Here we go again. On December 4th Italy will hold a referendum that is expected to have an implication as to the future course within the European Union. In short, a vote in favor of the referendum will cause a number of changes to occur within the Italian government. These changes will consolidate powers in various ways, which is assumed to allow EU direction to have a stronger influence on the Italian government. A no vote would be a rebuke by the Italian’s towards the EU leadership. If you’re interested in the nuts and bolts of the referendum, I would recommend the following video.
Why does this matter to us? This matters because Italy is 2nd to Greece in terms of the amount of outstanding debt the country has. It is one of the main players within the EU and its economy is in the tank. Many banks within Italy are not on stable footing. It is believed that a number of reforms are needed soon in order to get Italy back on track. Without reform, then the belief by investors that Italy can pull itself out of the hole it is currently in becomes less certain. Uncertainly usually leads to fear and markets don’t like fear. Though this referendum is not as direct as Brexit, it implies a certain path Italy will venture down.
This event could bring a bout of volatility to the markets that have been very calm since the U.S. election earlier this month.