Renzi’s last gamble

The outcome of the Italian referendum is binary. If it’s a ‘yes’ vote the tide of populism throughout Europe would recede as a threat. If the referendum is lost, it is unlikely we’ll just get business as usual under some rudderless coalition. Given what is happening in global bond markets, the unsustainability of Italian sovereign debt would be twinned with the ungovernability of Italy. The banking recaps would fail. Contagion would run from banks to the government and from there to the euro because Germany’s political calendar rules out any leniency. We are pessimistic.

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