Macroscope | Italy’s referendum decision adds up to a worst case scenario for the euro
‘It is no exaggeration to say the euro could be facing extinction by the end of 2017’
The euro is facing the biggest threat to its existence
Year-end is normally the time when investors are looking to wind down positions and book profits, especially after a bumper 2016 when stock markets have hit all-time highs and bond yields hit rock bottom lows. But investors are in for a shock as their world is about to be turned upside down. The euro will be in the thick of it as Europe faces up to grave new uncertainties.
Watch: Italy’s PM Renzi quits after crushing referendum defeat
Italy’s failed referendum vote over proposed constitutional reforms has sent profound shock waves through global markets. The euro has had some near misses in the past, but this time the currency could be facing its biggest existential threat. It is no exaggeration to say the euro could be facing extinction by the end of 2017.
In the next few months it could be all change on the political landscape, with the risk of Europe’s traditional, europhile centre-ground being swept aside
Global investors can ill-afford to be complacent as the ramifications will be huge, possibly hurling the world into a bigger catastrophe than the 2008 US subprime crisis with all its ensuing toxic fallout. Italy’s no-vote might not only mark the beginning of the end for the euro, but could also set the world down a new trail of doom, gloom and economic destruction.
Italy is only the tip of the iceberg. The emergence of more volatile political pressures in Europe, a failing euro zone recovery and spectre of the European Central Bank losing its grip on prudential monetary control are adding up to a lethal cocktail of risk for the euro zone and the single currency ahead.
The euro was already on a slippery slope against the resurgent US dollar, so the weekend’s news will accelerate the currency’s slide towards the edge of the parity precipice. European stocks and bonds are set to suffer as confidence in the euro collapses. The contagion will spread.
Without a doubt, Italy’s no vote is a big shock to global confidence. Even though a negative result had been expected, no amount of forward planning could prepare the markets for an event of such magnitude. Italian Prime Minister Matteo Renzi’s resignation risks plunging the country into new elections and another political crisis, setting the stage for the anti-establishment, euro sceptic Five Star Movement to sweep into power.
