current system, they could not really do much to leave the Euro (apart from the fact that many among five star movt. do not actually want to leave the Euro anyway). IF five star came to power under the amended , new system an exit from the euro would become much easier. In fact, many Italians will vote against renzi's amendments precisely because of that. So suggesting that a rejection of the referendum would increase odds for an Italyexit displays a total lack of understanding of the situation.
Given that, a no-vote may actually lead to a significant rally in european stocks after a possible initial knee-jerk sell-off. Conversely, a yes-vote may lead to short-term relief but eventually to much larger long-term worries. be careful what you wish for.
Some info on Beppe Grillo from within the walls of RI:
viewtopic.php?f=8&t=36137&hilit=beppe+grillo
