Morgan Stanley argues why there is thin chance of Italy leaving the European Union crumbling. The constitution of Italy prohibits holding referendums on international treaties, meaning that no referendum similar to the one of Brexit can take place under the rule of the current establishment. A passage of the Article 75 reads:
"A general referendum may be held to repeal, in whole or in part, a law or a measure having the force of law, when so requested by five hundred thousand voters or five Regional Councils. No referendum may be held on a law regulating taxes, the budget, amnesty or pardon, or a law ratifying an international treaty."
This means that Italy would have to go through a much more complicated set of events than the UK did for Brexit. At first, a pro-leave party needs an absolute majority to win the election; then – change the constitution with a majority of two-to-one in both chambers, or an alternative vote of absolute majority, and a referendum after the exit process is initiated.
While many, including Joseph Stiglitz, a Nobel Prize winning economist, argue that there is a reasonable chance of Italy taking the steps necessary to leave the European Union, and that the December 4 referendum could pave the way for Italy to follow in UK's footsteps, the major populist force is unlikely to gain enough support to set the chain in motion.
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The vote on Matteo Renzi's proposed changes in Italy's political system has been perceived as one which will ultimately result in a test of Mr. Renzi's popularity. While previously the PM stated that he will not resign from his post if the changes are rejected, he has recently shifted his stance, claiming a vote against the modifications will mean his step-down as Prime Minister. Taking into account the current sentiment, Democrats are now trying to change the way the proposed alterations are perceived – positioning them as a more progressive anti-establishment movement than that of Brexit and Trump.
Inspired by Donald Trump's victory in the US Election, anti-establishment activists claim the sentiment is changing in favour of what was previously seen as the unimaginable. A claim that people are ready to say "No", as they did on the other side of the ocean has cast doubt in investors' prospects for the third largest economy in the Euro zone. Fear has driven Italian bond and German Bund yields to highest levels in two years, as Silvio Berlusconi, the former Prime Minister often matched to Trump, states that "the same spirit of rejection" would motivate people to vote "No" to the proposition.
Most recent Target2 releases have shown a gloomy trend of capital flowing from Southern Europe into Germany. Italy has also seen a soar in its liabilities that have now reached new record-highs, topping those of 2012. A healthy current account surplus suggests that the problem lies in Italy's banking sector, and based on a report by BOI is caused by a sell-off of Italian assets that can only partially be offset by banks.