Italy: Next flashpoint for the wave of populism after Brexit and Trump's success - BBH

Research Team at BBH, suggests that many investors are closely watching Italy as it is seen as the next flashpoint for the wave of populism after Brexit and Trump's success.  

Key Quotes

“The constitutional referendum will be held on December 4.  Although the center-right Republican Party in France holds its first primary this weekend, ahead of next spring's presidential election, the Italian referendum poses a greater immediate risk.”  

“Without exception, the 32 polls from 11 companies reported since October 21 all showed the referendum would be rejected.  There is widespread mistrust for polls after the UK referendum and US election, but the common element was under-estimating the populist sentiment.  In Italy, it is tempting to read the polls as showing the populist ahead.”

“The problem with that interpretation is that it is not just the populists that are opposed to Renzi's constitutional reforms that, especially in light of earlier political reform, would strengthen the prime minister. Italy has had over 60 governments since the end of WWII.  Most recently, Renzi is the third unelected Prime Minister.”

“The argument is that without political reforms, and the ability to form stronger governments, Italy cannot mount the kind of economic reforms necessary to revive the moribund economy.    Yet all the opposition parties, some unions, and even some members of Renzi's own center-left coalition are opposed.”

“Nevertheless, a defeat of the referendum is understood as strengthening the populist threat because of how Renzi has handled it.  At first, he threatened to resign if the referendum failed.  Then he seemed to backtrack and recognize the faux pas of linking his government to the referendum results.”

“As we have argued, the European project is predicated on greater integration and the erosion of national sovereignty.  If the populist moment is truly here, the European project is at risk.  This is a force, as much as the prospect of tighter Fed policy or more US inflation that is weighing on the euro.”