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Italy referendum
Image: DW/B. Riegert

Markets not in shock after Italy referendum

December 5, 2016

Markets have not shown any signs of panic after Italian Prime Minister Matteo Renzi said he would resign following a solid defeat on constitutional reform. Even the euro tanked only temporarily.


Germany's blue-chip Dax 30 even gained about 2 percent shortly after trading had started on Monday, to later fall back slightly, closing 1.6 percent higher. However, the Milan stock exchange's main MIB index closed down more than 0.20 percent after Italian banking stocks came under fresh pressure amid concerns about the fragile financial sector in the eurozone's third biggest economy.

Shares of Italy's troubled Monte Paschi slumped more than 4 percent after Renzi's resignation raised doubts about its proposed rescue and recapitalization plan.

In an immediate reaction to developments in Italy, the euro fell to a 20-month low in the early hours of Monday, with investors fleeing to riskier assets after Italian Prime Minister Matteo Renzi had to realize that his proposed constitutional reform did not have the backing of most citizens.

The current crisis in Rome has the potential to destabilize the country's already shaky banking system. But when Renzi announced he would resign as a consequence of the outcome of the referendum, the eurozone's single currency regained much of its earlier losses, dipping only around 1 percent against the greenback on Monday morning.

No market shock was witnessed in Asia either, with the Nikkei 225 in Tokyo dropping by only 0.82 percent. Some of the Asian nation's lenders were among the biggest losers, including Mitsubishi UFJ.

Relaxed markets

The chairman of the eurozone finance ministers, Jeroen Dijsselbloem, said he didn't believe the outcome of the referendum was the start of a new crisis. "Political instability makes it more complicated for Italy in the eurozone, but it's a new reality we have to work with," he said.

German Finance Minister Wolfgang Schäuble agreed there was no reason to speak of a crisis, but urged policymakers to work for political and economic reforms.

German economists have made no attempt either to portray Sunday's developments in Italy as the end of the world.

"I'd not speak of a euro crisis today," VP Bank Chief Economist Thomas Gitzel told Reuters. "Italy is likely to pick a government of technocrats as a result of the referendum; and that doesn't have to be bad at all as such governments have oftentimes achieved more in Europe than regular governments."

The chief economist of Commerzbank, Jörg Krämer, also refused to speak of a major crisis. But he warned that everything needed to be done to prevent a return to a policy of public debt accumulation in Italy, arguing that more debt could "prompt investors to turn their backs on the nation."

hg/jd (dpa, Reuters)


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