A 'no' vote in Sunday's Italian referendum could pave the way for an anti-European government, but it is unlikely to spark the break-up of the European Union, says AMP Capital.
Italians will vote on whether to change the country's constitution on Sunday, with a 'no' vote likely to be fatal for centre-left Prime Minister Matteo Renzi.
Mr Renzi has staked his political future on the result, initially vowing to resign in the event of a 'no' vote. A defeat for the embattled prime minister could result in early elections and the rise of the anti-EU Five Star Movement.
Financial markets are jittery about the results of the referendum, because it could jeopardise the recapitalisation of the troubled Italian banking sector.
But despite the uncertainty in Italy – along with elections in the Netherlands, France and Germany next year – the risk of a break-up of the European Union is still a long way down the track, according to AMP Capital chief economist Shane Oliver.
“Support in mainland Europe for the eurozone remains high. In the Netherlands its 75 per cent, in France it’s around 67 per cent and in Italy it’s around 55 per cent,” Mr Oliver said.
“Basically, the populists have to ditch anti-Euro policies if they wish to govern.”
Mr Oliver said the “bouts of turmoil” driven by break-up fears could actually present buying opportunities instead, “just as we have seen since the eurozone debt crisis began in 2010”.
“More broadly, after their post Trump rally shares have become overbought and vulnerable to various events coming up over the next few weeks, but after a pause shares are likely to resume their rally into year-end,” he said.
“[This will be] helped by reasonable valuations, continuing easy global monetary conditions, the prospect of fiscal stimulus in the US, a shift from falling to rising profits and the usual ‘Santa Claus’ rally that kicks in around mid-December.”
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