Italians vote against constitutional reform by larger than expected margin
Italians rejected their Prime Minister´s proposed constitutional reform by a wider than expected margin in the referendum carried out overnight, with markets initially apparently undecided on how to react to the result.
A total of 60% of the ballots were cast against Matteo Renzi´s reforms and 40% in favour, amid a high voter turnout of roughly 70%.
At the start of trading, the Milan Stock Exchange's equity benchmark, the FTSE Mibtel was off by over 1.5%. It afterwards recovered to rise by that same amount only to drift lower again in early afternoon trading; as of 1340 GMT it was down by 1.19% or 204.20 points to 16,883.75.
“In Italian politics, no one ever wins,” Renzi told supporters after the results of the vote were made known.
"I did everything I thought possible in this phase, but we were not convincing,” he added.
Commenting on the results of the referendum, Holger Schmieding at Berenberg, said: "Italy has missed a splendid opportunity to reform its political system and streamline its public administration. The ultimate tail risk, namely that Italy could choose to leave the euro eventually, remains small, albeit not fully trivial. This tail risk has now increased slightly, but probably not by a lot.
"Voters have rebuked the pro-European reformer Renzi. However, they also cast their vote against change, preserving the full checks and balances which make it so difficult to change Italy for better (more pro-growth reforms) or worse (leaving the euro)."
The most immediate implication of what analysts termed a 'hard-No' result, given the strong majority against making changes to the constitution, appeared to be that Renzi would not be entrusted by president Sergio Mattarella with forming the next government, leaving that task to another candidate, either from Renzi´s centre-left party or perhaps by asking Berlusconi´s party to join in a caretaker administration.
As recently as 2 December, some analysts had believed a 'soft-No' might have led to Renzi being tasked with creating a new administration after the plebiscite and perhaps with greater support than in the last one.
However, the biggest risks, which were 'snap' elections or a referendum on a so-called 'Italexit' were seen as unlikely by analysts, especially the latter.
Mattarella was also unlikely to pursue or endorse fresh elections immediately given the as yet incomplete reform of the country's electoral laws, with that for the upper house of parliament still pending, analysts said.
"With the law currently in place, the parliament would be highly fragmented, possibly with different majorities in the lower and upper house, making it almost impossible to form a government," analysts at HSBC said.
"[...] Nonetheless, Italy's financial markets, its underfunded banks and its overall economy could suffer unless Italy resolves its political crisis fast," Schmieding added.
As of 0735 GMT the yield on the benchmark 10-year Italian bond was rocketing by 12 basis points to 2.02%, while that on similarly-dated Spanish debt was up by five basis points to 1.60%.