Italy hit by market volatility after referendum defeat

― Reuters picLONDON, Dec 5 ― European stocks and the euro rebounded sharply today as investors were reassured by the speed of Italian Prime Minister Matteo Renzi’s resignation after losing a crunch referendum.

As Italy was voting No, neighbouring Austria rejected the right-wing Freedom Party candidate Norbert Hofer, in re-run presidential elections.

Berlusconi himself was forced to resign in 2011 amid growing worldwide concern over Italy’s sovereign debt crisis and was replaced by economist Mario Monti, without elections.

The Economist expects a banking crisis to be averted but said, “The main risk stems from the banking sector, particularly the rescue of Monte dei Paschi di Siena (MPS), which could render capital increases at several smaller banks impracticable if it fails”.

The Iseq index edged 1.1 per cent higher to 6,241.62 in Dublin, though Bank of Ireland was off 0.9 per cent.

Renzi, who started with changes in Italy’s employment laws in hiring and firing workers, also cut payroll taxes by €35 billion ($37.1 billion) creating 580,000 new jobs.

The referendum had proposed that the senate – parliament’s upper house – consist of members nominated by regional assemblies rather than elected by the public. And while of course populists voted no, numerous other no voters did so against the substance of the reforms, arguing that they were anti-democratic and would have altered constitutional checks and balances.

French National Front leader Marine le Pen has declared that the Italian people had “disavowed the EU”. Angst about Italy makes an uncomfortable bedfellow and there’s plenty for them to worry about.

So far, only the United Kingdom has voted to leave the 28-country union, but waves of populism and nationalism – ideologies generally opposed to the EU – have spread across Europe.

Renzi’s resignation adds yet one more element of instability to the European Union mix. The self-styled reformer with his promise to stabilise politics and kick-start the Italian economy has managed quite the reverse.

“The “no” has won… the experience of my government ends here, ” Renzi said at an overnight press conference at his official residence. Italy is the third biggest economy in the European Union, but fears have been growing over the financial stability of the banks there.

And there are more unpredictable votes to come in 2017: in France, Germany, the Netherlands and perhaps here in Italy too.

The No vote’s victory was even bigger than the last opinion poll in November had predicted.

The populist Five Star Movement and the nativist Northern League, which led the opposition against the constitutional reforms, would win more seats.

He may yet be asked to stay on in office by the President until parliament passes a budget bill which is due later this month.

But some analysts predicted the political crisis sparked by Renzi’s exit would be short-lived, as politicians focus on lining up support for a new electoral law they view as boosting their parties’ chances for whenever elections are called. Renzi’s squabbling Democrats are the biggest party in the legislature, which could lead the president to tap someone from the Democratic Party fold. Italy’s finance minister Pier Carlo Padoan, a potential successor to Renzi, canceled his trip to Brussels for the meeting.

After a resounding loss at the polls for his constitutional reforms package on Sunday, Italy’s Prime Minister Matteo Renzi has announced his intention to resign.

The anti-establishment Five Star Movement of comedian Beppe Grillo was joined by the far-right Northern League, the socialist Italian Left and the nationalist Brothers of Italy. “Starting tomorrow we’ll be working on a government of the 5-Stars, we’ll involve the energies and the free persons who want to participate”. Renzi, as the Democratic Party leader, used party maneuvering to push Letta out of office and take the premiership for himself in February 2014.