Why Every Investor Should Be Thinking More About the Italian Referendum
All eyes are on the U.S. with the presidential election six weeks away and a potential rate hike from the Federal Reserve in December. But watch out for the rise of populist movements and political instability across Europe, argues Manulife Asset Management chief economist Megan Greene.
The next 12 months will be pivotal for the region as it gears up for a series of national votes.
Hungary will hold a referendum next week in relation to an EU refugee quota, with Austria poised for a re-run of the presidential election in early December. Next year, France will also elect a new president, followed by general elections in the Netherlands and Germany.
However, it's the upcoming Italian constitutional referendum that weighs most heavily, according to Greene.
"I think right now, the Italian referendum is at the forefront of most of investors' minds and if it's not, it really should be," said Greene in an interview with Bloomberg TV on Monday. "This could be an event that would cause a ton of volatility and Italy not only has a banking crisis but hasn't grown in a really long time either."
The vote involves huge political risks in the region, added Greene, because there's a good chance prime minister Matteo Renzi would not survive the referendum.
"Unfortunately [Renzi] said he would step down if he loses, so he's making Cameron's mistake of tying his own fate to this vote," she said. "It's really unclear what might happen."
Renzi could be told to form and lead a new government, but if a new election is held, the anti-establishment Five Star Movement could win, in which case a ton of volatility and political instability will be created, according to Greene.
"We're seeing a rise of populist movement across the Western world in response to rising inequality and sluggish recovery," she said. "It's here to stay and even after the elections, we are going to continue to have fractional politics."