Sunday December 4, 2016
Welcome to our TOPLive blog on Italy's referendum on constitutional reform, which aims to overhaul the country's parliamentary system. We'll kick off just before the polls close on Dec. 4 at 11:00 p.m. Rome time. We'll bring you the results as they come in through the night, plus analysis and market reaction.
Hello Italian watchers! I'm Flavia Krause-Jackson, European government editor, and my co-pilot for tonight is fellow Italian, Alessandro Speciale, senior economics correspondent. Together we'll be offering real-time analysis of a historic vote that won't just determine if Prime Minister Matteo Renzi gets to keep his job but whether Italy is the next domino to fall to populism. Renzi's reform has become yet another test of the viability of the euro and the European project itself.
We have assembled a large team to cover all aspects of the vote. Alessandro and I will be joined by several colleagues from across Bloomberg:
- Andrew Davis, Editor
- David Tweed, Senior Reporter, Government
- Adam Haigh, Stocks Reporter
- Chiara Albanese, Italy Economy, Politics Reporter
- Stefania Spezzati, FX/Bond Reporter
- Chris Kingdon, Social media monitor
- Crystal Chui, Social Velocity Reporter
- Marco Bertacche, Social Velocity Editor
- Maria Wood, Visual Media Editor
- Philip Tabuas, Visual Media Editor
- Rob Dawson, Photo Editor
- Emma O'Brien, Global Markets Editor
- Tal Barak Harif, TOP Editor
- Colin Keatinge, TOPLive Editor
- Anny Kuo, TOP Editor
- Eric Coleman, TOP Editor
- Foster Wong, TOPLive Editor
- Marc Perrier, TOP Editor
First some logistics. Polling stations will be closing at 11 p.m. local time. Exit polls will be published immediately after, with the initial projections of actual votes expected around 11:45 p.m. Vote counting may take several hours, and you'll be able to monitor it real-time on the Interior Ministry's website.
We'll be monitoring local television channels, where news is likely to break, and posting here. How different cities and regions vote may give us an early indication of the outcome. Opinion polls issued before the two-week blackout predicted Renzi's defeat, though many were still undecided then. But hey, who trusts polls after the Brexit and Trump shocks?
Now some nuts and bolts. A Yes vote for a reform to strip the Senate of most of its powers so it will no longer be able to bring down governments with a vote of no confidence, a popular political pastime in Italy. The specifics: Instead of 315 senators, there will be 100 local government figures (mayors, regional councilors). Senators won’t receive a salary but will be granted a degree of parliamentary immunity.
Basically it's very difficult to get laws passed in Italy because legislation gets bounced back and forth between the upper and lower house. The system was designed that way in the aftermath of World War II to protect the country from succumbing to dictatorship given its fatal brush with Fascism. But this “perfect bicameralism,'' while great on paper led to legislative gridlock.
A No vote -- which is what early polls are indicating as the more likely outcome -- could precipitate a government crisis. Renzi’s own political fate is on the line as well, as he has promised to quit if he loses the vote.
So in come Renzi, making Senate reform a pillar of his administration, in effect staking his political fortune on it. And while the IDEA of it was popular enough, the problem became that he became increasingly loathed. So the public came to identify the reform with him and not judge it by its merits.
At stake is how Italy is run as it endures a banking crisis, economic stagnation, and pressures linked to migration flows. Ultimately this is a barometer on the mood of the country - on how angry and restive people are about political gridlock, a stagnant economy, and the lack of work and opportunity.
Look the reform has its critics too. Some would argue that the country needs a system of checks and balances and this is just a power grab by Renzi, a ploy to weaken the say of regions over matters such as energy and transport and infrastructure.
Before we truly get going, I just want to jump in here and address head-on the elephant in the room. Even if No scores a resounding victory, Italy's exit from the euro would still be far away. There's a scenario envisaged in which Renzi resigns and opposition Five Star takes power after snap elections, and then calls a referendum on Italy's membership in the currency union.
This sequence of events, though, is not a sure thing. Here's why:
- It's not clear Italy's president would agree to early elections
- And if he did, would Five Star be able to secure a majority?
- Anyway, Italy's constitution forbids referendums on international treaties
So Italexit? Not so fast...
Quick look at the markets: The country's stock market has lagged behind European shares this year. The FTSEMIB is down 18% this year, compared with a 4.7% fall on the Euro Stoxx 50 index. Both gauges were up four years in a row before 2016.
- Should Italy vote No -- as polls forecast -- PM Renzi may quit. The Italian bank recapitalization would then be in jeopardy and we could be looking at a Greece-like market reaction on steroids.
- Europe’s Stoxx 600 Banks index could be a lead indicator of trouble ahead as a major head-and-shoulders pattern is developing. If there’s a bearish reaction after the vote, the pattern implies a drop of around 33%.
Italy's 5-year credit derivative premium has risen ahead of the referendum. Yet at 172 basis points it's well below the 500 plus basis points seen in 2011-2012 when Greece was the word in European markets.
Currency investors may watch EUR/GBP, which is unwinding its post-Brexit and flash crash spikes higher. The FX pair may have further to slide if euro comes under downward pressure.
EUR/USD continues to trade heavily below its 21-DMA as Asian markets await the results from Italy. The low on November 24 at 1.0518 will be a key level to watch in later action.
Just like with the Brexit referendum, traders will be watching for results from specific regions to get an early handle on the likely outcome.
For the U.K. it was the vote tallies from northern districts like Newcastle and Sunderland and they were like a grenade in markets - sparking that spectacular risk-asset selloff almost immediately. For Italy, market-watchers will be watching for results from Italy's South and from Milan, seen as a bit of a bellwether for national sentiment.
First exit poll results:
Italy Referendum: 'No' at 55%-59% in EMG Exit Poll
Italy Referendum: 'No' Ahead in EMG Exit Poll for La7
The euro has gotten more animated as we wait for the exit polls. It's currently down 0.4 percent to $1.0620.
First exit polls by EMG Acqua for La7 television say:
Yes 41-45, No 55-59
Italy has very strict laws on sharing poll data. Basically you cannot report or publish polls within 15 days prior to a vote. The idea is not to influence voters. Same applies to rumors, which are flying all over social media but cannot be reported on. The euro tanking would reflect markets are getting the sense Renzi lost, heavily.
The pound's also weakening (albeit, after a stellar week) - it's down 0.4 percent to $1.2679.
Exit polls by Tecne for Canale 5 give very similar results:
Yes 41-45%, No 55-59%
If you want to look at the results has the trickle in real time, this is the website to watch. `Si' is yes, and No is, clearly, no:
Here's a brief look at some of the key players in Italy's constitutional reform referendum:
- Matteo Renzi: At 39 he became Italy's youngest prime minister, setting out to reorder the political establishment. Two years later, Renzi's job is on the line if the proposed reforms are rejected
- Silvio Berlusconi: The former premier originally supported changes to the constitution but has been campaigning for a No vote. He's a possible kingmaker in any caretaker government
- Beppe Grillo: The activist leader of the anti-establishment Five Star movement stands to gain no matter what. His party is neck-and-neck with Renzi's, and a snap election may follow
- Pier Carlo Padoan: The finance minister has gained the respect of his European peers. He could be a possible caretaker premier if Renzi quits and financial markets get the jitters
Italy is known for its north-south political divide. How the main cities and regions vote will be key:
Milan: The financial and fashion capital recently voted in a center-left mayor. It's also where Berlusconi's reformist roots are. A high margin for either side could be an early indication of the outcome
Central, Northwest: Before a two-week opinion-poll blackout, Yes and No were virtually tied in the center (Florence, Bologna) and Northwest (Turin), the Yes camp's best showings anywhere
South, Sicily: High turnout in the south and in Sicily, where Five Star is stronger, may indicate a No result. Turnout traditionally is lower in the south
Pre-voting analyses put a lot of expectations on Italians living abroad, who were one of the cards that could swing the result in favor of Prime Minister Renzi. Final turnout data released by the Italian ministry of Foreign Affairs show that in the end just 30.9% of Italian expats decided to cast their vote.
So basically Italians abroad could be like Clinton's Blue Wall -- if they don't pull through for him that could spell trouble for the 41-year-old premier.
Markets unequivocal after that first exit poll: euro 0.6% lower against the dollar and the yen strengthening 0.3% against the dollar as money flows into Japan's currency, often considered a safe haven.
Prime Minister Matteo Renzi looked set to lose the constitutional referendum he’s staked his job on, as exit polls showed Italians joining the global backlash against establishment politics, writes Bloomberg's John Follain in Rome:
Prime Minister Matteo Renzi said earlier today that he will speak at midnight Italian time, according to his office. This is unexpected and has left many puzzling over what he might say just one hour after voting has ended. One option is that by then the no's victory would be so clear that it will be time for him already to draw the consequences; but it could be that he wants to be first out of the gate among politicians commenting the early results.
Also the exit polls by IPR Marketing-Piepoli Institute for RAI predicts a No victory:
Yes is at 42-46%, No at 54-58%
EUR/GBP could be in focus today if euro downside momentum accelerates. The last time the cross hit its 200-DMA, now at 0.8281 was in December 2015.
Here are the highlights so far:
- Early exit polls show Renzi heading for a heavy loss.
- Euro is responding in kind, heading south.
- Renzi is going to speak at midnight, a rather unusual step but in hindsight perhaps he a feeling it was not going to be his night.
- At this point, it might just be a question of how big a loss.
Open Europe senior policy analyst Vincenzo Scarpetta puts Renzi's resignation timeline:
How did we get here? Here's a quick timeline:
- April 15, 2014: The Senate approves first version of reform, backed by Renzi allies and Berlusconi's party
- Jan. 31, 2015: Renzi's candidate is elected president of the republic, prompting Berlusconi to withdraw support for reforms
- April 12, 2016: Lower house completes approval, lacking two-thirds majority needed to avoid referendum
- Aug. 4, 2016: Highest court accepts referendum request with more than 500,000 signatures from Yes campaign
- Sept. 26, 2016: Renzi's cabinet calls for Dec. 4 referendum. Decision is binding