Italy: Sovereign risks from the referendum – Goldman Sachs

Francesco Garzarelli, Research Analyst at Goldman Sachs,  shares his view that the constitutional reforms could, could  modernise the architecture of the Italian State, and facilitate a more effective and accountable lawmaking.

Key Quotes

“Their rejection, on the other hand, would preserve the institutional status quo and, we think, should therefore not be seen as a trauma, but more as a missed opportunity.”

“Nonetheless, the vote is seen, in Italy and abroad, as a test of the popularity still enjoyed by the moderate, reformist and pro-European government of PM Renzi. A severe defeat in the vote would damage Mr Renzi’s leadership, potentially leading to a caretaker government and, in the worst of cases, early general elections.”

“With real income growth languishing, public debt at historical highs, and domestic banks needing to raise more capital, a political setback would come at an unfortunate time, with potential negative repercussions for sovereign risk. This is what the market has been increasingly pricing, particularly as the polling has swung in favour of a ‘Vote No’ victory.”