Italian Banks May Face Collapse if Renzi Loses Referendum

The referendum proposes constitutional reforms to strengthen the lower house of parliament and reduce the authority of the upper house Senate.

– OPEC decision -Focus was also on the oil market ahead of a key OPEC output meeting Wednesday.

Renzi got parliamentary approval for the overhaul, but failed to secure the backing of two-thirds of lawmakers.

Opponents of the referendum ad the proposed changes claim Mr Renzi is crying wolf, but will they test that theory by rallying the “no” vote and then seeing what will happen?

“This referendum is not a referendum to change democracy in Italy”, he says. President Sergio Mattarella is impartial, but he would prefer that the reforms go forward.

“We think that is somewhat overstated”, he said.

Under centre-left premier Matteo Renzi, Italy has been the most upfront about its intention to defy the Commission with growth-orientated spending plans for next year.

Pier Carlo Padoan, the finance minister, attempted to play down those fears on Monday.

A Yes outcome would be a short-term triumph for Renzi, who is nearly alone against a No campaign that features not just all the opposition parties, but also some PD dissidents.

Renzi’s position would be considerably strengthened within the country and his own feuding party. European markets sold off overnight, helped also by confusion in oil markets with wild swings seen. Italy’s banks have accumulated an estimated 360 billion euros ($380 billion approx.) in bad loans.

The world’s oldest bank Monte dei Paschi di Siena, along with Popolare di Vicenza, Veneto Banca, Carige, Banca Etruria, CariChieti, Banca delle Marche, and CariFerrara, could all end up at risk if market turbulence prevails.

A banking meltdown is a strong possibility if there’s a no vote.

The yield spread between Italian 10-year securities and benchmark German bunds fell to 180 basis points, having widened to 192 basis points on Monday. Unfortunately, this is unhelpful and often exaggerates the extent to which the Italians themselves see this referendum as a way of extending global trends and whether they see it in a global context at all.

Clearly any banking crisis could trigger selling on the financial and stock markets, too.

Rick Rieder, BlackRock’s chief investment officer of global fixed income, said on Monday that he has been scaling up exposure to European banks and other financial stocks that have been beaten up by jittery markets. Two right-wing politics are against these constitutional amendments – a comedian-turned-politician and leader of Five Star Movement Beppe Grillo, as well as leader of nationalist (and, according to many observers, separatist) movement Lega Nord Matteo Salvini. They warned that “contagion” from smaller bank failures “could threaten a €13 billion capital increase at Unicredit, Italy’s largest bank by assets and its only globally significant financial institution, planned for early 2017”. “The extreme left and the extreme right together”, he clarified. The 5-Star has called for a referendum on membership of the single currency, although it does not question membership of the EU. However, its importance is now being hyped up by much of the media and many political commentators as the latest match-up between the “Establishment” and the “People”.