Published: Wed, December 07, 2016
Global Media | By Abel Hampton

Italy faces political, economic uncertainty after referendum

Italy faces political, economic uncertainty after referendum

The euro tumbled on Monday in Tokyo following the results in a referendum held in Italy on Sunday to decide whether Prime Minister's Matteo Renzi's plan to reform the Constitution should be carried out.

"Democracy was the victor", Grillo wrote in a post-vote blog that marked a significant change in the party's position on the electoral law.

But the referendum was more than a vote on constitutional reform, it was widely regarded as a chance to reject establishment politics. The diplomat, who is closely involved in European Union discussions on sanctions against Russian Federation over its interference in Ukraine, spoke on condition of anonymity because he is not authorized to speak to the media. "They thought 'I have no hope, and no job, who can I take it out on?" In Italy, politicians never lose, they just hang on.

"I don't believe it is [the start of a new crisis]", said Jeroen Dijsselbloem, the Dutch chairman of euro zone's group of finance ministers. "The post that gets eliminated is mine". "Italian government bond spreads have reacted relatively benignly at the moment, and therefore it's relatively unlikely that the European Central Bank will do anything big".

Back in the US, Donald Trump has sent new shockwaves among the political world via his Twitter account. "After yesterday's referendum we will await the political developments in Italy".

Renzi's resignation adds yet one more element of instability to the European Union mix. 5-Star campaigned hard for a "No" vote. Voters seemed less interested in the technical issues and more motivated by the grim economic outlook. But much will depend on the makeup of the next government and how anti-immigrant, Euroskeptic parties capitalize on their success. Renzi - who pushed his way to power in 2014 on an anti-establishment platform - was pushed aside himself by an electorate impatient to see fast results. "Now it depends on what the government decides to do", Zahn said. "This is becoming a major problem for all democracies". The prime minister has already met with the president earlier Monday, spending over an hour in talks.

The referendum outcome could be taken as another sign of rising anti-establishment sentiment in the core of Europe, potentially eroding investor confidence in the euro ahead of elections in the Netherlands, France and Germany next year. Once the budget was passed, he could hand in his resignation, according to a statement from the Presidency.

Five Star founder and leader Beppe Grillo called for an election to be called "within a week" on the basis of a recently adopted electoral law which is created to ensure the leading party has a parliamentary majority - a position Five Star could well find themselves in at the next election. After the next election, a majority is unlikely, he says, and a referendum can not be held on a law ratifying an global treaty.

The referendum threw Italy, the eurozone's third largest economy, into political turmoil, and emboldened populists such as the anti-euro Five Star Movement campaigned for the defeat of Renzi's proposals. But it will likely try to ensure that the elephant is kept at bay.

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