Italy can further wreck an already shaky European market

Market - Akanksha Singh - Nov 22,2016

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italian referendum to wreck already unstable european market

Italy’s referendum can further wreck the European market and downgrade the substantially weak euro

While the Italian banking stocks have been under pressure for months, the Italian banking index dropped as much as 4.2 percent last week; the lowest level since early October. Investors are already worried about the upcoming constitutional referendum, which can make Italy a major factor in bringing the European markets crashing down.

With the European Union (EU) already struggling after a harsh Brexit, investors now focus their attention on Italy, as they ready themselves for yet another political event that has the capacity to wreck the markets and rattle economies. The Italian constitutional referendum of 2016, that is to be voted on Dec 4; if declined, has the potential to shake the country’s economy and EU’s market.

The referendum can not only rattle the Italian market, but also send Italian bank shares stooping lower than ever, push bond yields up and weaken the already distressed euro. A simple ‘no’ vote can cause havoc for the struggling European markets, where the investors are already unsure and agitated. WSJ suggests that, investors are worried about the impending political instability in a country that is ‘one of Europe’s most indebted’.

Italy has been in a constant tussle with dilapidated banks, years of economic stagnation and an increasing Euro-skeptic sentiment. The vote is a constitutional overhaul, a reckoning presented by the Italian Prime Minister Matteo Renzi, which brings in more trouble than good for the European market (if denied).

Though the referendum aims at speeding up the lawmaking procedure and produce more stable governments, it has indeed become a vote of confidence on the government and its efforts to revive the economy. PM Renzi has pledged to resign if the referendum brings in a negative outcome. With the economy already in the despondency and the PM’s popularity waning, European market and investors can all but hope.