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If the Italian referendum were held tomorrow, most voters would turn down constitutional reforms, likely signaling the death knell for Prime Minister Matteo Renzi, who has staked his political career on a ‘Yes’ outcome in the December 4 plebiscite.

Four surveys published last week showed a commanding lead for the ‘No’ camp, a trend that has been intensifying for several weeks. Forty-two polls since October 21 have been unanimous in showing that a ‘No’ vote will prevail next month.[1] As of Saturday, it is illegal to publish public opinion polls ahead of the December 4 referendum.

Eumetra-Monterosa gave ‘No’ a 12-point lead in its final poll. Another public opinion poll conducted by Ipsos-RA gave a ten-point edge to the anti-reform group. Meanwhile, Euromedia gives the ‘No’ side a solid eight-point lead.[2]

About 62% of Italians say they will vote next month, compared to 27% who won’t vote. Eleven percent of potential voters are undecided.[3]

The election of Donald Trump to US president appears to have hammered Italian Prime Minister Matteo Renzi’s effort to amend the constitution. Renzi was an ardent supporter of Democratic candidate Hillary Clinton, with whom he is now associated. Renzi, who made his name fighting the establishment, is now closely linked to the failed establishment candidate who couldn’t edge out Donald Trump’s populist appeal.

The Italian leader’s backing of an establishment candidate abroad couldn’t come at a worse time. The Brexit referendum and Trump’s election clearly indicate the future is turning toward populism. This too could end Renzi’s political career in a matter of weeks.

Renzi has promised to step down should he fail to secure a mandate to reform Italy’s constitution and make the country more governable. This is expected to open the door to Italy’s Five Star Movement, the main opposition party that is promising to bring the question of Eurozone membership to the people. The populist movement has surged in the polls since the summer, overtaking Renzi’s Democrats in commanding fashion.[4] From there, the prospect of “Quitaly” emerges – one that could threaten what’s left of Eurozone stability.

Many argue that the Italian leader’s efforts were doomed from the beginning, given Italy’s dismal economic outlook. The country is currently mired in a growing financial crisis that could reverse the modest gains it has made since the Great Recession. Italian banks are struggling with €360 billion worth of bad debt, which accounts for one-fifth of the country’s total obligations.[5] Renato Mannheimer, who heads Eumetra-Monterosa, said the referendum has much more to do with economic disenchantment with Renzi than it does constitutional reform itself.[6]

The Italian economy returned to growth in the third quarter after stagnating in April-June, which ended five straight quarters of expansion. However, unemployment is among the highest in the euro area. The Italian government proposed a new budget aimed at stimulating employment, but that too was shot down by Brussels for violating the European Union’s Growth and Stability Pact (SGP). Rome shot back by threatening to veto the EU’s budget. Italy’s EU minister Sander Gozo criticized the EU for its “ambiguities and contradictions.”

“We are very tired of a Europe that says things and does not do them,” Gozi said. “We are convinced that if Europe does not change this will mark the beginning of European disintegration”[7]

The global financial markets may have overlooked the importance of the upcoming referendum. A ‘No’ vote, which appears more and more likely, could sow the seeds for Italy’s Eurozone exit. This will not only impact the single market, but the global financial system in its entirety. The year 2016 has already witnessed two major paradigm shifts. A ‘No’ vote next month could be the third domino to fall.

 

[1] Gavin Jones (November 18, 2016). “Trump effect hammers Renzi’s referendum hopes, Italian pollsters say.” Reuters.

[2] Nick Hallett (November 19, 2016). “Next EU Crisis: Final Polls Show Italian PM Heading For Referendum Defeat.” Breitbart.

[3] Chiara Albanese and Giovanni Salzano (November 18, 2016). “Final Polls Show Renzi’s Referendum Heading for Defeat in Italy.” Bloomberg.

[4] Josh Lowe (July 7, 2016). “Populist Five Star Movement Surges in Italian Polls.” Newsweek.

[5] Sam Bourgi (October 16, 2016). “PM Renzi’s Referendum to Reform Italy an Uphill Battle as Financial Crisis looms.” Economic Calendar.

[6] Nick Hallett (November 19, 2016). “Next EU Crisis: Final Polls Show Italian PM Heading For Referendum Defeat.” Breitbart.

[7] Sam Bourgi (November 20, 2016). “Italy at Risk of Breaking EU Budget Rules as Referendum Looms.” Economic Calendar.

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