Italian Referendum: vote outcome and financial markets


The NO to the proposed constitutional reform seems to prevail, some forces are still insisting to support a SI: what will the meaning be and how financial markets could react?

A NO vote will be followed by the resignation of the Prime Minister and the formation of a new government (Renzi 2? perfectly along the very stable Italian tradition since the 1950s). This new government will be formed within the same parliament as today and will most likely redesign the electoral law to be used at the next elections.

A SI vote would mean that the constitutional reform (approved by this very parliament, whose members seem to have totally forgotten they are the ones that approved the reform in both the upper and lower chambers) would finally be written into the new governance of the Italian State, including the electoral law, with its majority premium, designed to avoid the weak governments suffered up to now by Italy.

Polls indicate that the SI vote has the potential to prepare the conditions for a M5S “monocolore” government, a government  where no coalition would be needed.

This reform,  is scaring today’s parliament members, who rightly (in their full self interest) abstain from supporting the YES vote they recently repeated twice with the requested majorities (not only in the parliament there would be a small number of seats, most likely, they would not be allocated to today’s members, but in a much bigger proportion to the M5S members).

An Italian parliament dominated by the populist, anti Euro, M5S has for sure the potential to scare the financial markets (even if both Brexit and Trump didn’t show more than a minor dent on the sleepy flat screens distributed in the world trading rooms). Reading the Italian referendum within this logic, the NO vote should be the preferred one by rational investors.

One question emerges: what can justify the support to the NO vote on the side of M5S when they would be the only beneficiary? Game theory seems unable to explain.


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