As we roll towards the Italian referendum on the government’s proposed reforms there is an increasing possibility that Italy could join the UK in negotiating an exit from the European Union.
Since Donald Trump’s surprise victory in the US presidential elections polls suggested the no vote in the Italian referendum could win by a margin of three to six percentage points. The current Prime Minister has indicated he would resign and call a fresh general election, which could deliver a coalition that might lead Italy on a path to exiting the EU.
It would be seriously detrimental to the asset markets of an increased possibility of Italy exiting the EU, considering the UK and Italy are in the top four economic powerhouses of the EU. The EU’s standing and
bargaining power in the global economy would be considerably diminished. The cohesiveness of the Eurozone would be at risk, given that Italy would likely adopt an independent currency that would allow it to gain a competitive advantage through a marked depreciation of a ‘new lira’ against the euro. Long-term bond yields in the Eurozone
amongst periphery countries would likely push higher as investors would fear that other economies would follow.
Trump has proved to be a disruptor to global asset markets; BRITex could prove to be a destructive ‘Black Swan’.There is much to fear about 4 December and the Italian vote on reform. There would be much to fear about BRITex, not just for Europe but also for the global economy and markets.