Euro is 'under increased threat following Italy referendum result'

Matteo Renzi’s referendum on constitutional reform has been lost and he has quit as prime minister

Zlata Rodionova@zlata07
Tuesday 06 December 2016 12:57
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Outgoing Italian PM Matteo Renzi has agreed to stay in power until the Senate passes its 2017 budget in the coming days,
Outgoing Italian PM Matteo Renzi has agreed to stay in power until the Senate passes its 2017 budget in the coming days,

The political turmoil set off by the Italian referendum result could endanger the euro, a German business group has warned.

Ulrich Grillo, the head of the Federation of German Industries, said that the German industry is worried about the consequences of the referendum, which prompted Premier Minister Matteo Renzi to announce his resignation on Monday.

"The risks of a new political instability for economic development, the financial markets and the currency union are increasing further,” he said.

Douglas McWilliams from the Centre for Economics and Business Researcg (CEBR), a leading economics consultancy, said it estimated the chances of Italy staying in the Euro for the next five years had fallen below 30 per cent following the vote.

"There is no doubt that Italy could stay in the euro if it were prepared to pay the price of virtually zero growth and depressed consumer spending for another five years or so. But that is asking a lot of an increasingly impatient electorate. We think the chances of their sustaining this policy are below 30 per cent," he said.

German's foreign minister also expressed concerns about the result, which prompted Prime Minister Matteo Renzi to resign.

Speaking during a visit to Greece, Frank-Walter Steinmeier said that while the result of the Italian referendum on constitutional reform was "not the end of the world," it was also "not a positive development in the case of the general crisis in Europe."

Italy's PM Matteo Renzi quits after losing reforms vote

The euro tanked to a 20-month low against the dollar overnight as shares across Europe opened lower after Mr Renzi conceded defeat in a referendum over his plan to reform the constitution.

At one stage the euro hit $1.0505, its lowest level against the US currency since March 2015.

However, the picture changed dramatically with the single currency climbing to $1.075 – its highest level for two weeks.

Economists warned business confidence in Italy is likely to be hurt by the political uncertainty and the struggles in the banking sector.

Ana Boata, economist at trade insurance firm Euler Hermes, said the result could hit growth, taking the annual rate down from 0.9 per cent to 0.6 per cent.

“It will be Italian companies that bear the brunt of a confidence shock, albeit a mild one, which are already contending with some of the worst cash flow conditions in the world – businesses are waiting on average for 88 days for payment for goods and services,” she said.

https://www.statista.com/

Despite concerns about the result, other commentators cast doubt on whether the referendum will have a knock-on effect in Europe.

Luxembourg's foreign minister, Jean Asselborn, said the vote was an Italian domestic issue and he doesn't see it as a defeat for Europe.

He told German news agency dpa: "Italy voted on a reform. It would be wrong to extrapolate that now to the European level. It was a domestic political argument."

A spokesman for Chancellor Angela Merkel said she "took note with regret" of Mr Renzi's resignation but Germany would offer to work closely with the next Italian government.

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