With his political career on the line, Prime Minister Matteo Renzi launched a final day of campaigning on Friday ahead of a December 4 referendum, saying Italy would be the strongest nation in Europe if he wins.
Financial markets and Europe’s politicians fear victory for the opposition ‘No’ camp could trigger political instability and renewed turmoil for Italy‘s battered banks, pushing the eurozone towards a fresh crisis.
“Think of your future and the future of your children,” Renzi said in a radio interview on Friday, the first of numerous media events and public rallies planned for the day.
Renzi has promised to resign if Italians reject his plan to drastically reduce the role of the upper house Senate and claw back powers from regional authorities. The opposition says the reform will reduce vital democratic checks and balances.
The 41-year old premier has dominated the airwaves in recent weeks, often appearing several times a day in talk shows and in online forums to try to turn around a plethora of opinion polls showing a growing lead for ‘No’.
A blackout on the publication of surveys was imposed on November 18, but private polls are still being carried out and bookmakers say the ‘No’ camp remains the clear favourite to win.
“If ‘Yes’ wins Italy will be the strongest country in Europe,” Renzi said, pledging to veto immediately the European Union’s budget to force Italy‘s partners to give it more help in handling an influx of migrants arriving on its shores.
Economy Minister Pier Carlo Padoan sought to calm nervous markets on Friday, saying in a newspaper interview that there was “no risk of a financial earthquake” if ‘No’ wins, though there may be “48 hours of turbulence”.
European shares fell to a three-week low on Friday as investors stayed cautious ahead of Italy‘s vote, with Milan’s bluechip index off 0.75 per cent.
The bond market was more sanguine, with the gap between Italian and German 10-year bond yields, a key bellwether of investor sentiment, dipping to 165 basis points on Friday against a 2-1/2 year high of 190 points registered last week.
Market jitters have concentrated on Italy‘s banks, saddled with €360bn of bad loans, and most specifically on Monte Dei Paschi di Siena, its oldest and third largest lender.
The bank needs to raise €5bn by the end of the year to plug a capital shortfall or risk being wound down. Government officials say potential investors may be deterred by political instability if ‘No’ wins on Sunday.
With bookmakers odds suggesting a roughly 75 per cent chance of a win for ‘No’, speculation is rife on what Renzi will do in the event of defeat.
He is widely expected to resign and has said he will play no role in any unelected, so-called “technical” government, which President Sergio Mattarella may try to put in place. Some of his allies have urged him to stay in power regardless of the result.
On Friday he declined discuss post-referendum scenarios, saying talk of a snap election, a year ahead of schedule, was “fantasy”.
Luigi Di Maio, one of the most prominent figures in the largest opposition party, the anti-establishment 5-Star Movement, said on Friday the country should hold fresh elections “as quickly as possible,” in the early months of next year.