All eyes on Italy as EU faces unclear prospects
Yesterday saw the Italian constitutional referendum. That should hold risk for the financial markets but the reaction seems to be muted, apart from the euro falling.
Because the spread between Italy and German government bonds is gradually expanding, the market still has some concerns.
However, even if the Italian vote becomes the third "black swan" in financial markets this year, will it really bring short-term volatility?
The worst case is a comprehensive defeat, then there will be an opportunity to make the populist party Five-Star Movement become the ruling party in the general election in 2017.
What is of most concern will be the unclear prospects for the European Union and the euro area.
Italy has a chance to take off and the Italian government will have the opportunity to default in the face of rising debt at the same time.
Another situation is that the referendum this time means reformist Prime Minister Matteo Renzi continues to take the helm until his term expires in 2018, but his political influence will be weakened. So there are still many uncertain factors looming in Italy.
The ideal result would be a narrow victory for Renzi. That would ensure political stability in Italy until the 2018 election. Any result means change for Italy, but the fastest change will not appear until 2017.
Even if an optimistic situation results, does it mean Italy can completely solve its problems? The 2018 election still faces a big barrier, which means even if the referendum result falls the way the European Union wants this time, will Europe escape the collapse crisis in two years?
So my thoughts are that the short- term influence of the referendum is limited, but in the long run, no matter what the result is, there is still a potential crisis.
Source: Andrew Wong Wai-hong, The Standard