A “yes” vote in the referendum would have completed the reform process in harmonising the system in the Senate, and would have changed the Senate’s role to an advisory role of checks and balances – similar to the UK’s or Germany’s upper houses,” Zangana explained. “Instead, with the result of the referendum, Italy now has an incomplete and incompatible electoral system. This will need to be resolved before the next election in 2018, meaning that Italy’s next leader will be lumbered with this task instead of working on boosting growth.”
“Looking forward at the situation now in Italy, while Italian bond yields could rise further to some extent as markets assess the risk of an early election, we don’t think that this vote is decisive for the future of the eurozone and Italy,” added Matthias Hoppe, a portfolio manager at Franklin Templeton Solutions Group. “In our view there will be no elections in the near term. The President of the Republic will most likely hand over the mandate to someone else to form an interim government. The Italian constitutional court is presently revising the legitimacy of the electoral law that was explicitly planned to support the proposed constitutional reforms. After the referendum Italy has effectively no legal way of electing a new government.”
“As a result, the interim government will likely have the specific and limited mandate to pass a budget and introduce a new electoral law before the next general election,” Hoppe continued. “It will probably take place only at the ordinary end of the present legislature in February 2018, and in our view, a technocratic government is not threatening from a market perspective.”
Despite what seems an upbeat consensus among investment professionals, Paul Brain, head of fixed income at Newton Investment Management had a word of warning.
