12-01-2016, 10:42 PM
*** 2-Dec-16 World View -- Sunday's referendum in Italy threatens EU's stability
This morning's key headlines from GenerationalDynamics.com
****
**** Sunday's referendum in Italy threatens EU's stability
****
A demonstrator calls for a 'no' vote on Sunday (AFP)
On Sunday, Italy will vote on a referendum which, according to prime
minister Matteo Renzi, will change the constitution to make Italy more
governable, and more able to cope with the future.
The referendum is important in its own right, but it became
geopolitically significant in January when Renzi announced that he
would resign if the referendum failed. Many analysts call this an act
of hubris that was unnecessary and even disastrous, but it's been
done. And now the consequences are that the referendum is less about
constitutional reform, and more about whether Renzi should remain in
office.
After the spectacular failure of polling organizations to predict the
result of Britain's Brexit referendum or the American presidential
election, no one knows whether or not to believe polls anymore.
Nonetheless, many politicians are nervous, because the poll results
show that the referendum is more likely to fail than to succeed.
If the referendum fails, and if Renzi keeps his promise and resigns,
and if the remaining MPs in parliament cannot find a way to select a
"caretaker" government that will keep things going -- if all of those
things occur, then there will be new elections.
It's thought that the party most likely to benefit from new elections
will be the left-wing populist Five Star Movement (M5S), led by Beppe
Grillo, an Italian comedian, actor, and political activist. M5S
received about one-quarter of the vote in the 2013 elections, has won
some major mayoral elections since then, and has become increasingly
popular. And Grillo and the Five Star politicians are "euroskeptic"
and have said that they'll sponsor a new referendum on whether Italy
should pull out of the eurozone, and possibly the European Union.
So, if there are new elections, and if the Five Star Movement and its
euroskeptic allies come into power, and if they sponsor a new
referendum, and if that new referendum is approved -- if all of those
things occur, then the stability of the eurozone and the European
Union will be at risk.
That's a lot of "if's" that have to happen. Nonetheless, Europe's
politicians have been unnerved by a series of populist setbacks, the
main ones being the Brexit referendum and the American election, and
they're afraid that Sunday's referendum vote in Italy will be the next
one. Spiegel (Germany) and Express (London) and The Local (Italy)
Related Articles
****
**** Referendum vote could affect stability of Italy's troubled banks
****
There's a completely different scenario where a "no" vote on
Sunday's referendum could threaten instability of the euro.
As we've been reporting, Italy's Banco Monte dei Paschi di Siena
(MPS), founded in 1472, and the world's oldest operating bank, is
close to collapse because it has $55.2 billion of bad loans on its
book. Other Italian banks are in trouble as well, holding a total of
about $383 billion in non-performing loans, about a third of the total
in the entire eurozone.
MPS has been trying to avoid collapse by trying to convince investors
to lend the bank another $5 billion, despite having burned through two
previous large loans.
It's believed that a "no" vote on Sunday's referendum will create
enough uncertainty that Italy's borrowing costs might rise
significantly. In fact, anticipation of a "no" vote has caused
investors to sell off Italian bonds, pushing yields (interest rates)
up to 2%, compared to just 0.3% for German bunds.
If borrowing costs increase further, then investors could be far less
interested in lending MPS the $5 billion it needs to avoid collapse,
and this could have a domino effect that could catastrophically affect
Italy's entire banking system. In the most likely scenario, Italy's
government would have to bail out the banks with taxpayer money, but
this is a violation of new rules set by the European Central Bank,
forcing Italy out of the eurozone.
Not everyone is so pessimistic. In the optimistic scenario, it will
turn out that poll results were erroneous because voters were ashamed
to admit that they're voting "yes" on the referendum, just as they
were ashamed to admit that they were voting for Brexit or Trump. The
optimistic scenario also notes that the Wall Street stocks surged to
new highs following Trumps' election. So in this scenario, Renzi
remains in office, Italian stocks surge, MPS gets it bailout money
from investors, and Italy muddles through for another year. CNN and Market Watch and Stratfor
Related Articles
KEYS: Generational Dynamics, Italy, Matteo Renzi, Brexit,
Five Star Movement, M5S, Beppe Grillo,
Banco Monte dei Paschi di Siena, MPS
Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal
John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe
This morning's key headlines from GenerationalDynamics.com
- Sunday's referendum in Italy threatens EU's stability
- Referendum vote could affect stability of Italy's troubled banks
****
**** Sunday's referendum in Italy threatens EU's stability
****
A demonstrator calls for a 'no' vote on Sunday (AFP)
On Sunday, Italy will vote on a referendum which, according to prime
minister Matteo Renzi, will change the constitution to make Italy more
governable, and more able to cope with the future.
The referendum is important in its own right, but it became
geopolitically significant in January when Renzi announced that he
would resign if the referendum failed. Many analysts call this an act
of hubris that was unnecessary and even disastrous, but it's been
done. And now the consequences are that the referendum is less about
constitutional reform, and more about whether Renzi should remain in
office.
After the spectacular failure of polling organizations to predict the
result of Britain's Brexit referendum or the American presidential
election, no one knows whether or not to believe polls anymore.
Nonetheless, many politicians are nervous, because the poll results
show that the referendum is more likely to fail than to succeed.
If the referendum fails, and if Renzi keeps his promise and resigns,
and if the remaining MPs in parliament cannot find a way to select a
"caretaker" government that will keep things going -- if all of those
things occur, then there will be new elections.
It's thought that the party most likely to benefit from new elections
will be the left-wing populist Five Star Movement (M5S), led by Beppe
Grillo, an Italian comedian, actor, and political activist. M5S
received about one-quarter of the vote in the 2013 elections, has won
some major mayoral elections since then, and has become increasingly
popular. And Grillo and the Five Star politicians are "euroskeptic"
and have said that they'll sponsor a new referendum on whether Italy
should pull out of the eurozone, and possibly the European Union.
So, if there are new elections, and if the Five Star Movement and its
euroskeptic allies come into power, and if they sponsor a new
referendum, and if that new referendum is approved -- if all of those
things occur, then the stability of the eurozone and the European
Union will be at risk.
That's a lot of "if's" that have to happen. Nonetheless, Europe's
politicians have been unnerved by a series of populist setbacks, the
main ones being the Brexit referendum and the American election, and
they're afraid that Sunday's referendum vote in Italy will be the next
one. Spiegel (Germany) and Express (London) and The Local (Italy)
Related Articles
****
**** Referendum vote could affect stability of Italy's troubled banks
****
There's a completely different scenario where a "no" vote on
Sunday's referendum could threaten instability of the euro.
As we've been reporting, Italy's Banco Monte dei Paschi di Siena
(MPS), founded in 1472, and the world's oldest operating bank, is
close to collapse because it has $55.2 billion of bad loans on its
book. Other Italian banks are in trouble as well, holding a total of
about $383 billion in non-performing loans, about a third of the total
in the entire eurozone.
MPS has been trying to avoid collapse by trying to convince investors
to lend the bank another $5 billion, despite having burned through two
previous large loans.
It's believed that a "no" vote on Sunday's referendum will create
enough uncertainty that Italy's borrowing costs might rise
significantly. In fact, anticipation of a "no" vote has caused
investors to sell off Italian bonds, pushing yields (interest rates)
up to 2%, compared to just 0.3% for German bunds.
If borrowing costs increase further, then investors could be far less
interested in lending MPS the $5 billion it needs to avoid collapse,
and this could have a domino effect that could catastrophically affect
Italy's entire banking system. In the most likely scenario, Italy's
government would have to bail out the banks with taxpayer money, but
this is a violation of new rules set by the European Central Bank,
forcing Italy out of the eurozone.
Not everyone is so pessimistic. In the optimistic scenario, it will
turn out that poll results were erroneous because voters were ashamed
to admit that they're voting "yes" on the referendum, just as they
were ashamed to admit that they were voting for Brexit or Trump. The
optimistic scenario also notes that the Wall Street stocks surged to
new highs following Trumps' election. So in this scenario, Renzi
remains in office, Italian stocks surge, MPS gets it bailout money
from investors, and Italy muddles through for another year. CNN and Market Watch and Stratfor
Related Articles
- Italy's Monte dei Paschi di Siena, the world's oldest bank, appears close to collapse (04-Nov-2016)
- Italy bank crisis more dangerous to EU than Brexit (05-Jul-2016)
- Fearing more Brexit-like votes, EU abandons fiscal rules for Spain, Portugal, Italy (30-Jul-2016)
KEYS: Generational Dynamics, Italy, Matteo Renzi, Brexit,
Five Star Movement, M5S, Beppe Grillo,
Banco Monte dei Paschi di Siena, MPS
Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal
John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe