Yesterday, the Italian population rejected political reforms that should speed up decision-making, in a referendum. The result was 59% against, and 41% in favour. Incumbent Prime Minister Renzi has admitted his defeat and will resign today. He staked his political future on the result. This did not result in a panic on the stock exchanges.
The euro dropped in value immediately after the first polls last night, but recovered this morning. The stock exchanges in Asia did not panic either, and the European stock exchanges were also calm this morning. With that, the stock exchanges responded less violently than to the Brexit and Donald Trump’s victory.
Although there were no panicked responses in the short term, the result does mean a period of uncertainty for Italy. It is not yet clear how the country will continue, and whether there will be new elections. Two populistic opposition parties want new elections.
Economically, it is important that capital markets keep faith in Italy. The country is still not doing too well, with a national debt of 133% of GNP. Besides, the economy has shrunk by 12% since the crisis of 2008. Various Italian banks also still have ‘bad debts’ on balance. The ECB has a policy of reducing those debts, and giving banks a stronger financial basis, but for that, confidence is needed.
Right-winger loses in Austria
In Austria, left-wing presidential candidate Alexander van der Bellen won the presidential elections. That is positive for the EU, because right-wing populist Norbert Hofer was beaten. In Brussels, the result is therefore being explained as a vote for the EU. With that, Austria has become a welcome exception after months during which anti-EU sentiments seemed to prevail.