August 24, 2016

DOMINOS: Italexit Would Make Brexit Look Like a Picnic.

The political fallout from years of highly disappointing Italian economic performance is soon to be tested at the polls. At a yet-to-be-specified date in November, Italy is scheduled to hold a referendum on constitutional reform, mainly involving a proposed streamlining of its two-chamber parliament. With Prime Minister Matteo Renzi committed to resigning should he lose the referendum, the opposition has converted this referendum into a vote of no- confidence on the government.

A prolonged period of political uncertainty is the last thing that a sclerotic Italian economy now needs. Its banking system is burdened with non-performing loans that amount to around 18 percent of its outstanding loans, and its public sector debt has risen to 135 percent of GDP.

Italy’s banks, businesses, and government are saddled with debts in a currency they can’t afford to pay back and aren’t allowed to devalue.

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