Europe: Italy at the centre stage - BBH

Research Team at BBH, suggests that the Europe’s immediate focus is on the Italian referendum on the size and function of the Senate, and secondarily the Austria's presidential election the same day, December 4.  

Key Quotes

“Italian Prime Minister Renzi has pushed through reforms of the lower house, the Chamber of Deputies, earlier this year.  Next month's referendum would complete the process and set the stage for the 2018 national elections.  However, the referendum is likely to lose.  Renzi overplayed the commitment to reform by threatening to resign if the referendum did not win.  He backed away from it, but most recently he has again played up this possibility.”  

“If the referendum loses, many expect Renzi to reshuffle his Cabinet.  Renzi seemed to be warning his critics within the governing PD party that he will not accept leading a caretaker government.  He would resign, he says.  A fractured PD, coupled with an already fragmented center/right, would increase the chances of the second largest political party, the anti-EU 5-Star Movement, which captured the city governments of Rome and Turin earlier this year.”

“The economic or the political impulse in and of themselves may signal a new paradigm, but together, they are a potent force.  Despite significant purchases by the ECB and the BOJ, bond yields appear to have bottomed.  Deflationary forces in most countries have been arrested.  Bond yields have been falling since the early-1980s.  This trend may be over.  That is what is at stake.  We may have entered a new paradigm.”