In the next few months you will hear on many occasions that Italy is having its own Referendum. The country will go to the ballot box to vote on constitutional change. Many of Italy’s problems in the past have not been resolved due to the complex process any new pieces of legislation have to undertake to be passed. The current Prime Minister Matteo Renzi has taken it upon himself to fix this problem and has even put his job on winning the vote.

Renzi’s proposal is to reduce the number of senators to 100 down from 315 and limit the upper chambers power to destabilise governments.

There is however an underlying current to the Referendum. Firstly the anti-establishment party, 5 Star Movement (M5S), has become more popular according to the polls than Renzi’s party whilst he’s been in power. By reducing the number of seats in the senate it could become possible for the M5S to gain a footing faster. Most threatening for the Eurozone is the 5 Star Movement’s main policy is holding an Italexit Referendum.

Secondly the Referendum is simply being billed as an opportunity to deliver a vote of no confidence in the current government and many see this as a chance to topple the current leader.

What are the potential outcomes?

Essentially if Matteo Renzi loses he will potentially resign creating a window of opportunity for the populist 5 Star Movement to win the general election that would follow. Alternatively even if he wins he could be the creator of his countries EU Referendum after simplifying the process for another party to gain a majority at the next general election.

There is a very real danger that Italy could hold 2 referendums in a short space of time and within a year vote to leave the EU. In my opinion if Matteo Renzi does not win the election and resigns the GBP/EUR could be up into the mid 1.20’s before the end of November.

If you’re waiting for the rate to improve before you decide to purchase Euros, make sure you’re in contact with your broker to utilise all the tools available on your account.

Further releases today could impact GBPEUR exchange rates so get in touch with our brokers if you need to make a currency purchase in the near future.

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