Degroof Petercam: Update: ‘No’ vote in Italian constitutional referendum

The Italian president will do everything within his power to achieve the former scenario, against the will of the anti-establishment movement of Beppe Grillo, who favours the latter scenario. In any case, the odds of early elections are quite high, even after the technocratic caretaker government has adapted the electoral law.

What does it mean for Europe?

The outcome is not favourable to European political cohesion. This means that the structural reforms which Germany has been pressing for, will be harder to implement. Structurally the Eurozone remains in dire straits, although the economic recovery momentum has been picking up in the past two years. The willingness to gradually shift national decision powers to the European level, has been eroding in recent years. The Italian no-vote does not fundamentally alter this. The worst-case scenario would be for the failed referendum to trigger an Italian exit from the monetary union, but we are not there yet by any stretch. For the time being, there is no majority support for this scenario among the Italian population.

Impact on strategies and asset classes
Fixed Income

We were prepared as a NO vote was our base case scenario. The market expected this result as well explaining the tepid response. However following our preparation we concluded that Italian BTP exposure would be diversified by an underweight towards France. Sure, politically the European construction find itself in heavy waters. We do assess that the current ECB QE purchase programme will take away most of the stress that might surface in European Government Bond markets. The positive side effect of the continuation of the purchase program might be a further external devaluation of the Euro currency versus that of its main trading partners. That would provide the necessary support to the current positive, though modest, growth revival we witness in the EU periphery.

Der vollständige Beitrag als pdf-Dokument