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Tag: euro crisis
Italy’s Prime Minister Renzi To Resign After Referendum Rout

Italy’s Prime Minister Renzi To Resign After Referendum Rout

By Crispian Balmer and Gavin Jones

ROME (Reuters) – Italian Prime Minister Matteo Renzi is set to resign on Monday after suffering a crushing defeat in a referendum over constitutional reform, tipping the euro zone’s third-largest economy into political turmoil.

His decision to quit after just two-and-a-half years in office deals a blow to the European Union, already reeling from multiple crises and struggling to overcome anti-establishment forces that have battered the Western world this year.

Renzi’s emotional, midnight resignation announcement sent the euro lower and jolted stock and bond markets on concerns that early elections could follow, possibly paving the way for an anti-euro party, the 5-Star Movement, to come to power.

But financial markets bounced back later in the morning as European officials played down the prospect of a broader euro zone crisis.

Even Italy’s fragile bank sector, which is looking to raise around 20 billion euros ($21 billion) over coming months, staged a comeback on the Milan exchange after a shaky start.

European Commissioner for Economic and Financial Affairs Pierre Moscovici dismissed talk of a euro zone crisis, and German Finance Minister Wolfgang Schaeuble urged calm. Both said Italy’s institutions are capable of handling a government change, which would be its 64th since 1946.

Italian Economy Minister Pier Carlo Padoan, who has pulled out of scheduled meetings with European finance ministers in Brussels this week, is viewed as a possible candidate to replace Renzi.

Senate President Pietro Grasso and Transport Minister Graziano Delrio have also been tipped as possible successors.

The government crisis could open the door to elections next year and to the possibility of the opposition 5-Star Movement gaining power in the heart of the single currency area. 5-Star, which campaigned hard for a ‘No’ vote, wants to hold a referendum instead on membership of the euro.

“I take full responsibility for the defeat,” Renzi said in a televised address to the nation, adding that he would hand in his formal resignation to President Sergio Mattarella on Monday.

“I will greet my successor with a smile and a hug, whoever it might be,” he said, struggling to contain his emotions when he thanked his wife and children for their support.

“We are not robots,” he said at one point.

Sunday’s referendum was over government plans to reduce the powers of the upper house Senate and regional authorities but was viewed by many people as a chance to register dissatisfaction with Renzi, who has struggled to revive economic growth, and mainstream politics.

“No” won an overwhelming 59.1 percent of the vote, according to the final count. About 33 million Italians, or two-thirds of eligible voters, cast ballots following months of bitter campaigning that pitted Renzi against all major opposition parties, including the anti-establishment 5-Star.

The euro briefly tumbled overnight to 21-month lows against the dollar, as markets worried that instability could deal a hammer blow to Italian banks, especially the troubled Banca Monte dei Paschi di Siena. However, by early in the European morning it had largely rebounded. [FRX/]

Monte dei Paschi shares were suspended, initially falling 7 percent before bouncing back to a small gain. Yields on Italy’s benchmark 10-year bond soared to more than 2 percent, but then also retreated back below that mark. [GVD/EUR]

Monte dei Paschi needs to raise 5 billion euros by the end of this month. A consortium of investment bankers supporting its cash call will meet at 1100 GMT on Monday to decide whether to go ahead with it, a source familiar with the situation said.

Mattarella will consult with party leaders before naming a new prime minister – the fourth successive head of government to be appointed without an electoral mandate, a fact that underscores the fragility of Italy’s political system.

In the meantime, Renzi would stay on as caretaker.

The new prime minister, who will need the backing of Renzi’s Democratic Party (PD) to take office, will have to draw up a new electoral law, with 5-Star urging a swift deal to open the way for elections in early 2017, a year ahead of schedule.

“From tomorrow, we will start work on putting together 5-Star’s future program and the team of people that will make up a future government,” said Luigi Di Maio, tipped to be the group’s prime ministerial candidate.

Opinion polls put 5-Star neck-and-neck with the PD.

Renzi, 41, took office in 2014 promising to shake up hidebound Italy and presenting himself as an anti-establishment “demolition man” determined to crash through a smothering bureaucracy and reshape creaking institutions.

Sunday’s referendum, designed to speed up the legislative process, was to have been his crowning achievement.

However, his economic policies have made little impact, and the 5-Star Movement has claimed the anti-establishment banner, tapping into a populist mood that has seen Britons vote to leave the European Union and Americans elect Donald Trump president.

In a moment of relief for mainstream Europe, Austrian voters on Sunday rejected Norbert Hofer, vying to become the first freely elected far-right head of state in Europe since World War Two, choosing a Greens leader as president instead.

But elsewhere, the established order is in retreat. French President Francois Hollande said last week he would not seek re-election next year, and even German Chancellor Angela Merkel looks vulnerable as she seeks a fourth term in 2017.

($1 = 0.9400 euros)

(Additional reporting by Steve Scherer and Isla Binnie; Editing by Kevin Liffey and Pravin Char)

Euro Crisis Worsens, With Huge Risks For U.S.

The situation in Europe is looking increasingly dire, posing a grave risk to the global economy.

In the past day alone, the Greek government shut down because civil servants are protesting austerity measures, Moody’s has downgraded Italy’s debt, and France and Belgium had to act to save European lender Dexia. Even those without a good grasp of the intricacies of the European Union and its financial institutions — a category that admittedly includes most people both within and outside Europe — realize that the euro crisis bears a disastrous potential for economies throughout the world.

The impact of the worsening situation in Europe is already being felt in the stock market, but it could have more lasting effect on U.S. economic recovery. Ezra Klein writes in The Washington Post:

[Recent events in Europe] point to two things that could happen over the next year that would crack the American recovery and reshape the 2012 election: Some European countries could default on their debt and the European debt crisis could undermine the continent’s financial system and lock credit, much as happened here after the fall of Lehman.

On Monday night, Goldman Sachs sent out a research note that sounded less like an analysis and more like a warning. Their European arm, they said, “now expect the Euro area to fall into recession beginning in the fourth quarter, with full-year 2012 growth at only 0.1%.” Ouch. But they tried to be as clear as possible: this is our problem, too. “The European crisis threatens US economic growth via tighter financial conditions, reduced credit availability, and weaker growth of US exports to the region. This impact is likely to slow the US economy to the edge of recession by early 2012,” they continued.

The fact that it’s our problem doesn’t mean we have much say in the solution. Talk to government officials and they’ll tell you that the United States has three points of leverage over the Europeans: 1) They care what we think. 2) They need the International Monetary Fund’s assistance, and we have a major voice in that organization. 3) They want the Federal Reserve to continue providing liquidity and support to the global financial system in ways that work with their rescue plans. Put together, that’s more than enough to make us heard. It’s not nearly enough to make us decisive.

The IMF is trying to re-work its strategy to prevent a total EU collapse, but the crisis continues to worsen and cause market turbulence. The United States might not be able to directly intervene and prevent a disaster in the EU; it can, however, create a plan to help Americans if our economy is significantly damaged by the situation. Meanwhile, GOP presidential hopefuls in the United States seem to be avoiding the European issue entirely. Given the severity of the associated risks, the euro crisis warrants closer attention from the American public — and especially from American politicians.