Message From Italy’s Failed Referendum: More European Uncertainty Ahead

Italian prime minister Matteo Renzi will step down after voters defeated his plans to overhaul the Italian constitution.

“Inside this vote, there is a vote of frustration, discontent – punishment”, Orsina said of the unexpectedly large margin of defeat – 60 percent – from a robust turnout of almost 70 percent of the electorate.

The margin of the rejection- close to 20 percentage points – was much wider than expected.

Peter Cardillo, chief market economist at First Standard Financial in NY, said that the euro’s strength will likely not be sustainable as speculators look to profit from political instability in Italy as it decides on its next prime minister.

Fresh parliamentary elections are due in Italy in 2018 but the populist anti-establishment Five Star movement and the anti-immigrant Northern League are calling for fresh elections immediately.

Renzi has called a Cabinet meeting for 1730 GMT, after which he said he would tender his resignation.

What comes next will depend partially on Italian President Sergio Mattarella, who is charged with picking a new person to try form a government and whether to hold early elections.

But that course is already facing opposition. It also seemed to rob the momentum from far-right leaders in France and the Netherlands who have called Trump’s victory part of a new “world order” they were hoping to join in elections next year.

And an influential German business group, the Federation of German Industries, said it is anxious about the potential risks to the economy and Europe’s currency union posed by the outcome of Italy’s referendum.

European partners sought to downplay the risk for the common euro currency and European unity.

That could see “a prolonged muddle-through period, the emergence of an ineffective patched-up coalition government in the post-election phase and continuously poor economic performance”, Mr. Piccoli said in an emailed comment. Steinmeier said that Germany was watching the developments “with concern”.

The EU finance commissioner, Pierre Moscovici, told reporters in Brussels that “I’m very confident in the capacity of the eurozone to resist all kind of shocks”. This could also cause Euro Stoxx 50 Volatility Index (VSTOXX) to go higher than its average. Italy’s stock market closed down just 0.2 percent, rebounding from a drop of as much as 2.1 percent.

According to Mr Terrinoni, more accountability and a faster decision-making process are required, and Mr Renzi’s constitutional reform would have brought about change in that direction. The ECB buys 80 billion euros ($86 billion) in bonds every month in the eurozone.

That, in turn, could complicate the calculus for the European Central Bank, which meets on Thursday to decide on the future of its controversial bond purchase programme.

Mr Carney said governments have relied on monetary policy like lower interest rates to deal with the fallout from the GFC but he said it was time for a “balanced mix of monetary, fiscal and structural policies” to boost growth. The country has public debt worth 130 percent of GDP, a huge sum.

Benchmark 10-year Treasury note yield was down 0.5 basis point at 2.385 percent, while the 30-year bond yield US30YT=RR was 1 basis point lower at 3.051 percent.

“Italy is a great country with a lot of positive energy”.

“No” could also make it very hard for Banca Monte dei Paschi di Siena SpA (MPS), Italy’s third largest bank by assets and one of the most troubled in Europe.

“I will greet my successor with a smile and a hug, whoever it might be”, he said, struggling to contain his emotions when he thanked his wife and children for their support. In fact, the move for the FTSE MIB is clearly showing that we are far off from earlier lows as investors have started to shake off negative sentiment.