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Italian referendum 2016

On 4 December Italy voted ‘No’ to Matteo Renzi’s constitutional reforms. So what happens now?

Follow the fallout of the result here, and find out what it might mean for Italy, the EU and the markets.

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What happens next?


Italy's 'No' vote on reforms to the Senate is set to have huge ramifications. Here’s what it might mean, politically and financially, in both Italy and beyond.

Political impact

Renzi followed through on his promise to resign should his reforms get rejected, and any hopes that he would stay on in the short term to ‘steady the ship’ proved unfounded. Now, a new governmental crisis and further period of instability is on the cards.

President Sergio Mattarella moved swiftly to try and quell the disruption, choosing Italian foreign minister Paolo Gentiloni to replace Renzi as prime minister. As a loyalist of Renzi’s Democratic Party (PD), Gentiloni is set to maintain continuity in the government’s domestic and foreign policies, in what is a volatile time for the eurozone’s third-largest economy.

However, Gentiloni’s stint as prime minister is likely to be brief. He’s seen to harbour little political ambition, and both his own party and its opposition, the populist Five Star Movement, are pressing for early elections in 2017. This would require a change to Italian electoral law first, but a hearing on its legitimacy is already scheduled for January. 

If the law is changed then Renzi – who remains at the helm of the PD – could lead his party into the next round of elections. If he does, he’s likely to face fierce competition from anti-establishment and eurosceptic parties currently riding on a wave of populist support.

With key elections coming up in France and Germany in 2017, Italy’s referendum also came at a pivotal point for the future of the EU. The instability the ‘No’ vote could cause in Italy may further strengthen the position of other eurosceptic parties across Europe – parties that have already been emboldened by the UK’s decision to exit the EU and Donald Trump’s win in the US presidential election.

Market impact

The impact of the referendum will be seen in the financial markets first and the real economy second.

The ‘No’ vote is likely to have more of an impact than a ‘Yes’ vote would have, and the banking sector – already in turmoil – is likely to be most affected. The Italian banking system is swamped with €360bn of non-performing loans, and the latest bout of political upheaval comes at a time when major banks are trying to secure billions of euros from private investors.

Monte dei Paschi di Siena, the world’s oldest bank, faces collapse if it fails to secure €5 billion from investors by the end of the year, which could force Gentiloni’s government to step in with a multibillion-euro bailout. And although UniCredit SpA announced ‘decisive’ plans to shore up its balance sheet, which include raising €13 billion through a share sale, the beleaguered lender could need its own government rescue act if it can’t generate the funds.  

While the true impact of the ‘No’ vote is still unknown, Italian banks remain very fragile, and any impact is likely to reverberate across the European banking sector as a whole.

The ‘No’ vote also rattled other markets across Europe. Major crosses like EUR/USD, EUR/GBP and EUR/CHF saw a short-term drop but quickly recovered, and the long-term market impact is still to be seen. The DAX, CAC 40 and FTSE 100 were all up in the aftermath of the vote. 

Italy’s credit rating

A period of economic and political turmoil could also compromise Italy’s credit rating, which would in turn push up the cost of borrowing for the Italian government and its municipals and businesses. DBRS, the Canadian rating agency, holds the highest rating on Italian debt, but amid the negative outlook has put this under review. The three major ratings agencies – Fitch, Moody’s and S&P (which has a BBB- rating for Italy, the lowest of the investment grade ratings) – are also now likely to review.

Many national and international investors froze Italian investment plans ahead of the referendum. Now there has been a ‘No’ vote, the situation could deteriorate rapidly, with a heavy toll on employment and growth



Read our analysis on the referendum

Renzi’s swift resignation after the ‘No’ vote caused major market volatility. Read our analysis from the time here:

What has Italy voted against?

Italian laws need to be approved by both houses of the Italian parliament: the Chamber of Deputies and the Senate of the Republic. This system pits the state against the regions, which frequently leads to the delay or scuppering of new laws, and undermines the stability of the Italian government. 

In an attempt to rectify this situation, Italy’s prime minister and reform minister proposed key changes to the constitution, to effectively reduce the power of the Senate. On 4 December, Italy voted ‘No’ to these reforms, in order to maintain the status quo.


The biggest changes proposed were to the composition and role of the Senate. Renzi’s reforms suggested it be reduced to 100 members, down from 315 currently. He proposed that members be elected indirectly, with 74 to be councillors, 21 mayors and five nominated by the presidency. 

The role of the Senate would have been refined to represent local institutions. They would not be compensated for their Senate roles, only for their roles as mayors or councillors, with their senatorial reform ending when their term as mayor or councillor ended. The reform aimed to end the competition between state and regions.

Alongside Senate reform, Italy voted not to approve four other key changes to Italy’s constitution (as well as a wide range of technical amends):

  1. Both of Italy’s political houses to exercise legislative power in respect of constitutional laws, electoral laws, referendums, treaties of the European Union, linguistic minorities and those governing in the territories. But all other laws to be approved by the Chamber of Deputies alone, with the trust of the government
  2. The National Economic and Labour Council (CNEL) – an advisory body on economic and social matters that also has the power to submit draft bills to parliament – to be abolished
  3. The number of signatures needed to propose new legislation to increase from 50,000 to 150,000
  4. Instead of both houses jointly electing five judges to the Constitutional Court, three to be elected by the Chamber of Deputies and two by the Senate

A referendum had to be held because, while the reforms were approved by overall majorities in both the Senate and the Chamber of Deputies, they were accepted by less than two-thirds of each chamber – a so-called ‘qualified majority’. Under Italian law, that means the reforms had to go to a public vote.

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2016 financial events

The Italian referendum was one of the biggest market-moving events of 2016. Learn more about other key financial events in 2016.