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Banks nervous as Italy's referendum looms

Monday, November 28, 2016 - 01:46

Italy holds a constitutional referendum on Sunday that could end the political career of Prime Minister Matteo Renzi and move the eurosceptic 5-Star Movement closer to government. As Sonia Legg reports, some fear it could also deliver a fatal blow to some of Italy's banks.

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If opinion polls are to be believed Italy's Prime Minister is heading for a defeat. And he hasn't got long to do anything about it. Matteo Renzi's referendum on constitutional reform takes place on Sunday. (SOUNDBITE) (Italian) RESIDENT, CESARE CARAPELLI, SAYING: "I will probably vote "Yes". Probably. I'm not completely sure the reform will be beneficial in the end." That uncertainty is making many nervous. Renzi has vowed to resign if he doesn't win. And the prospect of political chaos is hurting Italian banks. They've led sharp market declines across the wider European financial sector. And Britain's Financial Times, has even suggested 8 of the country's banks could collapse if the referendum is lost. (SOUNDBITE) (English) MIKE INGRAM, MARKET STRATEGIST, BGC PARTNERS, SAYING: "Without government intervention that is very plausible indeed. The volume of questionable loans is something like 360 billion euros for the Italian banking system. And that's just those that we know about." Last week Italy's Economy Minister insisted there would be no repeat of 2011 when the country was pushed to the brink of default. But the gap between Italian and German bund yields has been widening. And the economy is far from robust. (SOUNDBITE) (English) MIKE INGRAM, MARKET STRATEGIST, BGC PARTNERS, SAYING: "It has barely recovered from its lows post crisis. It's seven percent smaller than it was in 2008 so that has got to take its toll on the banking sector balance sheets, particularly in an environment where low interest rates have kept ongoing profitability very depressed indeed." Renzi is being urged to drop his threat to resign in order to deal with the fallout from a 'No' vote. Even President Obama urged him to "hang around no matter what" But he has his political image to think of and some believe it may all depend on the size of the defeat.

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Banks nervous as Italy's referendum looms

Monday, November 28, 2016 - 01:46