An Italian version of Brexit?

[rodi]

My husband has dual citizenship with Italy. He received his ballot in the mail today for the constitutional referendum in Italy for December.

Matteo Renzi - current prime minister, is backing these changes "all in" - saying he'll resign if they don't pass.

The issue isn't the changes - the issue is the chaos that could ensue during the interim government if Renzi resigns... could lead to a decision to pull out of the Eurozone... At least that's the speculation. This obviously would have huge impacts on worldwide markets.

Current polling (per CNBC) shows it will likely fail - causing the ripple that is described above. But it isn't on anyone's radar. Hang on to your wallets.

Euro zone break-up fears back on the table with Italy expected to reject reforms
excerpt:

Bigger tail-risk than Brexit

Holger Schmieding, chief economist with Berenberg Bank, told CNBC in a phone interview that the risk involved in Italy's referendum makes it an even bigger political event than Brexit.

"For me, this is the biggest political risk for the euro zone this year … Less the referendum and more the tail risk," he said.

"If the aftermath of a 'no' victory results in an early election, in which parties propose a referendum of leaving the euro then this is much more of a problem, there will be serious contagion effects for the whole of the euro zone," he added.

All is not yet lost for Renzi as opinion polls have incorrectly predicted the outcome of both Brexit and more recently, with Donald Trump's election victory.

Though should Renzi fail to convince Italian citizens to vote in favor of constitutional reform, most analysts expect the 41-year-old to stick to his promise from earlier in the campaign and resign.

Italy's Matteo Renzi Seeks to Avoid Brexit-Like Loss in Poll

excerpt:

Were Italians to vote against the reform, the premier has repeatedly pledged to step down from office ahead of the next 2018 general election. This could trigger the risk of an early vote, delay reforms and offset political chaos at a delicate moment when the economic outlook is still gloomy, with the risk of jeopardising investor confidence and public debt sustainability.

A prolonged period of political instability could trigger a financial speculative attack on sovereign treasury bonds due to Italy’s elevated public debt exposure, raising the spread between Italian and German bonds, with the risk of fuelling a financial crisis similar to the one of 2011.

 

[Bestwifeever]

So how will your husband vote? (And this is not the chaos that I am worried about btw, but we are not to discuss that).

 

[aja8888]

Damn, I gotta start loading up on gold.

 

[rodi]

We're asking his cousins. I'm working on translating the email right now. (My Italian is better than hubbies - even though he's the citizen.) They're all educated professional types and will give us a good overview.

So the answer is "who knows"... yet. But I'm encouraging him not to blow off *this* vote.

 

[Midpack]

The issue isn't the changes - the issue is the chaos that could ensue during the interim government if Renzi resigns... could lead to a decision to pull out of the Eurozone... At least that's the speculation. This obviously would have huge impacts on worldwide markets.

Why would Quitaly have a huge impact compared to Brexit? Chaos/impact in Italy yes, but worldwide?

 

[Alan]

Why would Quitaly have a huge impact compared to Brexit? Chaos/impact in Italy yes, but worldwide?

Since Italy is the 3rd largest economy in the Eurozone then its exit would have a much larger impact than Grexit, and the Grexit possibility caused plenty of angst and turmoil in the markets.

 

[rodi]

Yep - what Alan said.

The sad part is this wasn't even on my radar till DH received his ballot and asked me to translate it.

 

[MooreBonds]

Why would Quitaly have a huge impact compared to Brexit? Chaos/impact in Italy yes, but worldwide?

It's the whole domino effect as a result of Italy having benefited from much lower debt costs as being part of the Euro than it would have to pay on its own. Given the higher debt and deficit load of Italy compared to other Euro nations, if it left the Euro, its debt servicing costs would jump up substantially because it is far less credit-worthy. (same deal with why Greece benefited all those years in the past of low interest rate debt before it hit the brick wall, and then the chickens came home to roost).

All of that Italian debt getting marked to market at much lower prices/higher yields could cause a substantial avalanche of selling Italian debt, either for the holders to reduce leverage, or discharging debt that isn't investment-grade anymore (if they get downgraded that far).

As that Italian debt plunges in value, it sets off more selling due to its low valuation. Suddenly, banks and other strategic financial institutions are in a bind with depressed balance sheets, and/or taking large write-offs from either selling the Italian debt or having lower portfolio asset values. Those large write-downs have a large impact on their equity:debt ratios. Some of them will have to immediately access credit markets, and then issue debt/equity at unfavorable rates, etc., etc.

The resulting uncertainty will spook investors around the globe, causing at least some (temporary?) drop in equity markets. Given how much Italian debt is out there, this could be a fairly large black swan...

 

[DrRoy]

Why would Quitaly have a huge impact compared to Brexit? Chaos/impact in Italy yes, but worldwide?

In addition to MooreBonds' comments, Brexit was about Britian leaving the EU. Quitaly is about a potential breakup of the Euro as a currency, which does have potentially larger and worldwide effects. It would be another huge dose of uncertainty, and you know how the markets love that.

 

[Senator]

In addition to MooreBonds' comments, Brexit was about Britian leaving the EU. Quitaly is about a potential breakup of the Euro as a currency, which does have potentially larger and worldwide effects. It would be another huge dose of uncertainty, and you know how the markets love that.

The last time there was that much uncertainty, I made a lot of money. Bring it on.

 

[Totoro]

I don't see the comparison with Brexit at all.

This is a referendum about constitutional reform, that's all. For Italy politcal tremors are par for the course (Berlusconi).

Speculating that failure to pass this may trigger something that may trigger a referendum about the eurozone that might pass and be legally binding is a very long stretch in my book. Fearmongering much ..

One might as well worry that the independence movement in Catalonia will trigger a collapse of Spain, snowball into other regions (Basque country, regions in Germany, France and Belgian) and cause an implosion in the EU. Also true, and with just about the same odds.

So, the European integration is not as complete as the one in the United States, and not a forgone conclusion. News at 11.

 

[Just_Steve]

Does this mean my imported Italian Olive Oil and Romano cheese are going to cost me more? If so than it's a travesty in the making.

 

[MichaelB]

The issue isn't the changes - the issue is the chaos that could ensue during the interim government if Renzi resigns... could lead to a decision to pull out of the Eurozone... At least that's the speculation. This obviously would have huge impacts on worldwide markets.

Chaos? When has Italy not been mired in chaos? It's been said that it's like their natural state.

I think this just shows, once again, the good Lord above has a wicked sense of humor.

 

[Bestwifeever]

Damn, I gotta start loading up on gold.

You get the gold, I'll get the tinfoil.

 

[REWahoo]

You get the gold, I'll get the tinfoil.

And I'll get the MREs ...or properly, the MsRE...

 

[Alan]

And I'll get the MREs ...or properly, the MsRE...

I love how you Texans are so correct with your English

 

[HawkeyeNFO]

If Quitaly occurs, the place will have even more tourists than it does now, because things will truly be a bargain.

 

[rodi]

I heard back from 2 cousins. Both are resounding "NO" votes. They explained that the brexit threat is marketing from Renzi and that the constitution is just fine the way it is and doesn't need changing to lessen the power of the people and put it in the hands of the politicians.

Both emails were very emphatic.

As I said earlier - these cousins are educated professionals... Intellectuals. It definitely sways my husband's initial thought to vote yes out of fear of Italy leaving the Eurozone.

As a bonus - I got compliments on my Italian!!! Yay!

 

[REWahoo]

I love how you Texans are so correct with your English

Yep.

 

[NW-Bound]

Does this mean my imported Italian Olive Oil and Romano cheese are going to cost me more? If so than it's a travesty in the making.

I think it would be less expensive if the Italians get paid in lire (singular: lira) again.

However, it will remain the same in the US dollars no matter what; much of imported olive oil is fake anyway, as often reported, and the counterfeiters like dollars.

 

[NW-Bound]

... I'm working on translating the email right now. (My Italian is better than hubbies - even though he's the citizen.)

... DH received his ballot and asked me to translate it.

Is your hubby an Italiano vero? Maybe he's a fake. Does he use hand gestures a lot when talking?

 

[FIREd]

Why would Quitaly have a huge impact compared to Brexit? Chaos/impact in Italy yes, but worldwide?

Because the UK always stayed on the fringe of the EU (it was one of the least integrated EU countries) while Italy has always been a core EU country. If one core country goes, I think that the EU is done for.

 

[Mdlerth]

I read the linked CNBC article and still have no idea what the Italian people will be voting on. The article did not say how the ballot question is analogous to either Brexit (withdrawal from the European Union) or Grexit (withdrawal from the shared euro currency but not the EU), although it might be. I can't tell. I think it involves some alteration to their method of choosing members of the legislature, but that sounds like a completely separate issue.

A recent thread here asked about paying attention to the news. Many respondents mentioned that the quality of reporting these days is so poor that there's no point in bothering with it. Reading this article suggests those respondents are right.

Perhaps rodi's Italian is better than my English, so she can figure out what the issue really is and explain it to me.

 

[rodi]

The vote is a constitutional change - as you mentioned, about how elected officials are selected.

The issue is that Mario Renzi (current PM) is backing this to the point he's said he'll quit if it doesn't pass. The banks (according to my husbands cousins) also really want this to pass.

Polls are showing that "no" will win... And Renzi will quit. This forces an early election - and the populism that was behind Brexit and our recent elections in the US are thought to, maybe, sweep some anti-EU folks into office. Once in... they might pull out of the EU or the Euro.

This would cause more friction between Germany (who holds much of Italy's debt) and Italy... and major stress in the euro bond market.

At least that's how I read it.

My husband's cousins say that Renzi is the only one pushing this brexit comparison and it's ridiculous.

 

[NW-Bound]

I am thinking about a next spring trip to France and Italy. It is interesting to see how Italian politics will work out, but it has no bearing on my trip, of course. However, I am in an Italian mood now.

So, in the vein of the travel spirit, I found another video of Toto Cutugno's 1983 hit, this time with an English translation of the lyrics. This tune is well liked world-wide, and lyrics have been written for it in many languages. English unfortunately is not among them.