Italian Premier Renzi risks his job in vote over reforms

Italian Premier Renzi risks his job in vote over reforms

And while a government change won't help investor confidence in the short-term, It's fair to say those arguing for a bolder, more comprehensive solution for the Italian banking sector will be saying exactly the same after this referendum as they were before. But Europe's fourth-largest economy is stagnant and carries banks that struggle under €360bn of bad debt.

What is Italy's referendum about?

If Italy votes against the reforms, Mr Renzi is expected to resign, or at least forced out. "You can cut the number of politicians and how much they cost", Renzi said, sitting behind his desk as he read questions and comments on his laptop. That argument is sensitive in a country whose 1948 Constitution was forged after World War II and the disastrous fascist dictatorship of Benito Mussolini.

More powers with the government will mean faster clearance of bills in Italy.

"We are anxious that people opposed to this reform will simply not vote, thinking that is all they have to do, like in June", said an official with the Northern League party, which is campaigning hard against Renzi's overhaul.

A defeat for Renzi, who proposed the vote and initially pledged to resign if the result didn't go his way, could lead to early elections and a rise in support for the populist Five Star Movement.

If the Italian banking system faces a crisis, so does the rest of the European banking system.

Anti-establishment fever sweeps into Italy.

Italy has eight banks known to be in various stages of distress. In the 70 years of the modern Italian republic, the country has had 63 governments, making it hard for policies to be debated, implemented and nurtured.

There is worldwide concern about Italy's future political course, as turmoil could bring the opposition Five Star Movement (M5S), an anti-establishment party that wants to take Italy out of the eurozone, closer to power.The Bank of Italy said last week it expected "a big increase in volatility" on the financial markets "around the first week of December, in conjunction with the referendum on the constitutional reform". Indeed, many voters within Italy are treating this referendum as a yes/no on the Renzi administration.

In the past, Five Star's Grillo has called for a referendum on whether Italy should keep the euro, and to reconsider the country's role in the EU.

Italy has crushingly low productivity, a history of missing growth targets, and has generally underperformed the rest of Europe in recent years. While nowhere close to the levels seen in the depths of the GFC, it is the highest since when the European Central Bank started to buy bonds as part of their quantitative easing plan.

Mr Iannelli said that heightened political tensions from Mr Renzi's resignation would increase pressure on UniCredit, Italy's second largest bank by assets, and Monte dei Paschi, the third largest.

A "No" vote might trigger fresh elections in 2017 which will add to votes in Germany, France and the Netherlands which may have a profound influence on shaping the EU.