Europe holds its breath as Italy heads to the polls for critical referendum
Next up in the nationalism v. globalism debate: Italy.
But regional analysts warned that in the current febrile political climate caused by Brexit and the election of Donald Trump in America, a defeat for Mr Renzi will not be viewed as an Italy-only problem, but a further indication that Europe is at risk of being engulfed in a populist downward spiral.
“If Renzi's referendum fails, it will be seen as another symbolic victory for the populists that portends greater risk for other states and the EU,” said Mujtaba Rahman, head of Europe practice at the Eurasia Group risk consultancy.
“It will make the EU defensive and inward looking, and more incapable of addressing the problems that are giving rise to the populists in the first place.”
Both Italian and European central banks have promised to do “whatever it takes” to stabilise markets in the wake of a ‘no’ vote, but analysts have questioned whether the European Central Bank (ECB) could fight off a sustained assault on Italy’s bond markets in the coming months.
“Market participants are already questioning whether the ECB will be able to contain the pressure on Italian bond yields,” said Prof Erik Jones of the Johns Hopkins Institute for Policy Research in Bologna, adding the “sky would not fall” immediately.
“[But] If Italy struggles to cover its redemption requirements next February, confidence in the ECB as buyer of last resort could be badly shaken," he added.
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