Without a sitting government, it’s difficult to see how there can be any official help for Italy’s beleaguered banking sector. In short, now that the “No” vote has prevailed, Italy’s banking system is for all intents and purposes insolvent.
In addition, the size of Italy’s government debt is also a concern. Depending on which figures you look at, the total outstanding Italian debt is more than €2 trillion, which will have to be serviced even if the Italian voters someday choose to leave the European Union.
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On balance we feel that the brunt of the market fallout will be felt across the European Union. However, after the sharp rally in global stocks during the month of November, this referendum news could very well trigger some re-balancing of of financial positions going into the upcoming ECB and the FOMC meetings.
