What a "no" vote means in Italy after the referendum

Just over a week ago, Italy held a constitutional referendum, backed by Prime Minister Matteo Renzi,  where voters were asked whether they approve a constitutional law that would drastically change the composition and scope of the Parliament, including the way laws are passed and the central government's relationship with the country's varied regions.

In this case, the "Nos" had it. In fact, nearly 60 percent of voters rejected the constitutional reform.

Still, the outcome has not had a cataclysmic effect. Yet.

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Turns out, the ‘no’ vote has been met by calm rather than chaos, despite the rejection of the reform in the country and a likely election early next year.

This in comparison to the discord and noise following UK's Brexit and the election of Donald Trump in the U.S.

On the hospitality front, investors and operators continue to hold faith in Italy, with hopes that the pressing need to shore up the country’s banking sector may mean that issues around non-performing loans could see more supply come into the market. 

Next Steps

As of press time, the Italian president, Sergio Mattarella, was meeting with speakers of Parliament and former president Giorgio Napolitano to discuss the way forward for the country ahead of the next election and to broker the appointment of a technocratic government following the resignation of Prime Minister Renzi, whose resignation was put on ice for a week following the referendum defeat. On Sunday, Paolo Gentiloni was selected as the new PM, and President Mattarella tasked him with forming a new government

This new government must address the need for reform as well as the issues around Monte dei Paschi di Siena, the country’s third-biggest bank, which is attempting a €5-billion emergency recapitalization. The bank has asked the European Central Bank to extend the deadline on completing the deal. In response to questions on the bank, Mario Draghi, ECB president, said that the problems in the Italian banks have existed for a long time. “I am confident the government knows what to do,” he said.

“The day after the vote I was taken aback by the lack of fear or response from the stock markets—and it was calm in that sense,” Edward Rohling, CEO & founder of TRC Hotel Advisors, said. “That was when we realized the president had frozen Renzi’s resignation. Italy just doesn’t change that fast. In many ways that hasn’t changed. 

“Brexit was different, it was clearly a traumatic event. My biggest fear was that there would be momentum to leave the EU, but this is more a vote about the economy having been stagnated for the past 10 years. It’s not being blamed on the Euro or on the ECB.

“From my perspective, it doesn’t solve a whole lot of the structural problems, but it hasn’t bought about any chaos. The most helpful situation would be if they cleared up the non-performing loans and any real estate assets held by the banks—if they cleared up the insolvency issues that would help the banks. There is still momentum from the government to resolve the issues. 

“There are a lot of people interested in investing in Italy, but there is not enough product. The desire to invest in Italy is there, the fundamentals are there and I believe that it is still a great opportunity.” 

The Need for Reform

Walter Boettcher, chief economist at Colliers International, echoed Rohling’s comments. “Like a lot of people I was a bit concerned, because it looked as though the ‘no’ vote would prevail and it has,” Boettcher said. “The fact that there wasn’t a collapse is a good sign that the markets priced it correctly and the crisis that people were expecting to precipitate didn’t happen. 

“There has been a lot of reform that needed to take place, in terms of labor laws and so on, not just in Italy, and it didn’t work out. The Italian government is now in the position to bail out the Banca Monte dei Paschi, but the problem in Italy is that a lot of citizens own shares in the banks and it’s difficult to impose losses on them, so the government will need to postpone decision-making until January. 

“Then, outside the economic angle, there’s the political one—a lot of people saw the vote as in line with the populist message spilling over as it has in the UK and the U.S. Even in that respect, Italy as a domino for that kind of sentiment doesn’t seem as likely. The far right candidate wasn’t elected in Austria, so now all eyes are on the Dutch election in March and the French. 

“In terms of the macro environment, Italy and the rest of the Eurozone is more of a medium-term issue. The U.S. election and the policies which will potentially be brought in by Trump are more pressing [in the] short-term. So, yes, Italy is an issue and this has focused investors’ minds again on Europe. For the UK, this makes it look relatively safer—relatively speaking, it doesn’t look so bad. 

“One of the ways that Italy has solved its problems in the past is to devalue its currency. It did that with the Lira and the tourists came flooding in. But now that they are in the Euro, this is not an option and that is causing some structural issues for them.”

This has not gone unnoticed by the country’s second-most0popular party, the Five Star Movement, where aspiring leader Alessandro Di Battista told Die Welt that the party was upping its call for a referendum to leave the Euro. The issue is expected to be central to the next election and has been an ongoing clarion call by the party, 

One observer, who asked to remain anonymous, pointed out that the potential for Italy to destabilize the EU by withdrawing gave it an edge in negotiations over its debt with other European leaders, notably German Chancellor Angela Merkel, who was likely to be more lenient given recent political shocks. They warned that, should the Italian banks fail, the impact could be greater than that seen after the collapse of Lehman Brothers. 

The Operators

For the sector’s operators, it is business as usual. The referendum came as Marriott International announced that it had signed five properties to The Luxury Collection, strengthening its presence in Europe. These included the Cristallo Resort & Spa in Cortina, Italy, which will expand The Luxury Collection portfolio in the country to eight hotels when it joins the brand after the winter season.

It's similar for Hilton Worldwide. “We have a long legacy in Italy and it remains a strategic development for Hilton, with more than 25 hotels trading or under development,” Alan Mantin, senior development director, Southern Europe, Hilton, said. “Having recently announced our intention to introduce our first Tuscan property under Curio – A Collection by Hilton in 2017, next year, we will also open Hilton Lake Como, and introduce our first Hampton by Hilton property in Rome.”

Taking matters into their own hands, a group of hotels in Assisi have launched the ‘Fertility Room’ promotion, offering either reimbursement to those who get pregnant during their holidays or a second night’s accommodation free of charge. A birth certificate will be required as proof for a refund, proving that even innovation comes with a side of Italian red tape. 

Katherine Doggrell is an editor at Hotel Analyst, the UK-based news analysis service for hotel investors.

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