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Italy votes no: Referendum vote leads to Renzi resignation and the Eurozone on edge regarding the future of the coalition

Italy votes no: Referendum vote leads to Renzi resignation and the Eurozone on edge regarding the future of the coalition

Just as June 23 went down in history as a red letter day for 2017, so too is Dec. 4 a pivot point for both Italy and the European Union.  This is because the people of the Southern European nation chose to vote against a constitutional restructuring of their government, and it now starts in motion several new events that could lead to a banking collapse, a discarding of the Euro currency, and the beginning of the end for the EU itself.

Italian Premier Matteo Renzi staked his political reputation on a referendum that would constitutionally change their government, and break the deadlock within a bureaucracy that for decades had stonewalled necessary change to help the nation move out of an economic malaise.  But the people chose to reject Renzi’s gambit for power, and as a result the Italian leader is keeping with his campaign promise to step down from office.

How did we get here? Here’s a quick timeline from Bloomberg’s Marco Bertacche

  • April 15, 2014: The Senate approves first version of reform, backed by Renzi allies and Berlusconi’s party

  • Jan. 31, 2015: Renzi’s candidate is elected president of the republic, prompting Berlusconi to withdraw support for reforms

  • April 12, 2016: Lower house completes approval, lacking two-thirds majority needed to avoid referendum

  • Aug. 4, 2016: Highest court accepts referendum request with more than 500,000 signatures from Yes campaign

  • Sept. 26, 2016: Renzi’s cabinet calls for Dec. 4 referendum. Decision is binding

  • As we detailed earlier, Italians voted Sunday in a referendum on constitutional reforms that Premier Matteo Renzi has staked his political future on, hoping to survive the rising populist forces that have gained traction across Europe.

  • Renzi has said he will resign if the reforms, which he contends will modernize Italy and reduce its legendary bureaucracy, are rejected. Opposition politicians, ranging from the far-right to the far-left have vowed to press for a new government if voters reject Parliamentary legislation overhauling much of the post-war Constitution. – Zerohedge

italian-referendum

Yet Renzi’s resignation is only the first step in what is sure to be a chaotic outcome for both Italy and the European Union.  In a few days a new government will be elected that right now has the right-wing populist party led by Beppe Grillo out in front, and the coalition they may soon create appears likely to be both anti-Euro and anti-EU.  And if they choose to follow in Britain’s footsteps by voting to leave the Union, it will most likely lead also to the death knell to the Euro currency and the start of a stampede for other countries to get out of the EU.

But perhaps the most important focus from today’s referendum is the coming fate of Italian banks, which for the most part are insolvent and desperately need either a bailout or a bail-in.  And if neither can be accomplished in the near future, it will likely start a domino effect for other banks such as Deutsche and Commerzbank to experience their own crisis event due to the derivatives meltdown that will take place.

Unlike both Brexit and Donald Trump’s victory in America, most investors believed that the Italian vote would result in a no, and accordingly sold out of markets back on Friday.  And it is unlikely that bonds, equities, and even the euro currency will bounce back like they did in June and November since this referendum was only the start to a series of unfortunate events getting ready to explode upon the European continent.

Kenneth Schortgen Jr is a writer for The Daily Economist, Secretsofthefed.comRoguemoney.net, and Viral Liberty, and hosts the popular youtube podcast on Mondays, Wednesdays and Fridays. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.


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