Italy and Austria elections keeping Europe on edge

December 1st, 2016 – If the Dec. 4 referendum in Italy is rejected, it has the potential to send the country’s bank shares tumbling, push bond yields up and further weakening the Euro. The referendum is “setting the tone for 2017” on the political and investment climate in Italy and across Europe.

The day’s Eurozone data has not facilitated a Euro rise against the Pound today, mainly due to both high-impact data sets missing forecasts. Despite earlier optimism, the November business confidence and industrial sentiment stats, among other figures, fell on the month. More positively, the economic sentiment figure rose in line with expectations. The greatest limiter on Euro gains at present has been the approaching Italian and Austrian votes, which could shatter Euro demand on December 4th depending on the outcomes.

Austria’s election is arguably the more worrying event. No European democracy has elected a far-right head of state since the second world war. The symbolism of such a breakthrough in Austria, annexed to Nazi Germany from 1938 to 1945, would be immense. A number of ‘Trump-style’ moments are set for Europe this year. Starting with the Austrian presidential re-run and Italian constitutional referendum on December 4, 12 elections follow in a year.

Romanian general elections will be run on December 11. The Netherlands votes in March, French Presidential elections will be held in late April-beginning of May. Germany in September, Czech Republic in October. Plus local elections in Germany and several presidential elections.

There are three mid-sized Italian banks, Popolare di Vicenza, Veneto Banca and Carige, which are in varying levels of distress, but additionally pose direct threats to the Italian financial system. If these were to collapse, the Eurozone is wide-open to failure. However, the precursor to bank failures In Italy is this upcoming constitutional referendum. The basis of this reform would lessen the number of Senate seats from 321 down to just 100 politicians. (Which, to be truthful, is still exactly 100 too many).

If the Dec 4th referendum in Italy is rejected, it has the potential to send the country’s bank shares tumbling, push bond yields up and further weakening the Euro. The referendum is “setting the tone for 2017” on the political and investment climate in Italy and across Europe.

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