Nov. 25, 2016 (Commerzbank AG) – On December 4, Italy will technically ‘only’ be voting on reform of the Senate, which is merely a constitutional amendment.
However, the outcome of this referendum could result in serious difficulties for the euro zone in the medium term. If the proposed reform motion is rejected, there could be an early general election, resulting in a government led by the eurosceptic Five-Star movement.
Its spending policies would probably push up Italy’s sovereign debt even further, and there would then be a serious risk of a ‘buyers strike’ by investors; a sharp rise in yields on Italian government bonds and the euro zone sliding towards a second government debt crisis.
With the EUR nearing important long-term support at $1.0469, a negative outcome of the “Italian Roulette” game in early December could very well serve as a catalyst for further weakness of the single currency.