Italian Prime Minister Matteo Renzi announces his resignation, hours after learning he had suffered a crushing defeat in a referendum on constitutional reform.
Video provided by AFP
Italy’s rejection of a plan to reform its constitution and the subsequent resignation of Prime Minister Matteo Renzi plunged global markets into disarray Monday as fresh doubts were raised about European political stability.
Asian shares tumbled after Italian voters voted “no” in a referendum to changes Renzi said would have reduced bureaucracy and made it easier to pass legislation aimed at kick-starting the country’s moribund economy.
In Europe, though, markets mostly shrugged off the development. Stock futures on Wall Street were little changed several hours ahead of the market open in New York.
The outcome raises questions over whether Italy will stay in the European Union and keep using the euro. It also emboldens Italy’s Five Star Movement, a populist opposition party led by former comedian Beppe Grillo who has campaigned with an anti-establishment, anti-austerity and anti-corruption message.
In Tokyo, the Nikkei 225 index retreated 0.8% to 18, 271.99. China’s Shanghai composite index lost 1.2% to 3,204.71. The euro plummeted to a 21-month low against the dollar before recovering. The shared currency was recently down 0.3% to $1.0633. Europe benchmarks were calmer but Italy’s FSTE MIB index still fell 0.2%% to 17,121.57. Germany’s DAX index rose 1.7% to 10, 688.49.
About 60% of Italian voters spurned the reforms, according to partial returns. Italy’s president will now have to decide whether to accept Renzi’s resignation. “This (outcome) raises the political risks in Italy and may weigh on its troubled banking sector,” Citigroup analysts said in a research report. Italy is the third largest economy in the eurozone. It also has one of the economic bloc’s most troubled financial sectors. Its banks are overindebted and face extreme liquidity challenges.
The result hit Italy’s sovereign debt. Spreads on Italy’s 10-year sovereign debt rose to 2% from 1.7% on Dec. 1. In April, these bond spreads were at a record low 1%.
While the “no” vote was a rebuke to Italy’s political and financial establishment, it also reflected an opportunity for the Five Star Movement’s Grillo to capitalize on discontent with Renzi. The Italian premier had made it clear that the referendum was equally a confidence vote on his 2½ years in office.
“I lost and the post that gets eliminated is mine,” Renzi said in a speech early Monday. He said he would hand in his resignation to President Sergio Mattarella in the afternoon. However, Mattarella is not obligated to accept it and could instead ask Renzi to take part in an interim government until elections are called.
“Arrogance lost, from which we’ll learn many things in forming our team for government and our platform,” said Luigi Di Maio, a Five Star politician, in a news conference. “We’ll be working on a government of the Five Stars, we’ll involve the energies and the free persons who want to participate.”
In Austria, left-leaning Alexander Van der Bellen defeated right-wing rival Norbert Hofer on Sunday in a presidential election that was a re-run of a vote in May that was tainted by ballot irregularities. The victory was welcomed by politicians in Europe concerned by recent gains made by populists in Britain, France and the Netherlands.
Martin Schulz, the European Parliament president, said Van der Bellen’s win was a defeat for “anti-European, backward-looking populism.”
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