A few thoughts after a rather intense week on the Euro area markets:

1/ The Italian Referendum was very different from Brexit: the vote had no immediate and material economic consequences, the result was not unexpected, there was no anti-globalization or anti-immigration angle to be taken in the debate. Crucially, it was not the "amateur hour" exercise witnessed in the UK that we will hopefully see mended by the Supreme court in January.

2/ Populists are growing in Italy: M5S and Northern League together make probably 35% of electorate and, yes, they use anti-Euro rhetoric, attract the young and - M5S - make very good use of social media. However the country remains committed to the Euro (not to mention the EU), and the return to the Lira seen as unnecessary and even catastrophic by the great majority of people, especially those in businesses/entrepreneurs... in other words, those who rejected the constitutional reforms just did that: rejected the reform. 

3/ The vote will help the cause of the Brexiteers and anyone who thinks can profit from some EU bashing; however it also heightens the probability that the EU will have interest of making an example of the UK. 

4/ BRRD: interesting test for the directive, as finally the inevitable seem to be happening to BMPS (unless they really manage to find an anchor investors). There isn't much uncertainty re what will take place, the legal framework is clear, moral hazard is being curbed, dodgy political connections have been removed, competition guaranteed. Total of needed interventions is not particularly big. I guess the main point here will be guaranteeing swift compensation to those investors who were missold subordinate bonds (under the watch of the Italian authorities, not the EU).

5/ On top of the elections in the Netherlands, 2017 will also see elections in France and Germany, and almost certainly in Italy too... then a few years to focus on solutions to problems. I bet there will be elections in UK too. 

6/ Italy still needs proper reform of governance, but it especially needs to improve public finances. There is very ample room to cut costs and lower taxes, and Renzi paid for not focusing more on economic reform.

Eoin Treacy's view

Thank you for this email which may be of interest to others. I can’t say I agree with referring to the UK’s democratic right to debate EU membership as amateur hour but there is no debating that the UK has long had a Eurosceptic grouping while that is only a recent phenomenon in on continental Europe.

The Italian government is expected to take up to a $2 billion controlling stake in Banca dei Monte Paschi di Siena (BMPS) which is a flagrant violation of the no bailout Bank Recovery and Resolution Directive (BRRD). In all likelihood the EU is going to let this slide for expediency’s sake but it confirms that the bloc has one rule for large countries and quite another for smaller ones. That is a differentiation unlikely to be lost upon the electorates of the many small countries that has joined the EU over the last 20 years and sets the region up for more problems later. 

In the meantime it is good news for the banking sector. The DJ Euro STOXX Banks Index surged last week to break the yearlong progression of lower rally highs and a sustained move below 100 would now be required to question potential for additional higher to lateral ranging.