Italy boosts public sector pay ahead of PM Renzi's referendum

Matteo Renzi

Several other lenders also need a cash injection to stay afloat raising fears of a domino-effect crisis."Sunday's referendum on constitutional reform is Italy's Brexit moment and a "No" vote would send tremendous shockwaves through the markets and the banking system". Renzi, 41, also wants to wrest back power from Italy's 20 regional governments.

According to sources things are only about to get worse with numerous European nations having their main elections next year.

The country's financial sector is plagued by an enormous surfeit of bad loans so great that the government was, in April, forced into rallying bank executives, insurers and investors to put €5 billion (£4.2 billion, $5.57 billion) behind a rescue fund for its weakest banks. The movement has gained momentum as a result of the EU's attitude towards the rise of terrorism, migration problem and persistent economic malaise.

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Italian PM Matteo Renzi has tied his future to winning the vote so a defeat will naturally open up another political air pocket at the top of a European government. A "high" political risk premium is already priced in the Italian government bond market with Italy having underperformed Spain by 30bp since early September, mainly on political woes. It is unclear whether or not Renzi will stand down, as he has repeatedly changed his stance in the lead up to the referendum, seemingly finding it impossible to decide what to do after the vote.

People have demanded Renzi's resignation and called the reform "disgusting". Mr Mingardi said the political establishment is anxious that the beneficiaries of an election would be the populist Five Star Movement.

"I don't know if it will be useful to [Italian Prime Minister Matteo] Renzi if I say that I hope for a "yes" win". The current structure can lead to legislation being slowed up by one of the two chambers and reforms to the Italian Senate - cutting the number of Senators to 100 for example - will allow the Chamber of Deputies to vote on measures such as the Budget a lot easier. And even if Italians voted "yes" to quitting, the result could still be blocked by the Constitutional Court, one of the country's supreme courts.

Nearly all worldwide attention being trained on Italy and Prime Minister Matteo Renzi now is focused on the referendum. Italians will vote on the referendum on December 4.

"Even a lot of "No" supporters are convinced that many points of the referendum are correct but the text is not sufficiently clear", Ms Nocera told The National, adding that Mr Renzi's biggest mistake was turning the vote into a referendum on himself by promising to step down if the proposed reforms are rejected.

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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