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Opinion: What Happens If Italy Votes ‘No’ on Sunday

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It won’t kill the euro, but it will change the direction of Europe

By Andrea Montanino | 2 December 2016

MARKET WATCH — Sunday’s Italian referendum is another challenging step for Europe and for its nervous financial markets. In the last few days, markets have been experiencing increased volatility, especially for Italian banks, and yields on sovereign bonds of highly indebted European nations have risen.

This is the result of uncertainty about what is to come next. A supporting vote for the proposed constitutional reforms, which would strip the Senate of much of its power, will strengthen the leadership of Prime Minister Matteo Renzi, both in Italy and in Europe, boost confidence about the reform process, and provide a path toward a more pro-growth Europe.

But what if the “no” vote wins and Renzi resigns? This won’t be the beginning of the failure of the euro or of the European project. Europe has faced far more problematic and challenging situations. Think of the financial assistance to Greece and Portugal, the decision to impose capital control in Cyprus, the refugee crisis, and the rescue of the Spanish banking system, just to mention a few in recent years. In all cases, the European leaders have found their way, although not always in a linear, straightforward and clear manner.

Those who consider that this vote could be a disruptive event for the European Union — potentially even worse than Brexit — forget this is a normal feature embedded in Italy’s constitutional system: The referendum was compulsory and not a political decision of the prime minister. No matter the outcome, it is very unlikely that Italy will face a financial and institutional crisis.

But a negative vote likely would make it harder for Italy’s fragile banks to recapitalize in the short term, exacerbate tensions among European leaders in the medium term — and could alter the vision of Europe in the long term. […]

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