Outside the Box

Renzi’s Great Gamble

August 24, 2016

There is an extremely important election coming up, and I am not talking about the US presidential election. The upcoming referendum in either October or November in Italy may have as much or even more macroeconomic impact on the world as the US election, but hardly anyone outside of Italy is paying much attention to it – yet.

I have been saying for some time in interviews around the country that I think the referendum in Italy has even more potential impact than the Brexit vote did in the United Kingdom. And just like the Brexit vote, it is rife with emotion and political turmoil, making the outcome too close to call.

If you are a voter in Italy, your frustration (or maybe even anger) is entirely understandable. The current prime minister, Matteo Renzi, has basically bet his career on this referendum, which would allow him to enact what most of us would see as much-needed reforms – in fact they’re the very Italian reforms that I have written about in my letters over the last five years and that I talked about in my previous two books. Italy has about as sclerotic a governmental process as any country in Europe, and that is saying something. There is no end of corruption and crony politics, with each faction wanting to keep the status quo and not have to give up any of its perks but wanting everybody else to give up all of theirs. Not unlike a country close to where I reside (I say with a smile and a sigh).

Seriously, friends, this needs to go on your economic radar screen. If the “no” vote wins, Renzi has promised to resign, which will throw Italy into a political crisis. Then there will be a real potential to elect parties that would call for a plebiscite on whether to stay in the European Union – Italexit – and is not at all clear today what the Italians would decide to do. Know this: the European Monetary Union really does not work very well, if at all, without Italy, and a “no” vote would be the death knell of the euro, at least as we know it today.

Nick Andrews, who writes for my friends at GaveKal, has done an excellent summary of the situation in Italy, and his latest posting is this week’s Outside the Box. This is not a long essay, but it is worth every bit of your attention.

I have just about recovered my operational abilities here at Mauldin headquarters (which is actually my office at home). We are taking steps to make sure there is never a repeat of this computer debacle. I can point fingers here and there; but as they say, the buck stops here.

I hope the weather where you are is as pleasant as it is here in Dallas. Have a great week. I will be writing this weekend about why I am so disturbed about the negative interest rates set by current monetary policy that is in control of the economies of the world. It should be interesting.

Your wishing he had been in Tuscany for a few weeks this summer analyst,

John Mauldin, Editor
Outside the Box

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Renzi’s Great Gamble

By Nick Andrews and Stefano Capacci
August 24, 2016

Prime ministers come and go in Italy – four since the financial crisis – but precious little seems to change. The latest incumbent, Matteo Renzi, has pursued structural reform more energetically than his predecessors. But for all the progress he has made, he might as well have been wading through molasses. Now, in a bid to secure a popular mandate for his…

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