DECEMBER 4, 2016: Italy's Referendum ('ItaLeave') Is Bigger Than Brexit And Is A Systemic Threat To Europe's Survival

With the rising wave of right-wing populists across the European continent, and now on the heels of our new President-elect Trump, Italians will go to the polls in three weeks to vote on a national constitutional referendum. This referendum is essentially a vote to support Italy’s current Prime Minister, Matteo Renzi and his left wing Democratic Party ‘establishment’ government by reducing the power of the Italian Upper Senate’s ‘anti-establishment’ authority and limiting the role of Italy’s regional governments too.

Sound familiar?

Prime Minister Renzi has vowed to resign his post immediately should the ‘NO’ vote prevail. In the last 30 days, particularly now after the US election, the polls have moved dramatically in favor of the NOs; moving from a 45% NO consensus (55% YES) to nearly 80% NO consensus (20% YES) today. Renzi’s resignation would surely lead to a Brexit-like vote, or ‘ItaLeave’ referendum.

Like the United Kingdom’s Brexit, and now with President-elect Trump’s stunning upset, there is a strong undertow of political disenchantment with the status quo throughout Italy. The anti-globalization, Euro-skeptic Five Star Party, founded by a popular Italian comedian Beppe Grillo (again, sound familiar?) secured victories in 19 out of 20 key June 2016 mayoral elections through the country including Italy’s largest city, the capital city of Rome. Five Star has made it clear that they would immediately ‘circle the wagons’ and ditch the Euro currency.

Unlike the United Kingdom and Brexit, however, Italy is not only an important member of the European Union. Italy shares in the world’s second largest reserve currency in the world, the Euro. Should Italy, the fourth largest economy in the European Union, vote to leave, the likelihood of many others to follow would almost be a certainty.

Italy, like Greece before the European Sovereign Debt Crisis of 2011-2012, carries an enormous government debt load of over 2.25 trillion EUR and a government debt to GDP of nearly 135%. To put those numbers into perspective, Greece in pre-crisis 2010 carried a government debt load of only 300 billion EUR and government debt to GDP of 145% just before nearly cratering the entire European Union and Eurocurrency just 5 years ago.

Italy’s long-term credit rating is precariously weak at BBB-, just 1 small notch away from ‘junk’ bond status. Bond markets (the ‘smart money’) across the world are beginning to take notice as long term yields on Italy sovereign debt have risen over 100 basis points, or over 100%, since July. To make matters worse, Italy’s increasingly disillusioned population is suffering from 9 straight years of near recessionary economic conditions including a high unemployment rate of 12%. Youth unemployment is significantly worse at over 30%.

To summarize, a major crisis is rapidly developing in the world’s largest economy, the European Union. The European Sovereign Debt Crisis of 2011-2012 was merely a sideshow to what is coming to a fragile and tenuous economic, financial, political, social, and geopolitical ‘New World’ framework.

We have long predicted a global sovereign debt crisis emanating from the Eurozone, and Italy very well could be Ground Zero. Investors had better buckle up for a turbulent and volatile period of change ahead.

Kirk D. Bostrom, Founder and Managing Partner

Strategic Preservation Partners LP ( http://sppfund.com ) is a private investment firm managing the Strategic Preservation Fund LP (The Fund), a US domiciled global special situations investment fund. The Fund offers qualified investors the opportunity to build and protect real wealth by exploiting a volatile conclusion to the Global Central Banking Bubble and credit market super cycle.

Disclaimer: The views expressed are the views of Kirk Bostrom and are subject to change at any time based on market and other conditions. This material is for informational purposes only, and is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. The opinions expressed herein represent the current, good faith views of the author at the time of publication and are provided for limited purposes, are not definitive investment advice, and should not be relied on as such. The information presented in this article has been developed internally and/or obtained from sources believed to be reliable; however, the author does not guarantee the accuracy, adequacy or completeness of such information.

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