Europe markets sanguine about Italian referendum defeat

London

ITALY began the week with the threat of expectations of an election and a banking crisis, following the government's referendum defeat. Instead, after an initial plunge, banking stocks, government bonds and the euro revived on hopes that the European Central Bank (ECB) would come to the rescue.

Initial fears of Italian political and economic difficulties were unsurprising. Matteo Renzi had announced his resignation as Italian prime minister, following a referendum vote that rejected, by a sizeable margin, the government's attempts to alter the Constitution.

Political analysts and market participants, however, changed their views that the "No" vote would lead to political instability or the rise of the populist anti-euro, right-wing Five Star Movement, and took the view that Mr Renzi's resignation was unlikely to lead to early elections. Instead, president Sergio Mattarella could give the mandate to form a government to a respected po…