Euro steadies after bouncing from 21-month low, focus stays on Italy

The immediate economic and political focus is on who might replace Renzi who has been prime minister for nearly three years. They are hopeful that the bank will step in if there is any kind of panic selloff for the Italian bonds.

Irrespective of whether the elections will take place immediately or next year, the future Italian government is likely to have strong opponents to the euro. But many dismissed the package as simply an irrelevant distraction from existing economic problems.

Italy is a major trading partner for Germany, Europe’s biggest economy. The major amendment proposed would have demoted the senate, leaving to the House of Deputies only the power to bring down the cabinet.

“This referendum would have helped speed this process up”. While the situation could change, most agreed that Mattarella would most likely be able to install a new prime minister and caretaker government, which would oversee changes to the electoral laws that would make it more hard for the M5S or Northern League to win a strong majority in parliament.

Renzi wanted to reduce the power of the Senato, the upper chamber of the Italian Parliament, by slashing its numbers from 315 to 100 – making it more of a consultative assembly.

However, the referendum was widely considered a litmus test for the rising wave of populism spreading in Europe, and the chance to register discontent with the current government.

Renzi and his supporters marketed it as streamlining government to make it faster and more responsive to new situations as they present themselves.

Populists across Europe rejoiced at his downfall, with the founder of Italy’s own anti-establishment Five Star movement Beppe Grillo calling for an election “within a week”.

That could see the likes of finance minister Pier Carlo Padoan take over as prime minister or even Pietro Grasso, the Senate leader. The 5 Start Movement’s anti-establishment agenda regards Renzi’s referendum as not radical enough. Mattarella will then be charged with brokering the appointment of a new government or, if he is unable to do that, ordering early elections. Wilders called that outcome “a vote of no confidence by the people against the elite from Brussels”.

“Renzi is strongly disliked”, said Antonio Noto, head of IPR Marketing polling institute, adding that votes against the PM were “votes against the establishment, but also against his style”.

A larger concern for Italy regarding a “No” vote is the financial market’s reaction.

The result is being seen as a blow to the European Union, although there is no question of Italy following the United Kingdom out of the door.

Opinion polls put 5-Star, which wants to hold a referendum on membership of the euro, neck-and-neck with the PD.

US stocks rose, led by financials as the S&P’s banking subsector .SPXBK erased Friday’s losses with a 1.7-percent jump.

Italians living overseas also backed the plans, but the no victory was overwhelming, with areas of southern Italy, such as the Sicilian port city of Catania, voting more than 70 per cent against change. Yes, the outcome of this referendum was very much in line with expectations, but investors are certainly concerned about the future of the third biggest economy in the Eurozone.

Analysts took this to mean the president had asked Mr Renzi to delay his resignation, not only to oversee the approval of the budget but also to limit any sense of a power vacuum which could inspire market volatility.

Analysts said political developments in Italy would remain a focal point for the euro, although it may have gained some respite for now. This increase in yields will cause bond and note prices to fall. A consortium organising a possible bailout for one leading bank, Banca Monte dei Paschi di Siena, is meeting on Monday to consider whether to pursue the rescue bid.

Italy’s banks are weighed down by more than 350 billion euros of bad loans. With a “No” vote, potential investors will become jittery and avoid the offering.

Financial markets are assessing the economic ramifications of the vote too. “The real risk is not in the short term, it is more about the medium term”.

Wolfgang Schaeuble said as he arrived for a meeting with his eurozone counterparts in Brussels that Italy needs a government that’s capable of acting and he hopes it will continue pursuing reforms despite the referendum result.