An investor survey shows the chance of Italy leaving the euro zone over the next 12 months is almost 20 percent. As David Pollard reports, banks stocks have recovered slightly but worries about Italian lenders remain as a Renzi victory in the weekend's reform referendum looks less and less likely.
There's a one in five possibility of Italy leaving the euro zone, according to a new investor survey. That's not the 70% chance of a member exiting seen during its debt crisis. But the prospect of Italy's Matteo Renzi losing his referendum is still frightening markets. SOUNDBITE (English) OANDA SENIOR MARKET ANALYST, CRAIG ERLAM, SAYING: "The country is currently facing potentially a massive crisis, and I think should things develop in the next few weeks in a certain way, then I think we could be looking at something far worse than Brexit for the EU right now." Monte dei Paschi shares have recovered five per cent of the thirteen they lost on Monday. But with Italy's banks at the eye of the potential storm, Monte's five-billion euro rescue plan is already thought to be inadequate to cover future liabilities. SOUNDBITE (English) OANDA SENIOR MARKET ANALYST, CRAIG ERLAM, SAYING: "An enormous number of the investors in these Italian banks are actually Italian people themselves. Therefore it's a very politically sensitive issue for Renzi and the Italian people at a time when the people are already suffering quite considerably." Italy's biggest bank by assets, Unicredit's own plans for a capital increase are also seen as vulnerable. Eight banks potentially in trouble. After Brexit and Trump, Italy's populist leaders waiting for their day. (SOUNDBITE) (English) PROFESSOR OF POLITICAL SCIENCE AT JOHN CABOT UNIVERSITY IN ROME, FRANCO PAVONCELLO, SAYING: "The 5-Star Movement and the right will come out much strengthened by this. We will have a prime minister who is basically under pressure to resign." Bond yields fell to a one-week low as some investors bought more Italian assets. But the boss of the Italian Bourse warned of others holding huge short positions. The prime minister who elbowed pop stars off the cover of magazines could have a less than one in two chance of winning Sunday's vote. Markets see rock and roll ahead - if little music.