The euro fell to a 20-month low and its weakest level since March 2015 and Italy’s bonds declined as the nation’s Prime Minister Matteo Renzi said he would resign after conceding defeat in the country's constitutional referendum.
The single currency dropped against most of its 16 major counterparts as the referendum on Renzi’s plans to rein in the power of the Senate was defeated by 59.1 per cent to 40.9 per cent, according to the final tally.
Italy’s 10-year bond yield climbed the most in three weeks as the prospect of mounting political risk buffeted financial markets. Much of the focus is on Banca Monte dei Paschi di Siena, which is in the middle of a €5 billion capital raising. Its share price has fallen by 83 per cent this year and a third of its loan book has soured.
The result is the latest in a series of votes that have upset financial markets in 2016, following Britain’s vote to leave the European Union in June and Donald Trump’s victory in last month’s US presidential election. The euro dropped 0.2 per cent to $1.0646 as of 8:37 a.m. in London, after falling earlier 1.5 per cent to $1.0506, the lowest since March 2015. Italy’s 10-year yield climbed 10 basis points to 2.01 per cent, having dropped 19 basis points last week.
Meanwhile, Italy sank into political limbo after Renzi signalled that he would not stay on to help stabilise a caretaker administration, instead announcing plans to hand in his resignation to President Sergio Mattarella on Monday afternoon.
“In Italian politics, no one ever wins,” Renzi told supporters at a news conference shortly after midnight, his voice breaking and a tear on his cheek as he thanked his wife for her support. “I did everything I thought possible in this phase, but we were not convincing.”
Italy’s Finance Minister Pier Carlo Padoan cancelled a trip he was due to make to Brussels on Monday for a meeting of euro-zone colleagues, his spokesman said in a text message. Padoan, a potential successor to Renzi, will attend a cabinet meeting before Renzi hands in his resignation.
The referendum result leaves Mattarella seeking a new government chief who can provide a firebreak against the insurgents; polls suggest an early election would see the anti-euro Five Star Movement swept into power.
A survey by EMG released on Sunday showed Five Star winning a second-round ballot by 53 per cent to 47 per cent against Renzi’s Democratic Party and by 57 per cent to 43 per cent against the centre-right bloc. Five Star had demanded a snap election if Renzi is defeated as it looks to force another referendum -- this time on taking Italy out of the euro. Still, a poll last month showed only 15 per cent favoured leaving the single currency and 67 per cent were self-described single-currency believers.