Markets took a lost referendum and the resignation of Italian prime minister Matteo Renzi on the chin, but Irish taxpayers and Government advisers here will be peering into the distance to see what European elections next year will hold for the sale of AIB, as shares in Italian banks fell sharply.
Despite the result, the euro gained against both the dollar and sterling, strengthening to over $1.07 and 84.6 pence, even as polls suggested an early election in Italy would see the anti-euro Five Star Movement sweep into power.
“The [calm] reaction of the euro was a surprise,” said a senior analyst at Cantor Fitzgerald Ireland, Ryan McGrath, who added, however, that, as expected, Italian bonds took a hit, with the yield on its 10-year bond rising by “a significant” 13 basis points, to 2.03%.
The implied cost for the French state to borrow for 10 years also jumped to 0.81%, as investors tried to read from the Italian vote the implications for national elections in France, Germany, and the Netherlands next year.
The yield on Irish and Spanish 10-year bonds rose by five basis points to 0.88% and 1.60% respectively.
Alan McQuaid, chief economist at Merrion Capital, said that though European bank shares rose, Italian banks fell sharply.
Banca Monte dei Paschi di Siena shares fell over 4% and have now slid 88% this year, while UniCredit dropped 3% of its value for a 60% fall this year.
The prospects of the Government selling a stake in AIB may not be promising next year, but may be likely in 2018, if bank valuations rallied, said Mr McQuaid.
Speaking in Brussels, Finance Minister Michael Noonan insisted that there was “no contagion effect anymore” for Irish banks and, “if you look at present day data, the Irish banks are very strong”.
“The markets went down significantly on all fronts, but they recovered very, very quickly and so it seems to me now that there isn’t a financial crisis coming from the referendum in Italy,” he told reporters.
“There’s always concerns when you hear about banks being weak, and some of the banks in Italy are weak, but the president of the European Central Bank, Mario Draghi, is Italian, as well, and I can’t envisage a situation that a European Central Bank under Mario Draghi would allow the Italian banks get into difficulty.”
Dutch finance minister Jeroen Dijsselbloem, who chairs the monthly meetings of euro finance ministers, said the market reaction did not “seem to require any emergency steps”.
Analysts were not ruling out early elections in Italy, where the populist Five Star Movement was emboldened by the ‘no’ vote, or in Austria, where a coalition government is struggling to cling to power.
Also, eurosceptic parties could gain in upcoming polls in France, Germany, and the Netherlands in 2017.
Finance ministers were buoyed by the defeat of Austria’s far-right presidential candidate Norbert Hofer by independent Alexander Van der Bellen on Sunday.
EU economics chief Pierre Moscovici said it showed “a European spirit of resistance against populism” and “reassured us about the future of our continent”.
Finance ministers welcomed Italy’s intention to form an interim government, its fifth administration since 2008.
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