1. What’s it all about?

Italians will head to the polls this Sunday to vote on reforms to the way that laws in Italy are voted upon. The current structure can lead to legislation being slowed up by one of the two chambers and reforms to the Italian Senate – cutting the number of Senators to 100 for example – will allow the Chamber of Deputies to vote on measures such as the Budget a lot easier. As it stands this would allow the Italian PM greater powers over legislation.

The government is backing the ‘Yes’ campaign to these changes with the Prime Minister Matteo Renzi saying that he will resign in the event the ‘No’ campaign wins out. Indeed, many voters within Italy are treating this referendum as a yes/no on the Renzi administration.

  1. How are the polls looking?

In light of the US election, polling has come in for a bit of a beating and similar to elections in Greece, polling on the Italian referendum has now entered a blackout period until exit polls are published on Sunday evening. The ‘No’ campaign has held a slim lead in the majority of the polls since the December 4th polling date was confirmed.

  1. Is this referendum as important as Brexit?

No. If Brexit was the Champion’s League of European politics then this is a Sunday kick about. Italy has very prescriptive laws over referenda and referenda that ‘ratify a law on an international treaty’ are strictly forbidden. Advisory referendums, as Brexit was in the UK, are also rare and one has not taken place in Italy since 1989.

We are a long way however from seeing the Italian voters go to the polls on the Italian position within the European Union and the Eurozone.

  1. But it’ll be important if the government loses?

Italian PM Matteo Renzi has tied his future to winning the vote so a defeat will naturally open up another political air pocket at the top of a European government. It would also point to an inability within Rome to adequately enact reforms capable of driving growth, reducing a huge debt pile or recapitalising banks.

Italy was and remains the ‘I’ in the ‘PIGS’ acronym that defined the Eurozone countries that were pressured on their debt piles through the Global Financial Crisis and the situation has not improved despite low interest rates and an accommodative central bank. Bond markets have started to ask for higher yields on Italian debt in recent weeks and the spread over German debt on a 10-year frame has risen to around 1.6%. While nowhere close to the levels seen in the depths of the GFC, it is the highest since when the European Central Bank started to buy bonds as part of their quantitative easing plan.

  1. What does this mean for the euro?

In the eventuality that the ‘No’ campaign emerges victorious and PM Renzi doe resign, the single currency will find itself in the crosshairs although with very little reason for it to be so save some near-term political restructuring. A technocratic government would likely be installed as it was in 2011 and the status quo of political uncertainty would persist until the general election that must take place by May 2018.

  1. Another election?

Yep, although we have time to get over the Dutch, French and German elections. Under Italian law an election must take place by May 2018 and should Renzi quit, that would leave the largest traditional party – Renzi’s Partito Democratico (PD) – rudderless heading into a campaign against the 5 Star Movement: a populist movement run by Beppe Grillo, a former circus clown and comedian. 5 Star have promised a referendum on the country’s membership of the Eurozone although its unwillingness to enter into coalitions may stymie this effort.

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