Eurozone Struggling to Overcome Anti-establishment Forces
Italian Prime Minister Matteo Renzi, 41 anni, resigned after suffering a crushing defeat Sunday in a referendum on constitutional reform, tipping the Eurozone’s 3rd-largest economy into political uncertainty.
PM Renzi’s decision to quit after just 2.5 years in office deals a blow to the EU, already reeling from multiple crises and struggling to overcome anti-establishment forces that have battered the bloc this year.
EUR fell to 20-month lows Vs USD, with markets worried that instability in the Eurozone’s 3rd largest economy could reignite a smoldering financial crisis and deal a hard blow to Italy’s fragile banking sector.
Mr. Renzi’s resignation could open the door to early elections next year and to the possibility of an anti-Euro party, the opposition Five-Star Movement, gaining power in the heart of the single currency bloc. Five-Star campaigned hard for the ‘No’ vote.
Early projections said Mr. Renzi managed to win little more than 40% of the vote Sunday following months of campaigning that pitted him against all major opposition parties, including the anti-system Five-Star Movement.
Italy’s parties now have to work together on the new electoral law, with Five-Star urging a swift deal to open the way for elections in early Y 2017, a year ahead of schedule.
Five-Star, has called for a referendum on Italy’s membership of the single currency bloc.
Mr. Renzi took office in Y 2014 promising to shake up Italy presenting himself as an anti-establishment “Demolition Man” determined to crash through the bureaucracy and redraw the nation’s creaking institutions.
Sunday’s referendum, designed to hasten the legislative process by reducing the powers of the upper house Senate and regional authorities, was to have been his crowning achievement.
But, his reforms made little impact, and the Five-Star Movement claimed the anti-establishment banner, tapping into a populist mood that saw Britons vote to leave the EU and Americans elect Donald Trump it President.
The biggest immediate loser from the ‘No’ triumph in Italy could be Italy’s 3rd-largest bank, Monte dei Paschi di Siena, which is bowed by bad loans and is looking to raise EUR 5-B ($5.3-B) this month to stave off collapse. State intervention may be needed to save it.
Also, several other Italian lenders need a cash injection to stay afloat, raising fears of a domino effect in the banking sector.
The risk to stability is enough to have the ECB President preparing to step in if needed.