Italy's Referendum and Why You Should Care
Italy is voting on a referendum, and according to BusinessInsider, the aftermath of the referendum could have a far-reaching impact.
Here's my understanding of the referendum (correct me below if I mixed anything up):
- Italy has two congressional bodies, quite similar to U.S. There's the Chamber of Deputies (Congress) with 630 members and the Senate with 350 members. The vote would decrease the Senate's size to 250 members and limit their involvement to major decisions (war and international treaties, for example).
- The bill was proposed by Renzi (Italy PM) and his center-left party. Polls show Italy in favor of voting against the bill (in other words, Italy will vote for the bill).
- This BusinessInsider article claims "Investors need to care about this because the market has decided that this vote is an indicator of Italy’s ability to make much needed reforms and that matters because of the impact of Italy’s banks and sovereign debt."
Here's what BI thinks will happen if Italy votes yes:
bonds and banks will rally and the MIB (Italian stock index) will have a huge relief rally.If contrary to the polls the “yes” vote wins, Italian
And if Italy votes no:
increasingly dicey Eurozone into the relative safety of the US dollar and US assets - a tailwind to US stocks and bonds. The Italy economy would slow further thanks to the increased uncertainty, which would bleed over into other European nations and global trade. The acceleration to the rising dollar headwind facing US multinationals could render the Fed’s rate hike decision irrelevant in comparison and harm growth back in the States at a point when the economy looks just finally be gaining a bit of traction.The euro will weaken materially. European banks as a whole will likely take a hit and the dollar will get pushed further and further up as money races out of
All in all, what do you make of this?