Italeave unlikely to happen, even if NO wins

After the surprising results seen recently on the world stage in the Brexit referendum and the election of Donald Trump as the president of the United Stated of America, the future of the European Union is being threatened by the rise in popularity of eurosceptic parties.

As Italians are called to vote on a constitutional referendum next Sunday, many fear that a “NO” outcome may result into an added threat for the future of the Euro.

If the government fails to get rid of the so-called “perfect bicameralism” (which, according to the Italian Prime Ministers opinion, has thus far prevented Italy from implementing much needed reforms), The Five Stare Movement (M5S), an anti-austerity, eurosceptic party, would definitely capitalise on it recent political successes and could possibly become the majority party in the next Italian elections.  M5S has called for a referendum on Italys membership of the single currency.

Although markets are nervous that Mr Renzi will lose the referendum, it is highly unlikely that it will impact the countrys economy as expected in the short term. Italy is rather accustomed to political instability and even in the event of Renzis resignation, the other political parties would resort to a technical (caretaker) government before the next general election.

Italian banks are however in urgent need for recapitalisation. The referendum could hinder the process which would pose a serious threat for the integrity of the euro-zone. Many of the loans issued by Italian banks are now non-performing loans (NPLs), which have tripled since the beginning of the crisis. According to IMF Italy is not expected to return to pre-crisis levels before 2025 in terms of economic growth.

It should be pointed out, however, that popular votes in Italy cannot have an impact on international treaties. The referendum the M5S announced could therefore be unconstitutional.

If you wish to know more about how the upcoming Italian constitutional referendum could affect businesses, contact us at clientservices@giambronelaw.com