Economies Holding Italy Bonds Have Been Hit By The ECB Or Their Moves.

Italy's referendum on constitutional reform in December 4th failed to pass constitutional reform after referendum. This is another case of anti globalization trend and populism rising.

The aim of constitutional reform is to weaken the power of the Senate and indirectly enhance the decision-making power of the government.

Since the constitutional reform has not been passed, Lenzi will resign as Prime Minister of Italy and support the possibility of the "five star movement" of the Populist Party who has returned to Europe.

The risk of Italy's retreat from Europe is increasing, and the euro zone is facing the threat of disintegration.

Weakened against the US dollar.

Italy's debt has accounted for more than 130% of GDP, and Italy's bonds have been hit by the economy, and it has a negative impact on EU countries, such as France.

But the market had expected this, and the ECB might try to deal with it.

The internal advocates of constitutional reform are divided on the contents of the specific reform, while the opposition has been strongly advocating against it.

The political situation is in chaos, populism rises, and the risk of disintegration of the euro increases.

Italy's prime minister, Lenzi, is likely to honor his resignation pledge. Italy will face a temporary government or an early general election, no matter what the outcome will bring uncertainty.

The government's reform measures may not be able to continue. The Populist Party's "five-star movement" calls for high opinion polls.

The "five star movement" was founded by B F Grillo, a comedian in Italy in 2009, to support the European separatist party. It has a strong "European Scepticism" view. The party advocates separating itself from the European Union and attracting a lot of people who are dissatisfied with the social reality and do not trust the government.

Once in power, or follow Britain's choice of a referendum in Europe.

This will have a negative impact on the euro zone countries such as France, Germany and other countries that are about to change the government in 2017, and the euro zone will face the risk of disintegration.

Italy's banking crisis is intensifying.

The bank debt crisis in Italy is an important reason why Lun Qi proposed a referendum on constitutional reform.

The size of Italy's banking sector is fourth in the euro area, but the rate of bad assets remains high, up to 17%.

Italy had tried to raise funds by issuing treasury bonds and restructured the Bank of Italy, but the EU's banking regulatory system was not approved.

To support its balance sheet, Italy's third largest commercial bank, Siena, plans to raise 5 billion euros in public funds next week. The failure of the referendum will make financing more difficult.

Since 2016, the market value of the Bank of Italy has shrunk by more than half, and the bank debt crisis has become more serious. The failure of the referendum means that the rescue plan for the banking crisis will be postponed.

45% of Italy's bank debt is made by ordinary Italians, and the banking crisis will aggravate, and more Italians need to bear the risk of loss of assets.

In the short term, Italy's economy is under pressure.

The referendum failed, and Italy faced an early general election or the formation of an interim government.

Political turmoil has hindered Italy's economic growth, and the weak economy has made it harder for Italy to repay the bad loans of the banking sector. The banking crisis is hard to solve and Italy's economy is still bogged down.

The possibility of a populist party taking office has made Italy's economy less optimistic. Depositors also prefer not to have money in the Italy bank, which makes economic expectations self actualization. Italy's exit from the euro area is more likely to happen.

This is not a good solution to Italy's economic problems.

Impact on the financial market: bad euro, more than US dollars, but

Maybe we can deal with it.

The referendum failed, bad euro, more than US dollars, and more risky assets.

The euro depreciated against the US dollar. The Italian interest rate widened. The euro's exchange rate against the US dollar has fallen by 1.0558 from seven in early November to 1.0558 at seven in December 5th.

(1) after the failure of the referendum, the political situation in Italy is facing turmoil. The market's policy on Italy, including the follow-up performance of the euro zone, brings uncertainty and a rise in the risk premium. The euro will weaken further against the US dollar and the dollar will become stronger passively.

(2) yields on Italy's treasury bonds will rise.

Italy's bonds will continue to be sold and yields will go up.

Driven by demand for hedging, German bonds will be sought after, and interest spreads on German and Italian bonds will expand further.

(3) due to the failure of the referendum to meet market expectations, the market has responded in the early stage. But considering the checks and balances of the Senate of the Italy house, the ECB may be ready to rescue the economy when there is an economic fluctuation in Italy. The market may gradually adjust its expectations, or may refer to the financial market reaction mode after the referendum in Britain.

The impact may spread to the euro area.

The failure of the referendum and the possibility of the ruling of the Populist Party have increased the probability of Italy's withdrawal from the euro area, which may lead to the dissolution of the euro area.

Unlike Britain's retreat from Europe, Italy joined the European common currency and is a member of the eurozone.

If Italy returns to Europe, the euro in Italy will be converted into the price of Italy and the value of the new currency. The independent currency will depreciate rapidly against the euro, which will increase the risk of dissolution in the euro area.

The public's confidence in the euro as a common currency will decline, and the reluctance to make long-term, cross-border investments in euros will exacerbate economic frictions.

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