Why does it matter?
Italy has the 4th largest GDP in Europe, yet its banks are still battling with the aftermath of non-performing loans made to small Italian businesses during the recession. A number of Italian banks, including the world’s oldest bank Monte Dei Paschi, teeter on the brink of collapse if the referendum triggers extended market instability.
According to the Financial Times, “The situation is being closely watched by financiers and policymakers across Europe and beyond, who worry that a mass failure of Italian banks could trigger panic across the eurozone banking system.”2
What does it mean for your money?
As Renzi steps down, the euro is likely to take a hit against most major currencies. In the hours after the election, the euro quickly recovered from a 1% loss against the dollar to a .5% loss, but the effects of the vote could be protracted. How far down the euro goes depends on how long it takes to resolve the power vacuum and what happens to the Italian banks. If traders perceive a weakness in the euro, the U.S. dollar could get a boost while the pound sterling may be held back by its ties to continental Europe. If you’ve been waiting for the euro to decline, so you can move your money, this may be the time to seize the rate.