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A No vote in the Italian referendum will derail essential reforms (ft source)

Prime minister Renzi is heading in the right direction but needs more time


A single number, hourly labour productivity, explains the sorry state of the Italian economy. On a scale set equal to 100 in 1995, 20 years later the index has risen to 140 in the US, 130 in Germany, France and the UK, 125 in Portugal and 115 in Spain. In Italy it has barely reached 105.


How could this happen? Forget measurement errors and the underground economy. Yes, the rise of the service sector has made it harder to measure how productive a person is when she or he works — but services represent a smaller fraction of the economy in Italy compared to, say, France or the US and they have also grown by a smaller amount. The underground economy is large but it was even larger years ago: recent labour market reforms and the subsidies to companies that hire new workers have, if anything, reduced the incentive to divert goods to the black market.

How do we explain the puzzle? There are various possibilities. One is the small size of Italian companies: they have on average four employees compared with 12 in Germany and 19 in the US. More productive companies start small but eventually grow; Italian companies start small and stay small. One important reason is family ownership, a feature of 86 per cent of all Italian companies. Unlike in Germany — where at 90 per cent there is an even higher proportion of family-owned companies — 66 per cent of family-owned companies are also managed by a relative. The number in Germany is 28 per cent. While a less developed financial market is part of the story, the local “family culture” is the most important.

In the past 20 years, Italy has resisted excessive churn in the labour market. Before reforms introduced a year ago by the government of Matteo Renzi, social protection meant protecting jobs, not workers — a principle strongly championed by the all-powerful unions. The result has been that unproductive companies have been kept alive through government subsidies and lack of competition, preventing more productive enterprises from replacing them. This has been particularly true in the public sector, where, for example, unproductive city-owned companies in the waste-collection business have been protected by laws that do not allow the entry of private competitors. Another example is medical supplies, where large, low-cost distributors such as Boots or CVS are not allowed to enter the market (this last restriction is about to be abolished by the government).

It is no surprise that the adoption of information technology, one of the main drivers of productivity growth in these two decades, has been particularly slow in Italy. Small, subsidised, protected companies are typically slow at introducing new technologies. Add to this a stultifying bureaucracy and the productivity statistics look even less surprising.


Last but not least, consider human capital. Italy is consistently among the EU countrieswith the lowest university completion rates. A university degree is not a necessity for all workers, of course: Italian artisans and designers are wonderful but they cannot sustain a country of 60m people. Moreover, among Italian university graduates less than one out of three studies for a degree in engineering or in the sciences, compared with 40 per cent who graduate in law or the humanities.

Much-needed reforms have begun under Mr Renzi, starting with the thorny question of employment contracts. About a year’s worth of data allows us to estimate the effects of the flexible contracts introduced as part of the 2015 Jobs Act. The increase in employment in this period is the result in part of the economic recovery, in part new worker subsidies, but also to a significant extent the result of the new contracts.

The process of reform has been too slow. The perfectly bicameral parliamentary system means bills go back and forth between the upper and lower houses, which is a feature that Mr Renzi’s proposed constitutional changes — the subject of Sunday’s referendum — would eliminate.

Mr Renzi has said he will resign if his proposals are rejected. He believes that, without the changes he seeks, the work of reform could not proceed at the necessary pace. An example is the competition bill tabled by the government almost two years ago, which has since ping-ponged between the Chamber of Deputies and the Senate.

With Mr Renzi’s government, Italy has refreshed its political class: the average age of ministers has fallen from 52 in the last government of Silvio Berlusconi, and 64 in Mario Monti’s administration, to 48 under Mr Renzi. Similarly, one out of two ministers in this government is female, compared with 6 out of 25 under Mr Berlusconi and only 3 out of 19 under Mr Monti.

Were Mr Renzi to resign, the dream of a generational change among Italian politicians would vanish. And with it, I fear, the chances of Italy remaining in the euro.

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Italian banks: investor struggles (FT source).

Apply market rates of provisioning and discounts to book value are not so steep.


The Italian word for bad loans, sofferenze, literally means “struggles”. It neatly encapsulates investing in the country’s banks, which have underperformed the Eurofirst 300 Banks index by more than two-fifths this year. Investors hoping for a reprieve if prime minister Matteo Renzi wins Italy’s constitutional referendum on Sunday will probably be disappointed. Whatever the outcome, the banks need substantial amounts of extra capital to shore up confidence in their balance sheets.


Widespread investor scepticism about the value of non-performing loans means that most Italian banks trade a big discount to book value. The proposed rescue plan for the most stricken bank — Monte dei Paschi di Siena — has implications for the rest of the sector because it gives mark-to-market values of banks’ NPLs. Overall, banks’ cash provisions (excluding collateral) average 43 per cent of total NPLs. But this masks wide differences in the type of NPLs provisioned for. MPS is selling its worst loans, the sofferenze, at 33 cents on the euro, implying cash provisions need to be 67 per cent. For the “unlikely to pay” (UTP) tranche, the implied cash provisions are 42 per cent.

These are well above current cash provisioning levels. Apply them across the sector and Intesa Sanpaolo, UniCredit, Banco Popolare and Banca Popolare di Milano would need to raise an extra €13.3bn of capital. And UniCredit has reportedly considered provisioning sofferenze at three-quarters of nominal value. Across all four banks, that would add another €8bn. Subtract these implied provisions from existing book values, and Italian banks’ discounts do not look so steep. UniCredit would trade at a third of book rather than a quarter. Intesa shares trade at a 20 per cent discount; include an extra €9bn of cash provisions (at 42 per cent for the UTPs and 75 per cent for the sofferenze) and they would sit at a premium.

Weak banks reduce the supply of credit and curtail growth. Loan volumes have been falling since the beginning of the year, according to the Bank of Italy. Slightly better economic growth meant that new bad debts in the first nine months of the year were down a third on the same period in 2015, according to Deutsche Bank. Sunday’s vote will have little bearing on whether that trend continues.

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Have we not seen this before??

Italian bonds rally ahead of Sunday’s referendum (Source FT)

No signs of jitters in the Italian bond markets this morning in the last day of trading before the country votes in a closely-watched referendum this weekend.


Italy’s 10-year bond yields have fallen by as much as 10 basis points this morning (0.1 percentage points) to 1.95 per cent, outperforming a wider rally in eurozone sovereign debt. Yields fall when a bond’s price rises.

Italy’s benchmark borrowing costs have been climbing steadily ahead of a referendum on constitutional reform which could cost prime minister Matteo Renzi his job. Yields rose to as high as 2.3 per cent – their highest level since July 2015 – in recent weeks as polls indicate Mr Renzi’s ‘Yes’ side is poised for defeat.

The referendum’s final results are set to trickle in from the early hours of Monday morning (GMT), with an exit poll due at 2200 GMT when polls close.

Should a ‘No’ vote prevail, Italy could be poised for a general election next year. But the wider political outlook for the country following Mr Renzi’s resignation remains uncertain. Opposition to the reforms, which aim to centralise the government’s power over parliament, include right and left-wing populist movements and establishment figures such as former prime minister Mario Monti.

“The main anti-establishment forces, the far-right and [the Five Star Movement] have little in common – with the latter having repeatedly vowed to refuse any political alliance or coalition” says Anais Boussie at Credit Suisse.

The decision to hold a general election would rest with Italian president Sergio Mattarella, with analysts noting the head of state would be wary of provoking further market jitters by calling an immediate vote.

Ms Boussie notes:

A “No” winning with less than, say, 60 per cent would offer a window of opportunity for a Renzi government or similar, supported by the same majority in Parliament.

Indeed, more than 40 per cent support for the “Yes” would at least provide the PM with a relative majority in support of his policies, while the “No” victory would instead be scattered amongst a very heterogeneous political spectrum of far-right, far-left, center-right and M5S opposition

Amid the bond rally, investors are selling stocks today with all major European indices slipping today. Italy’s benchmark FTSE MIB is down 1 per cent, with French stocks down 1.5 per cent and Germany’s Dax losing 1.2 per cent.

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Investors’ nerves begin to build ahead of Italian referendum (Source FT).

‘No’ vote expected to lead to higher bond yields, lower share prices and weaker euro


Europe’s financial markets are bracing for Italy to reject the government’s constitutional reforms in Sunday’s referendum, with investors warning that an emphatic No vote risks a sharp sell-off in Italian assets.


Although there has not been panic ahead of the vote, there are signs of some nerves among money managers and traders whose attention in recent weeks has been dominated by the reflation trade unleashed by Donald Trump’s US election win.

In the past three weeks, global investors have removed $100m from Italian equity funds, while Italian 10-year government bond yields are trading at levels not seen since 2015.

At the root of the unease over Italian assets is not fear about the success of a package of institutional reform but the way in which the referendum is being viewed by Italians as a chance to vote against the government. Matteo Renzi, the Italian president, has promised he will resign if he loses, a move that could lead to earlier parliamentary elections and greater support for the anti-establishment Five Star Movement (M5S), which has campaigned against Italy’s membership of the eurozone.

After the shock of Brexit and Mr Trump’s victory, investors seem better prepared for a possible No vote, said Alberto Chiandetti, a Milan-based European equities portfolio manager at Fidelity International.


“Italian assets are suffering a fade out,” he said. “We are seeing the steady disengagement of international investors. There haven’t been sharp swings in prices because investors have known about the referendum for a long time. But at the moment the expectation is for the vote to be close. A landslide No vote would mean even greater political risk and a much sharper sell-off.”

While polling has stopped ahead of the vote, the most recent surveys of voters showed the No vote a few points ahead.

With one of the highest public debt ratios in Europe, a long period of low growth and a troubled banking sector in need of recapitalisation, the financial impact of a No vote in the referendum is expected to be negative — leading to higher bond yields, lower share prices and a weaker euro.

Italian creditworthiness as judged by investors is already falling — with the cost to insure Italian bonds against default the highest it has been since the UK voted for Brexit, according to Markit data.


Meanwhile the FTSE MIB index of Italian stocks is down 18 per cent in 2016, while investors are demanding an extra 163 basis points to hold Italian government bonds instead of German Bunds — up from 97bp at the start of the year.

In the event of a No vote, UBS predicts that this spread could reach 200bp amid a knee-**** reaction from investors to sell out to Italian assets.

Italy’s referendum is the first important election in Europe in the coming months, with France, Germany and the Netherlands all going to the polls in 2017. There are fears the elections could herald further gains for populist, Eurosceptic political parties in Europe.

The heightened uncertainty, coupled with expectations of greater US economic strength, has encouraged investors to pull money out of Europe in recent weeks. European equity funds lost $2bn in the week to November 30, according to data from EPFR, while European bond funds lost $1.9bn — the fourth straight week in which investors have removed funds.

The euro itself has been relatively calm, holding steady at $1.06 ahead of the Italian referendum, but the cost of insuring against volatility in the euro surged to a six-month high earlier this week.

However, foreign exchange analysts doubt a euro sell-off is inevitable on a back of a No vote. Derek Halpenny at MUFG gave three reasons: the European Central Bank would probably act to limit market volatility, there were signs of dollar strength fading and trends showed an end-of-bias in favour of the euro.

The sell off in Italian bonds has also calmed in recent days amid reports that the ECB is preparing to increase its bond-buying plans. Lutz Karpowitz at Commerzbank said the narrowing in the spread between Italian and German bonds suggested that “neither the FX nor the bond market is prepared for new difficulties in the eurozone.”

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Below is a chart of the FTSEMIB. Looking at the Bloomberg charts below (Orange is FTSE100, etc), you can see that up until 2014 major European equity indices where pretty much following each other. However the FTSEMIB has been laging behind its peers since then has been trading near 2013 lows. However from a technical stand point their does seem to be a rather interesting pattern. Notice the second bottom made in 2012 labelled W5/A. You can clearly see a very well defined 5 wave pattern starting from the year 2000 all the way to 2012. However since then we have seen a good 5 wave move up with clear W2&W4 alternations but has refused multiple times to get above the 38%fib retracement.  Italy’s manufacturing economy also showed an upturn in performance in November, as companies recorded the strongest increases in output and new orders for five months. Given that Italies manufacturing output was $257 billion in 2014, their could be potential upside, especially if we where to see in future fiscal stimulus from the EU. Now if we continued to see an increase in good manufacturing production figures then maybe we could see the economy pick up and increase positive investor sentiment which would be reflected in the FTSEMIB index. However with debt to GDP among the highest of the 4 major economies in Europe and years of growth stagnation you can argue a more bearish view as well. 

With so much uncertainty with the upcoming elections, we may find that Italy becomes an insignificant event, and the German and French elections could potentially trigger a much greater uncertainty. 

In conclusion lets hope that we have plenty of volatility on Sunday night and Monday and hope all goes well.

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The 'Italy is just about to broke' story has come and gone all my life. In fact it makes an appearance roughly every 5 years. 


We Brits wring like to wring our hands and feel terribly sorry for those Italians who we are certain are 'just about' to go broke. But the reality is a bit more complicated.


Italy might have a larger state debt that the UK, but its household debt is tiny. That makes Italy a lot less vulnerable to rising interest rates than the UK.


Italy has another advantage - it has a lot of very good industry that manages to export a lot. Italy is a bigger exporter than the UK It doesn't have our horrendous current account problems. 


My guess is that Renzi will just manage to win this referendum to abolish the Senate, and the FTSE MIB will rise by about 20% over the next 6 months. 


If he doesn't win, the fallout won't be too disastrous. 



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    Missing the point, Italy seeing a populist revolution in the style of Brexit and Trump against globalisation/open borders. Italians citizens now under Govt order to house immigrants in vacant spaces or face imprisonment. Italians will use this vote to punish the status quo. 


Renzi will loss Italy and Hofer will win Austria. All Euro moderates are being forced to step to the right because of Liberal elite (EU) nieveity.


Oh, and Italian banks are bust.

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I do think that it is fair to say that Europe is going through some serious political change. And the rise of right wing populist parties, i am afraid, is not new. On a personal note both my Grandparents grew up in Europe (One in Italy) at a time of political uncertainty and the rise of right wing populist movements and they do recognize that when the ordinary individual on the street feels that the system is not working for them you will see certain politicians taking advantage of this and capitalize on a populist movement in order to gain power. Many blame the Wall street crash of 29 for the cause of WW2 and without a shed of doubt, it was a contributing factor, not suggesting something similar would happen again! But this is why their is a strong chance that Italy will vote no on Sunday. Now how this will impact on the Euro is another matter. If i was to take an educated guess, not much as the event does not appear to be concerning market participants, which is why i dont think we will see much volatility in the Euro, probably in the FTSE MIB and maybe under European benchmarks, but as Casey points out we also do have the Austrian re-run elections which is more concerning than Italy in my opinion. 

On an Economic front the UK unlike the Italians has managed to replace its past industrial era with a heavy focus on Financial services and competitive tax rates. Italy on the other hand has not got the same privileges. When Italy was asked to join the Euro, Germany and France had something major to gain, and that was to rid of a competitor and gain dominance in manufacturing. Many Italians do wish they stayed with the Lira, of which their own central bank could have devalued their currency and make them much more competitive (just shows how luck Mark Carney is), but this cannot happen because they are in the Euro. Instead what you have in Italy are very harsh business environments if your a small business owner that is and lack of accountability. But this also includes other Mediterranean countries. Before 2008, Europe used to call the British fools for not wanting to join the euro, no wonder, everything looked so good on their front, but they are not thinking that now that is for sure. In Spain it was a similar situation, you had Deutsche Bank lend money like crazy to the Spanish construction companies, only to later seize their assets when they defaulted. You then had American banks altering Greek figures so they could join the Euro.

In conclusion some of these countries should remain in Europe as their own governments cannot be trusted and therefore this is why their is speculation that they may choose to split Europe into 2 separate economic areas, but will this happen, only when things get bad enough.

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Italian referendum: 5 things to watch out for (Source FT)

A rejection of Renzi’s measures risks political instability and market turmoil.


When Italians head to the voting booths on Sunday for a referendum on constitutional reform, the stakes are high.


If the measures — championed by prime minister Matteo Renzi — are rejected, Mr Renzi would likely resign, plunging the country into a new period of political instability. There are concerns this might trigger market turmoil, hitting Italy’s vulnerable banks. It could also represent a new setback for the EU, since the prime minister’s opponents are dominated by anti-establishment forces.

The latest polling published two weeks ago showed the Yes camp trailing by a few percentage points, but we have been flying blind since. Voting will be open between 7am and 11pm local time on Sunday, with the results likely to be revealed early on Monday.

Here are five things to watch for:


1. Turnout

On the campaign trail two weeks ago, Mr Renzi shed some light on his strategy, saying that if turnout reaches 60 per cent of eligible voters, his Yes camp would prevail. His statement is based on the premise — which may be wishful thinking — that opposition to the reforms is vocal but shallow, while support is quiet but deep.

A 60 per cent turnout is not an implausible goal. It would be just above the 58 per cent turnout in the 2014 European elections, and well shy of the 75 per cent turnout in the 2013 parliamentary elections. We will have some clues as to whether Mr Renzi is reaching his target throughout the day, as the interior ministry releases interim turnout statistics at 12pm and 7pm local time.

In 2014, turnout at noon was nearly 17 per cent, and in the evening it was 41 per cent, so Mr Renzi would want significantly higher numbers.


2. Italian abroad

If the race is tight, it is Italians expats who might clinch it for the prime minister. About 1.6m Italians out of 4m registered abroad have been able to vote by post, and their support has been vigorously courted. Members of Mr Renzi’s cabinet have flown out to all corners of the earth, including Argentina, to rally Italians overseas. Opposition parties, including the Five Star Movement leader Luigi Di Maio, have done so as well.

Italians abroad are expected to back the Yes side: while once upon a time they were mainly centre-right voters, they have in the past two decades swung to Mr Renzi’s Democratic party, amid disappointment and embarrassment at the scandals engulfing Silvio Berlusconi.

The foreign vote has been the subject of controversy in recent days, with opposition members saying it was rife with fraud and favouritism towards the government. Mr Renzi has rejected the claims.

3. Shy voters

For all of the heated political debate in Italian piazzas, cafés, and television shows, there has been a constant refrain in the history of the country’s elections: people do not necessarily tip their hand in terms of who they will vote for.

During the cold war years, it was the Christian Democratic party that seemed to benefit from those shy supporters who keep quiet about their choice because they do not think it is popular — then vote in the secrecy of the polling booth.

Over the past two decades, Mr Berlusconi seemed to ride the wave of that mysterious force. Mr Renzi’s campaign, too, is hoping for a comeback victory on the back of the “silent majority” of moderate, centrist Italians.

4. Exit polls

If the result is an absolute blowout, one can probably trust the exit polls, which will be released as soon as precincts close and begin sending their results to the interior ministry on Sunday night.

But otherwise, it would be unwise to make any assumptions based on the exit polls. Not only were they unreliable in the US election, they also have a history of big misses in Italy.

In the 2014 European election, they underestimated the strength of Mr Renzi’s Democratic party, pinning his share of the vote at 33 per cent, compared to the actual 41 per cent. In 2013, they overestimated the strength of the PD, and underplayed the comeback of Silvio Berlusconi’s Forza Italia party.

5. The swing regions

It is no accident that Mr Renzi spent a big chunk of the final 24 hours of his campaign in southern Italy, with stops in Naples, Palermo and Reggio Calabria. The south has emerged as the swing region of this referendum and the place where the Yes camp has trailed the most.

Renzi campaign officials believe that if they narrow the gap to hang on in the Mezzogiorno, they can then take advantage of their strength in central and northwestern Italy to win the contest overall. They are partly counting on apathy towards politics in the south to work in their favour: if many potential “no” voters don’t show up, it could help their cause.

One wild card is the more prosperous north-east, where the Northern League is extremely strong, and anti-immigrant sentiment runs deep. Opponents of Mr Renzi believe that this is another area of weakness for the Yes camp, which could swing the contest in their favour.

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Thats all just wishful thinking by a typical Brit EU-hater who is longing for the whole thing to fall apart. 


The Italians have no intention of quitting the EU or the Euro. 


The economy that's going to collapse in the next five years is not Italy, it's the UK. 


Good luck trading with the the Commonwealth! 




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Italy and Austria vote in crucial tests for European centre ground (Source FT)

Referendum on reform and presidential election will gauge strength of populist and extreme right


Italians and Austrians are heading to the polls in closely watched votes that will gauge the strength of Europe’s populist and extreme right political parties.


Italy’s constitutional referendum on Sunday will determine the political future of prime minister Matteo Renzi and test anti-establishment parties in the eurozone’s third-largest economy. 

The plebiscite on Mr Renzi’s flagship overhaul — which would shrink the powers of the Italian senate and regional governments to ease political gridlock and remove red tape — has consumed the country’s politics for most of 2016 and divided a population which is struggling to recover from a bruising triple-dip recession. 

According to the Italian interior ministry, nearly 20 per cent of eligible voters had cast their ballots by noon - which is higher turnout than the 2014 European elections. But voter turnout was low across Italy’s south, where opposition to Mr Renzi’s reforms was expected to be strongest. Turnout was highest in the north of Italy, with Emilia-Romagna, traditionally a bastion of the left, recording the highest figure.

In Austria, the far-right Freedom party’s Norbert Hofer is running for the presidencyagainst Alexander Van der Bellen, a Green politician who campaigned as an independent. Opinion pollsters believe the contest is too close to call.


A victory for Mr Hofer would cap a wave of political upsets in western industrial countries this year following the UK vote to quit the EU and Donald Trump’s election as US president. It would buoy the hopes of France’s Marine Le Pen, the National Front leader who is expected to poll strongly in next year’s French presidential elections.

After the Brexit vote in the UK and Donald Trump’s upset win in the US election, the Italian vote is also being watched with concern across Europe — given that the opposition to Mr Renzi’s proposals is being led by Eurosceptic political parties, including the Five Star Movement and the Northern League.

The importance of Sunday’s referendum has been compared to other pivotal votes in Italian history, from the 1946 vote on whether to end the monarchy and establish a republic, to a 1974 vote allowing divorce, to a 1987 poll on nuclear energy. 

Markets have also been on edge about the Italian referendum, and the impact a No vote could have on Italy’s vulnerable banking system. There are fears that a rejection of Mr Renzi’s reforms could jeopardise plans by Monte dei Paschi di Siena, Italy’s struggling third-largest lender, to raise up to €5bn in capital by the end of the year. 

According to the latest polls, published on November 18, Mr Renzi’s Yes camp was trailing by more than 5 percentage points, meaning he would have to perform a remarkable upset in order to clinch victory. 


If he loses the vote, Mr Renzi has threatened to resign, plunging Italy into a new period of political instability. Italy has already had four different prime ministers since 2011. At that point, the fate of Italy’s government would be in the hands of Sergio Mattarella, the president, who would launch a round of consultations to see if it is possible to form a government, or move straight to new elections.

Although Mr Renzi’s reforms were widely expected to be approved earlier this year, consensus for the measures dropped substantially after all the main opposition parties united to defeat them.

Mr Renzi’s popularity has dropped substantially since he took office in 2014 as a young, energetic, centre-left reformist, with Italians growing disenchanted with the slow pace of economic progress, and anxious about the migration crisis which has brought more than 170,000 people to the country’s southern shores this year — a record annual figure. 

After a tour of southern Italian cities late last week, Mr Renzi held his final campaign rally in his home town of Florence on Friday night saying that Italy would return to being a “leader” in Europe if the reforms passed. “It’s a very difficult challenge, but it’s an open race. It’s on a knife’s edge and we can win,” he said. “We can bring home this spectacular comeback,” he added.


Beppe Grillo, the leader of the Five Star Movement, the leading opposition party, held a gathering in Turin. “Whether the Yes wins or the No wins, it’s the same thing. The country is torn,” Mr Grillo said. On Saturday, political leaders were not allowed to campaign, in a silent prelude to today’s vote. Polls are open on Sunday from 7am to 11pm local time.

Mr Hofer has campaigned on an “Austria first” platform of tougher controls on immigration and beefed-up security in response to European terrorism threats — as well as for the upending of Austrian politicswhich has been dominated since the second world war by the centre-left Social Democrat and centre-right People’s parties.

In a final campaign appearance in Vienna on Friday, Mr Hofer said he wanted to “shake up the old dust,” in Austrian politics.

In response, Mr Van der Bellen has portrayed himself as a candidate of stability, who would work with European partners on the continent’s economic integration.

The election is a re-run of a contest first held in May, when Mr Van der Bellen won by just 31,000 voters. That contest was declared invalid by the country’s constitutional court after irregularities in the counting of postal votes. Originally scheduled for October, the re-run was then delayed when faults were found in the glue used to seal postal votes.


In the meantime, nationalist politicians across Europe have cheered the UK vote to leave the EU, while Mr Trump’s election may also have made it easier for Austrians to vote for Mr Hofer.

Earlier this year, “the prospect of a far-right head of state in Austria was viewed as a huge event, whereas later the same year it’s just one more small domino falling,” said Heather Grabbe, European politics expert at the Open Society European Policy Institute in Brussels.

The impact of the UK and US votes is unclear, however, and they may have encouraged Austrians to vote against political radicalism.

Since May, Austrian election officials have tightened up election procedures. Early results are expected about 5pm local time — but if the contest is close, the final outcome might not be clear until late on Monday, after postal votes are counted.

Austria is among Europe’s most affluent economies but has underperformed rivals in recent years, with the federal coalition in Vienna failing to agree growth-boosting reforms. Squabbling within the government of Christian Kern, the Social Democratic chancellor, has added to the Freedom party’s appeal as an anti-establishment movement.

Austria was on the frontline during last year’s European refugee crisis as thousands fled wars in countries such as Syria. About 700,000 refugees and migrants passed through the country, mostly on their way to Germany and Sweden. But about 90,000 asylum seekers remained, mainly from Afghanistan, Iraq and Syria.

Despite criticism from Germany, Austria agreed steps with neighbours to close the so-called western Balkans route — but not before coming under fierce criticism from the Freedom party for allegedly losing control over inflows.

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UniCredit eyes deal with Amundi to ease investor worries. (Source FT)

Italy’s largest bank hopes deal will settle market jitters over political instability.


UniCredit is set to agree the sale of asset manager Pioneer to France’s Amundi for more than €3bn, boosting its capital as Italy’s largest bank moves to differentiate itself from distressed Tuscan rival Monte dei Paschi di Siena.


The likely deal with Amundi, which sees off rival bids from Poste Italiane and Ameriprise, comes ahead of Milan-based UniCredit unveiling a turnround plan under new chief executive Jean-Pierre Mustier on December 13.

The plan is expected to involve Mr Mustier announcing a capital increase of €13bn alongside asset sales — including the disposals of Pioneer and its Polish business Pekao — people with knowledge of the matter said.

UniCredit is also planning to spin off a €50bn portfolio of gross non-performing loans and to sell a tranche to one or several anchor investors. Fortress, Cerberus and Pimco are among the bidders, said three people briefed on the matter.

The move by Italy’s only globally significant bank comes as it seeks to strengthen a fully loaded common equity tier one ratio of 10.8 per cent — at the lower end of European peers — on its own terms rather than have a course of action imposed on it by the regulator.


Mr Mustier’s plan also seeks to put clear water between UniCredit and Monte Paschi, Italy’s third-largest bank by assets and the worst ***** to emerge from European stress tests of the sector in July.

The European Central Bank supervisor has set a deadline of the end of the year for Monte Paschi to raise €5bn of capital and sell off €28bn of gross non-performing loans. UniCredit has more time to complete its planned recapitalisation.

Weighing on capital plans at both banks is the outcome of Italy’s referendum on constitutional reform, which is due to be announced late on Sunday. Reformist prime minister Matteo Renzi has said he will quit if he loses, which analysts fear could unleash political and market instability.

Davide Serra, founder and chief executive of Algebris Investments, an investor in bank bonds and shares, said pricing of UniCredit’s equity raising will depend on the outcome of the referendum.

“With Yes it will be higher, with No it will be lower, but it will still go through. There will be a period of volatility but it is not a nightmare,” Mr Serra said.

The success of Monte Paschi’s capital increase is considered more closely tied to the referendum outcome, say bankers. The lender, which is 4 per cent owned by Italy’s Treasury, announced on Friday it had raised at least €1bn from a debt-for-equity swap.

Bankers in a consortium led by JPMorgan and Mediobanca are due to decide by the end of Tuesday whether to go ahead with an equity issue to raise the rest of the €5bn depending on market conditions, say two people familiar with the plan.

If the Yes vote wins, bankers have said that anchor investors including Qatar are expected to buy €1bn to €2bn of Monte Paschi’s new equity.

Lorenzo Codogno, a former economist in Italy’s Treasury, said in a note on Sunday that should Mr Renzi step down and there be a prolonged political crisis, financial markets will start to “get jittery again”.

“Probably the capital increase of Monte Paschi will be postponed or outright cancelled and other operations [at UniCredit and some smaller banks] will be stalled” in that scenario, he said.

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Italian referendum - multiple calls now for PM Renzi to resign.

Multiple opposition parties are out on the wires already calling for the resignation of PM Renzi
  1. New Renzi Government: Italian President Sergio Mattarella could ask Mr. Renzi to reshuffle his cabinet and form a new government. However, Mr. Renzi has said in recent days that he is unlikely to accept such an option, given that he would be in a much-weakened position following the vote.
  2. A Caretaker Administration .. .Mr. Mattarella could ask someone else to lead a new government with a limited mandate to oversee the drafting of a new electoral law and pass the 2017 budget.
  3. Electoral-Law Snarl:Major political parties are pushing to change an electoral law passed last year that would give extra seats in Parliament to any party winning 40% or more of the vote. That measure was intended to make for more stable governments. Establishment politicians now worry that it could help the populist 5 Star Movement gain power and want to rewrite the rules before any new national election.
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Italian 10-year bond yields shoot above 2% after referendum. (Source FT)


Italy’s government bonds are under pressure this morning, with yields leaping following the resounding defeat for the country’s centre-left prime minister in a referendum that has cost him his job.


Matteo Renzi has stepped down from government in the eurozone’s third largest economy after losing out in a vote on constitutional reform by a margin of 60 per cent to 40 per cent, throwing the immediate future of the health of the country’s oldest bank into doubt and unleashing a fresh wave of near-term political uncertainty.

Italy’s 10-year yields have climbed 13 basis points (0.13 percentage points) at the start of market trading on Monday to above 2 per cent – around the same level seen ahead of the vote last week (yields fall when a bond’s price rises).

The sell-off has also dragged Portuguese yields 11 basis points higher, as both countries lumber under debt-to-GDP piles of 130 per cent of GDP. German Bund yields meanwhile have edged down 7 basis points this morning.

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Renzi to resign after referendum defeat

Italy faces new crisis after voters reject reform plans by wide margin


Matteo Renzi is set to resign after suffering a heavy defeat in a referendum on his flagship constitutional reforms, a result that plunges Italy into political crisis and raises fears of turmoil in its banking system. 


Italians rejected the constitutional changes — designed to ease gridlock in the country’s political system — by a wide margin of 59-41 per cent, according to early returns, in a vote marked by a high turnout of nearly 69 per cent.

In an emotional press conference at the Palazzo Chigi early on Monday, Mr Renzi said the outcome had been “extraordinarily clear”.

“We gave Italians a chance to change. It was simple and clear, but we didn’t make it,” he said. Mr Renzi said that he should bear the entire responsibility of the loss, and announced that he would submit his resignation to Italy’s president, Sergio Mattarella, on Monday afternoon. 

The political instability triggered by Mr Renzi’s defeat could jeopardise plans by Monte dei Paschi di Siena, Italy’s struggling third-largest bank, to raise up to €5bn by the end of the year. The bank and its advisers are expected to meet on Monday morning to decide whether to go ahead with the plan.


The euro suffered a steep fall in the wake of the first exit poll showing a defeat for the ‘Yes’ side, dropping to its lowest level against the dollar since March 2015.

However, the single currency has steadied in early morning European trading. The single currency is currently 1 per cent down on the day at $1.0563 against the dollar – recovering from falling to as low as $1.0503. Yields on Italy’s 10-year government debt were up 13 basis points at 2.03 per cent.

Although Italy’s result is a blow to the EU establishment, there had been some cheer from Austria earlier in the evening when a left-leaning environmentalist beat the far-right candidate to the presidency.

The Italian vote had been seen as yet another litmus test for the strength of populism in Europe.

While Mr Renzi comes from the moderate centre-left, the opposition to his reforms was led by the anti-establishment Five-Star Movement, led by comedian Beppe Grillo, Matteo Salvini, the leader of the anti-immigrant Northern League, and Silvio Berlusconi, the media tycoon and former prime minister. 

The “no” coalition was not exclusively composed of populists, however. It also included other former Italian prime ministers such as Mario Monti and Massimo d’Alema, as well as an array of senior jurists who believed the reforms were poorly crafted and concentrated too much power in the hands of the executive branch. 

Marine Le Pen, the leader of the far right National Front in France, cheered Mr Renzi’s defeat, saying the “thirst of freedom” coming from Italy needed to be listened to. 

Mr Renzi’s resignation seals the political downfall of the 41-year-old former mayor of Florence, who took office in February 2014 with a mission to reform Italy and will now see his tenure come to an abrupt end. 


Earlier this year, Mr Renzi’s “yes” camp had been widely expected to prevail in the referendum, but a combination of factors — including the weak economy, the migration crisis and problems in the banking industry — dented his popularity. Moreover, Mr Renzi chose to personalise the vote early in the campaign by threatening to resign if he lost, a move that galvanised and united the opposition against him. 

Mr Renzi had tried throughout the campaign to channel the anti-establishment mood sweeping Europe in his favour, arguing that a vote to streamline Italy’s political system represented a much-needed change for the country. But his pitch was met with derision from the opposition, which dismissed him as a power-hungry establishment politician who was excessively close to the European elite and global finance. 


“I don't like the Renzi government, I don't like what they are doing,” said Alfredo, a 68-year-old self-described communist voter at a polling booth on the Via Pannonia in Rome, near the ancient Baths of Caracalla. “I don’t like the way Italy is subordinated to Europe. I am in favour of Europe but I want a Europe of the people,” he added after casting a “no” vote. 

Livia Astolfi, a 44-year-old tourist guide, added: “I voted ‘no’ because I don't like the way the reform has been written. The constitution is not carved in stone and it can be changed, but that’s not the way of doing it. I think Italy needs a better reform, not the one they asked us to vote. I don’t trust the current government and its policies and I don’t want to choose the lesser of two evils.” 

Some, however, hoped he would win. “I am going to vote ‘yes’ because we [italians] are bogged down and Renzi is trying to drag us out,” said Francesca Romana Freni, a 34-year-old biologist. 


After accepting Mr Renzi’s resignation, Mr Mattarella will launch a round of talks on the formation of a new government. 

Any new government would either be led by Mr Renzi himself, or another senior member of his centre-left Democratic party — with Pier Carlo Padoan, the finance minister, Pietro Grasso, the president of the Senate, Graziano Delrio, the transport minister, or Dario Franceschini, the culture minister, among the most-frequently mentioned candidates. 

They would probably have a narrow mandate to carry the country to the next elections due in early 2018. But if there is no agreement on a new government, the country would face the prospect of snap elections.

Mr Renzi’s defeat also marks a big victory for the Five-Star Movement, which has been running neck and neck with the ruling Democratic party in most national polls this year and has been aiming to unseat the prime minister for most of his tenure. Mr Grillo, the Five Star leader, labelled Mr Renzi a “wounded sow” and a “serial killer” during the campaign, which became increasingly ill-tempered towards the end. 

But while the referendum result will embolden the Five-Star Movement — which has called for another referendum, this time on exiting the euro — it would still have to gain power in parliamentary elections in order to carry out its political programme. The result of Sunday’s vote could also boost the stock of Matteo Salvini, the leader of the Northern League, in what has been a duel for primacy over the centre-right with Mr Berlusconi, who pushed for a “no” with less verve since his Forza Italia party includes more moderate voters. 

 As well as for Italy’s banks, the victory of the “no” camp will mark a huge disappointment for Italian business, whose top ranks almost unanimously pushed for a vote in favour of the reforms on the grounds that they would represent a big step towards the country’s modernisation. Confindustria, Italy’s main business group, and Coldiretti, the top agricultural lobby, were at the forefront of Mr Renzi’s campaign. 

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Euro under pressure after Italian referendum

Currency drops to its lowest in more than a year after Italians reject Renzi reforms.


The euro dropped to its lowest in more than a year in early Asian trading on Monday after Italian voters rejected Prime Minister Matteo Renzi’s constitutional reforms, raising fears of prolonged political and financial instability in the eurozone’s third-largest economy.


The single currency fell as much 1.5 per cent to $1.0503, its weakest level against the dollar since March 2015, after Mr Renzi conceded defeat in a referendum on reform in which the 41-year-old leader had staked his political future.

However, the euro has steadied in early morning European trading and is currently down 1 per cent at $1.0563. Yields on Italy’s 10-year government debt were up 13 basis points at 2.03 per cent.

Early returns suggested Italian voters had rejected the reforms by a wide margin of 59-41 per cent, far more emphatically than opinion polls had suggested and catapulting political risk in Europe to the centre of investors’ radars.

“The margin looks to be clearly bigger than expected,” said Steve Englander, head of G10 FX strategy at Citigroup. “Bottom line: bad for the euro, bad for peripheral spreads, probably bad for equities.”

Although the euro weakened more than 3 per cent against the dollar in November, the driving force has been a resurgence in the US currency following Donald Trump’s presidential election victory.

The scale of Mr Renzi’s defeat is likely to put investors on guard for any further political upsets in the eurozone. Italy’s referendum is followed by French presidential elections in the spring in which Marine Le Pen, the leader of the far-right National Front, is expected to make it through to the final round.

“What was initially a rather technical question has turned into a litmus test for the capacity of Italians to reform and the rise of populism in the continent,” according to analysts at Oxford Economics.


It is Italy’s banking system, however, that analysts expect to be most vulnerable to the impact of the referendum. Saddled with about €360bn of problematic loans, the banking sector has lost more than half its market value this year as investors struggle to gain confidence in any solutions to recapitalise the most troubled lenders.

“It complicates the Italian bank bailout and may embolden voters in the rest of Europe to similarly embrace more radical parties,” Mr Englander said.

Analysts at Deutsche Bank had said before the vote that in the event of Mr Renzi’s resignation the worst scenario for markets would be an immediate election that could be to the advantage of populist, anti-euro parties.

“In the currency world, the big level everyone is watching is the cycle low at $1.0458,” touched in March last year, said Alan Ruskin, a currency strategist at Deutsche. “If we break this level the euro will slide lower quickly.”


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