Italy’s fragile banking sector suffered another blow as voters rejected the government’s proposal for political reform on Dec 4.
The political uncertainty following the referendum and the resignation of Italy’s Prime Minister Matteo Renzi may derail the Italian banks’ quest to raise new capital.
Renzi decided to step down on Dec. 5 after nearly 60 percent of Italian voters dismissed his plans for constitutional reform.
Renzi’s government had plans to reform key institutions including the banking sector. But he was able to implement only a few of them due to a complicated legislative process.
The referendum for constitutional reform aimed to streamline the law making process by reducing the power of the Senate and giving more power to the central government.
Renzi called the result of the referendum an “extraordinarily clear” defeat for him. Now his resignation means banks cannot count on state aid to sort out their morbid finances in the near future until a new government is formed.
Italian banks’ problems started during the financial crisis of 2008. However, Italy’s chronic economic problems made it more difficult for them to recover, unlike the U.S. counterparts.
Regarding economic growth over the last ten years, Italy has been the worst performing country in the Eurozone only doing better than crisis-stricken Greece.
Compared to other European banks, Italian banks have more corporate loans and the years of poor economic activity led to an increase in bad loans.
