Implications of Italy’s “No” vote on Europe



​The Italian referendum was about reforming the electoral system, with the ultimate objective to give greater stability to Italy’s governments. However, it had been turned into another chance for a protest vote, and it was widely expected that the outcome would be a rejection. That result has led to the immediate resignation of Prime Minister Renzi.

There is now likely to be an interim government in Italy, possibly lasting through to the scheduled elections in May 2018. Such an arrangement has been the norm over many years in Italy and in fact the lack of government in Spain for as long as nine months earlier this year (and indeed Belgium for 18 months a few years ago) does not seem to have had a material negative impact on economies.

Much of the UK press would like to see this as the beginning of the end for Europe. But it might actually be the last major political surprise, rather than another country following the UK’s baffling Brexit decision. Austria rejected a Far Right presidential candidate over the weekend, and that has seen virtually no coverage (admittedly overshadowed by Italy, but still significant).

Next up is France in April 2017, and there is no doubt that there will be plenty of coverage on this, even though François Fillon may turn out to be a refreshingly good partner for a Germany that recognises that Europe needs to change some things pretty soon.

Meanwhile, economies are doing okay, a weaker euro is a positive for Europe’s exporters, and there may be a ‘clever’ arrangement to solve the problem of recapitalising Italian (and other) banks.

Finally, while Italy may be an important economy in terms of scale, it is also a lot wealthier than some would perceive, but its stock market is quite small. In the Henderson Horizon Pan European Equity Fund, we have no exposure to Italy and have not had since selling Intesa, immediately after the UK Brexit referendum.

I continue to believe that Italy will not rush to hold a referendum on whether to remain in the euro. After a lengthy period of euro criticism, some may wish to point out that Ireland is flourishing again, Spain is improving fast and, in general, European economies are faring quite well (in a low growth world).

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Janus Henderson Horizon Pan European Equity Fund

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