Author Topic: Forget Brexit — Italy is poised to tear Europe apart  (Read 227 times)

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Offline SirLinksALot

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Forget Brexit — Italy is poised to tear Europe apart
« on: July 05, 2016, 03:25:23 pm »
SOURCE: BUSINESS INSIDER

URL: http://www.businessinsider.com/italys-political-and-economic-crisis-threatens-europes-stability-2016-7

by: Will Martin



Italy is on the cusp of tearing Europe apart but the economic and political crisis brewing in the nation is largely going unnoticed.

All eyes have turned to Britain's vote to leave the European Union as having the most drastic political and economic impact onto the 28-nation state but if you look at the country's economic data, bank issues, and the impending constitutional referendum coming up, Italy is like a bomb waiting to explode.

The Italian financial system, which to put it gently, is in a major state of flux right now. While Britain's EU referendum in June was seismic in terms of having economic and political repercussions across the bloc, there is another referendum of equal importance, coming up in Italy in October, and the result could fundamentally alter the state of the already delicate Italian economy.

Italians will have a say on reforms to its Senate, the upper house of parliament, in October. The proposed reforms are widespread, and if approved could improve the stability of Italy’s political set up and allow Prime Minister Matteo Renzi to push through laws aimed at improving the country’s economic competitiveness.

If denied, Renzi’s government will most likely fall, plunging Italy back into the type of political chaos last seen after the ousting of former Prime Minister Silvio Berlusconi, according to Deutsche Bank. That, Citi says, makes the referendum "probably the single biggest risk on the European political landscape this year among non-UK issues."

“If the referendum is rejected, we would expect the fall of Renzi’s government. Forming a stable government majority either before or after a new election could become extremely challenging even by Italian standards,” Deutsche Bank analysts led by Marco Stringa said in a note to clients in May. Fears that the reforms will be rejected have intensified since the eurosceptic vote won in Britain.

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Offline SirLinksALot

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Re: Forget Brexit — Italy is poised to tear Europe apart
« Reply #1 on: July 05, 2016, 03:27:03 pm »


A political mess can quickly turn into a cornucopia of financial and economic disarray. According to estimates from business lobby Confindustria, if Renzi's reforms do not pass, it would push Italy into recession, lead to massive capital flight, and widen spreads on Italian debt.

Italy simply cannot afford any of those things at the moment.

Not only is the country in a state of economic and political turmoil — it has crushingly low productivity, a history of missing growth targets, and has generally underperformed the rest of Europe in recent years — but the country's banking system is also in the midst of serious, serious problems.

"One theme which could dictate near term direction for markets and which arguably Brexit has reignited and brought back to the forefront is the ailing and fragile state of the Italian banking sector," Deutsche Bank's Jim Reid noted in his daily Early Morning Reid on Tuesday.

The country's financial sector is plagued by an enormous surfeit of bad loans so great that the government was, in April, forced into rallying bank executives, insurers and investors to put €5 billion (£4.2 billion, $5.57 billion) behind a rescue fund for its weakest banks. The Atalante fund is designed to buy so-called bad loans from lenders and invest in their shares in the hope that the re-energized banks will lend more to businesses and spur growth.