Author: Zhibei Capital Research Team
Speaking of Italy, what will happen to you first? In short, as financial people, we love tasting (zhuang) flavor (bi). What can be linked to Italy in our minds are various fashions and delicacies: Versace , Armani, DG, Fendi , Gucci, Bulgari, Ferrari, Maserati , Lamborghini , latte, Espresso, pizza... In addition to bigger (fashion), Italy is also a good player in entertainment, including the fashion capital Milan , the historic Rome , the industrial city of Turin, the water city of Venice, and the world's top clubs that are familiar to football fans: Milan's two heroes, the deep zebra Juventus, the Blue Eagle Lazio, etc. In short, Italy left a deep impression on us in terms of quality of life. 
However, such a country that understands life and can enjoy it, it is also great to cheat teammates. During the World War, the fascist camp might have been able to last for a while without Italy's participation, and Italy just made up the numbers. It is said that the Italian Legion stopped cooking noodles because he was hungry during the World War and was captured by all the entire army and lost the front line. So I really have to thank God. Italy joined the Axis powers during World War II, otherwise the Nazi Iron Cross might really be spread all over the world.
More than half a century has passed since the end of World War II. Now, tonight, Italy has once again attracted the attention of global investors. But this time there were no guns, no shells, and no smoke. It has nothing to do with war, but it has something to do with politics. Italy will hold a constitutional amendment referendum later today to early Monday morning Beijing time. Although this referendum is not as popular as Brexit and the US election, the financial market has also responded to this referendum. Next, let’s briefly talk about what is worth knowing about this Italian referendum.
First of all, this referendum is Italy's third referendum since World War II (the first two were in 2001 and 2006 respectively). The topic of this referendum is "Amendment of the Constitution to reform the election rules of the Senate , reduce its size, and limit its power." This plan was first proposed by the Italian Democratic Party (Prime Minister Renzi party) in April 2014. And after several rounds of voting, it was finally approved by the Senate and House of Representatives in April 2016. However, since it has not reached the absolute majority requirement of more than two-thirds of the members of the two houses, it is necessary to hold a referendum to finally take effect. Browse the referendum content, the basic referendum content can be divided into the following three major items:
1) Change the election rules: is changed from the same universal suffrage as House of Representatives members to the indirect way of election of local councils;
2) Reduce the scale: reduces the number of senators from the current 315 to 100;
3) Restrict power: will no longer require the Senate to pass unless some issues involving constitutional levels, and the House of Representatives has the final right to decide on daily bills; ZF no longer needs the Senate's vote of confidence, and the Senate cannot pass the motion of distrust of ZF.
What is the root cause of this referendum? Listen to Zhibeijun’s story.
mentioned in the previous article that Italy was the Axis power in World War II. Although it was a scam, it was still fascist. After World War II, the Italian people learned their lessons and emphasized that in order to prevent excessive concentration of power, ZF needed checks and balances. Therefore, Italy implemented the bicameral system , and the Senate and the House of Representatives have the same functions and equal powers in legislation. All bills need to be passed by the Senate and the House of Representatives before they can take effect, and ZF also needs to be voted by the trust of both houses to take office. Then the problem arises. The bicameral system is a double-edged sword. Although it solves the problem of checks and balances of power, this mechanism is very inefficient. Because if the ruling party wants to legislate, it must lock a majority in both houses to ensure that its bill can be passed in both houses. Otherwise, as long as the ruling party has no advantage in either house, it is likely that the legislative proposal will be miscarried. This inefficient political mechanism also causes frequent replacement of the Italian ZF.According to statistics, since 1990, the Italian ZF Prime Minister has been replaced for 14 terms, an average of about one and a half years.
So, in order not to let his prime minister's career be only 1.5 years, our Italian Prime Minister Mr. Renzi began to promote constitutional reform after taking office in February 2014, hoping to limit the power of the Senate to improve legislation efficiency. Why only the Senate is restricted and not the House of Representatives? Because Renzi's Democratic Party and his center-left league control the House of Representatives is around 55% (which is absolutely controlled), but there is only 39% control in the Senate.
If constitutional reform is passed, it will significantly enhance the ruling power and legislative efficiency of the current ruling party. But the problem will come again. After the constitutional amendment, the ZF's power will be too high, which will cause the mechanism to lack effective checks and balances. Efficiency or checks and balances? To be, or not to be, that is the question!
After reading this, I believe everyone can see that this referendum is actually an internal matter of the Italian people, and its international influence is actually not that great. But why do we think this matter is worth talking about it? We have to talk about Italian Prime Minister Renzi. The world was already chaotic enough. It is better to have less than more things. But Lunzi said something that made market investors start to think about the results of the failure of the referendum. Mr. Renzi said that he would bet on his career as prime minister in this referendum and he would resign if the referendum failed. Lunqi's resignation is small, but the consequences are big. We can consider it in economic and political categories.
Economic category:
Italy belongs to the PIGS member of the four European pig countries (Portugal P, Italy I, Greece G, Spain S). This "great" comes from the weak Italian economy and is difficult to boost. Since the financial crisis, it has lagged behind other major countries in euro zone in many areas such as economic growth, inflation, ZF debt, unemployment rate, etc. However, the Italian economy has a relatively large amount of . As of 2015, the nominal GDP was US$1.82 trillion, and it is still the third largest in the euro zone and the fourth largest in the EU. Its influence and charm are still there.
In addition, the Italian banking system has always been a big problem for ZF. After the financial crisis, the asset quality of Italian banks continued to decline. According to data from the Italian central bank, as of 2015, the overall non-performing loan scale of the Italian banking system reached 360 billion euros, which is about one-fifth of GDP; the non-performing rate is as high as 18.1%, which is in sharp contrast to the overall 5.7% of the euro zone. At the same time, according to the stress test results of 51 European banks released by the European Banking Authority (EBA) this year, four Italian banks participating in the stress test had a lower first-tier common equity capital than the overall level. Monte Dei Paschi, the most problematic bank, ranked last among all banks in the extremes of stress tests.
So investors are worried that the political instability caused by Renzi's resignation will further affect Italy's already fragile economy and the banking system plagued by bad debts.
Politics:
If this referendum fails and Renzi leaves office, it will cause chaos in Italy. At present, the biggest beneficiary may be the party with populist tendency, the Five Star Movement, which is currently the second largest party in the House of Representatives. The Five-Star Movement is likely to become the new Italian ruling party in the following elections. According to the previous political propositions of the Five Star Movement, they will hold a Brexit referendum after they come to power, so market investors will worry that Italy will leave the EU after the UK, and this move will undoubtedly make the EU and the euro zone worse.
The more serious thing is that if Italy also succeeds in Brexit. This will add impetus to countries that are interested in Brexit under the current populist wave, and enable the EU to step by step towards the abyss that will never be restored.
To sum up, market investors are not concerned about the constitutional reform referendum itself, but about the results of the referendum and the results, which is a series of chain effects that arise after the referendum!
has talked with everyone so much, I believe readers have a rough understanding of this Italian referendum. As for the results: whether Brexit will happen, we do not make judgments, but only think. After all, in the long river of history, political factors are difficult to predict. Even if Italy wants to leave the EU, it will happen a long time later. Because first, the referendum on this constitutional reform failed, then Renzi resigned, and then the parties that supported Brexit came to power (such as the Five-Star Movement), and then the party proposed to amend the constitution and successfully passed it (according to the current Italian constitution, the international treaty cannot be abolished by referendum, so the constitution must be amended first), and finally the proposal for Brexit can be put on the agenda.
What we want to say is that Italy's tomorrow is in the hands of the people. Is it necessary to check and balance the regime or to legislative efficiency? Everything is waiting for tomorrow's results. Borrowing the poem by Renzi's fellow countryman Dante, the famous Italian poet, to sigh: "There have always been two suns that illuminate the two paths, the path of the world, and the path of God." ------------" Divine Comedy "
