Tags: Matteo Renzi | Italy | investing | markets

Italy's Renzi to Step Down, but Investors Are Used to Turmoil

Italy's Renzi to Step Down, but Investors Are Used to Turmoil


Monday, 05 December 2016 09:05 AM Current | Bio | Archive

The Italians have voted with an overwhelming 59.9 percent no to Prime Minister Renzi’s constitutional reform proposals and have done it in a 68.48 percent vote turnout, which makes it indisputable.

Mr. Renzi will present his resignation today to the Italian President.

Now, and with what we know thus far, I think it is unlikely that elections will be held any time soon and that we probably would have to look out for a technocrat government to be formed. The uncertainty about the government creates uncertainty about the political system as Italy’s banks had looked to Rome to provide political support. But this was something that markets had factored in, notwithstanding this situation has all the characteristics of a sleeping volcano that continuous to rumble.

Nevertheless, we should try to keep in mind that Europe has learned getting used to Italian government crisis and the chances that this latest event descents into turmoil are rather slim.

By the way, Italy has changed 41 times of Prime Minister since 1946.

More importantly perhaps is the question whether this Italian referendum result is a signal of the unwood march of populism that already some see as a continuation of the populist movement that goes along the same corridor/line where they have collocated the UK referendum, the election of Donald Trump and they now see the politics in the Euro area are following that same line.

This answer to this is almost certainly an emphatic NO because the politics of Italian constitutional reform go beyond the populist rhetoric of public campaigns. The size of the vote (68.48 percent) against the measure suggest that the vote was more deeply considered than a straight forward anti-establishment populist cry. There were certainly non-populist arguments against the measure and established opposition parties were united against the proposals as well.

It is also worth noting that the Austrians, faced with a choice of 2 anti-establishments presidential candidates over the weekend chose the green party candidate Mr. Van der Bellen for their President by a 53 percent margin.

Meanwhile between the United States and mainland China there has a diplomatic dispute being created over Taiwan about a telephone call that the President elect Mr. Trump has received from the Taiwanese president.

It is not clear whether Trump’s move was made in full consciousness of the implications to Chinese relations or whether it was made in unawareness of the implications for Chinese relations.

Now, Trump’s reaction to China’s complaint has been swift and he has used his twitter account @realDonaldTrump that reflects his anti-China trade and economic rhetoric he used during his campaign.

His tweets read, “their country (the U.S. doesn't tax them) or to build a massive military complex in the middle of the South China Sea? I don't think so! … Did China ask us if it was OK to devalue their currency (making it hard for our companies to compete), heavily tax our products going into..”.

Whatever being said about it, it certainly keeps alive the concerns about protectionism on the part of the United States, coupled with various tweets threatening taxes and tariffs on U.S. companies that dare to do business outside the United States.

Trump’s tweets read, “The U.S. is going to substantially reduce taxes and regulations on businesses, but any business that leaves our country for another country… without retribution or consequence, is WRONG! There will be a tax on our soon to be strong border of 35% for these companies ... Please be forewarned prior to making a very expensive mistake.”

An escalation of trade tensions consciously or because of unawareness of what it all implies has wide spread economic complications, that’s an undeniable fact.

Investors could do well keeping an eye on this situation as this goes beyond the obvious consequences of tariffs and into the realm of possible retaliation given that mainland China is a significant holder of U.S. Treasury’s and dollars.

As informed by the U.S. Treasury, China held as of September, this year, $1.15 trillion of U.S. Treasurys.

No, it’s not the Italian no-vote that was main event of the weekend, but, at least in my opinion, it may well be the collective tweets of Trump that was the more important event.

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The Italians have voted with an overwhelming 59.9 percent no to Prime Minister Renzi's constitutional reform proposals and have done it in a 68.48 percent vote turnout, which makes it indisputable.
Matteo Renzi, Italy, investing, markets
Monday, 05 December 2016 09:05 AM
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