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Renzi


Voters easily rejected constitutional changes backed by the government leading Prime Minister Matteo Renzi to announce his immediate resignation, according to the Wall Street Journal. Renzi led the charge to pass constitutional amendments that would make it easier for the Italian government to pass laws but the country said no.

Much of the campaign to reject the laws happened on Twitter (NYSE:TWTRC) and other social media as young voters, anxious to resist establishment government, worked hard to crush the move.

In a move that parallels Donald Trump’s presidential victory in the United States, the Italian vote is supposedly another indication that citizens around the world are tired of establishment politics.

Some experts say that this will cause destabilization in a country already struggling financially. The 5 Star Movement is Italy’s version of what the U.S.A. might call Trump supporters—people tired of the same old politics.

Interestingly, the referendums would have ended “perfect bicameralism,” where the house of representatives and the senate have equal power and the government needs their signoff on any referendum. Over time, this has decreased the efficiency and effectiveness of legislation and added to government instability. Removing government gridlock should be something anti-establishment supporters should welcome.

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The 5 Star Movement

The 5 Star Movement believes that Italy needs radical change—abandoning its EU membership and getting rid of EU budget strictures, for example.

But here’s the question—why are markets mostly flat or up the morning after such a big vote?

Italy Can’t Easily Leave the EU

The 5 Star Movement wants to see Italy leave the EU but the country’s constitution forbids holding a referendum on international treaties. Before any vote on an EU exit, the country would have to pass a constitutional amendment removing the language.

Next Election- 2018

Although Renzi is most likely out as Prime Minister, general elections for parliament aren’t until 2018. Parliament is largely held by establishment figures.

Austria Stayed Status Quo

Austria also held elections Sunday. Center-left candidate Alexander Van der Bellen defeated Norbert Hofer—the equivalent of Hillary beating Trump. No big populist uprising in Austria.

Change is Slow

Italy has been a closely watched country by investors for years. Its economy is weighed down in debt, currently has a 11.9% unemployment rate, and a 133% public debt to GDP ratio. In other words, it’s drowning in debt.

Although the defeat could add to the country’s economic destabilization, this is hardly a new headline for investors. Further, the overarching concern is how events like Brexit and the recent Donald Trump victory could cause further destabilization around the world but for now, recent European elections have proven that things aren’t changing as fast as people feared.

Bottom Line

Although a big deal in Italy, global investors don’t appear too panicked about the results. Futures indicate a normal opening with world markets trending slightly higher. As it often happens, there are no market meltdowns taking place as some people had feared.



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