The NY Times ran a feature article yesterday about the Italian banking situation, its precarious state of affairs, Matteo Renzi-the Prime Minister, and the effects of a weak economy in an already weakened EU economy. Mr. Renzi has placed his political future on an election that is just weeks away. It is essentially a referendum on his government and his attempt to steer the country onto a path for growth across the whole spectrum of economic activity.
In essence, he is attempting a very difficult task; He wants to reduce the size of the Italian Parliament(lower the actual seat numbers) to a number that would make legislation easier to accomplish. Right now, the number is in excess of 900 members. Coalitions must be formed to produce laws and to change existing laws. It is not easy given the cultural necessity to talk everything to the maximum degree. But the pressing needs of the banking sector require tough new policies. Italian banks have a heavy burden of bad loans. Because of this burden, businesses are starved for capital to grow and expand. Unemployment is at 11% and the critical 24-34 age group is suffering the most with figures well above the national rate.
Germany has been stuck on its growth path as the country trys to deal with immigration on a massive scale. Deutsche Bank has significant problems which could implode at anytime. VW has announced layoffs of 11,000 workers caused in part by the ongoing scandal related to software that controls auto exhaust emissions in the US.
The Italian election outcome could have a ripple effect beyond her borders. Mr. Renzi has said he may resign as Prime Minister if the referendum fails to pass. That would cause the government to be restructured/and realigned with new elections in the spring of 2017. Business does not like a cloudy environment where capital is at risk. Stability is necessary for investment.
I encourage all eligible voters to vote "Yes" on Mr. Renzi's referendum, for Italy and for Europe.
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