And the u. K. Supreme court now begins hearing theresa mays case. If she loses, is a hard brexit off the table . Matt we are less than 30 minutes from the european open. Take a look at futures. We are looking at red across the board for europe here. U. S. Futures have turned positive, however, in the last 30 minutes. Watch this space. We do see ftse futures down 1 3 of 1 . Dax futures down,. 4 . There is this turnaround in u. S. Futures. Guy yeah, the turnaround certainly is, matt. We will see how that develops as we work our way toward the cash open in europe. We do know the euro is under pressure and italian bonds are under pressure. We are training at 1. 0610. Today we have finance ministers meeting and so much going on in terms of the moving parts surrounding the single currency right now. We are moving lower. It will be interesting to see how we get into the italian banks. How will they trade . What happens with mps . What happens with unicredit . So much news still to be decided when it comes to the italian banks. Lets catch up with the details with the bloomberg first word news. Reporter thank you. Well, new zealands Prime Minister john key will step down next week. In a surprise announcement, he backed his deputy bill english to succeed him. He said for family reasons he could not commit to serving a fourth term. The next election is due late next year. The new Zealand Dollar flip on thped on the news. A green party backed leftist will be the next president of austria. Orber hofer. Numbe norbert hofer. The french Prime Minister will make an announcement at 5 30 p. M. Statementne line from his office did not declare what he would announce, he is likely to declare his candidacy. President Francois Hollande said he would not seek reelection and valls previously said he would run if hollande did not. Exite beginning britains from the european union, the British Supreme Court will hea theresa mays case. The Prime Minister would likely try to limit the brexit in size and scope. Officials are expecting unprecedented numbers of spectators, so much so that they have opened two neighboring courtrooms. President elect donald trump has used twitter to renew criticism of china after a backlash over his phone call with tim taiwans president. He says beijing did not ask the u. S. Permission to build up the military presence in the south tennessee. He spoke directly with tsai ingwen, and therefore, floated decades of political tradition. Global news 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries around the world. This is bloomberg. Matt now, renzi quit. The italian Prime Minister announced he will step down after losing a referendum to enact constitutional reforms. It is clear that my government ends here. Fornt to thank my ministers the extraordinary adventure and i will offer my resignation to the president of the republic. Guy the euro is at its lowest level against the dollar since march of 2015. Francine lacqua is in rome. Francine, what is next . We are watching who is going to be the next leader. Padoan, canceling his trip to brussels today. I think that might be significant. In terms of padoans future role, we do not know. He is one of the main names touted as a caretaker Prime Minister, or having a significant role within the next administration. However, he did cancel his trip to brussels because matteo renzi called on all his ministers to join him for one last time the 40 tenders his resignation last time before he tenders his resignation. We thought the no referendum vote would have been priced in. Three weeks ago, it was clear the no would win. Votedr, 60 of the people for this referendum. This makes it much more uncertain for the political stability of italy. That means matteo renzi will not play any part in the administration. And of course, you have the opposition, the populist parties, including the fivestar movement, asking for fresh elections. It does not mean we will get them, guy. However, the situation is much more uncertain than the markets thought. Matt to be fair, we are looking at the 10 year yields that have doubled in three months. So, that looks like they priced in something for sure over the last three months. It is noter hand, unusual for italy to get a new government. 63 since world war ii. They must have a game plan. Right, they have a game plan in that you tend your resignation. And the president with him decides what the next action is. The main problem, matt, is there was a change of the electoral law. Now, it is basically a two party system. Those parties battle it out, giving mainstream politicians reason to worry that the fivestar movement, or another very populist party, could come into force. What is changed if you have this electoral law. If you do not reverse it, the situation could be more precarious. Says renzi goes owpaper home. We also have the paper of the fivestar movement, quite dramatic, it almost looks like a revolution. Political new to uncertainty, but this time feels a little different, especially for the banks. Guy thank you, francine lacqua, in rome throughout the day covering the events as they unfold in italy. There is a big meeting taking place this morning. Jpm and unicredit are the underwriters on the issuance. From bring our guest london in. It is the scale of the vote that has caught people by surprise. Absolutely. As your colleagues said, it was priced in. 6040 number is significantly large. We just do not trust the italian polls anymore. They key thing here is a couple things. Qe ecb guarantees we get the program extended, at least six months. The really important thing is the collision of timing between the bank rescue plans and Capital Raising and the vacuum. If we can get an electoral deal in place that changes the bonus seats towards the larger Party Winning in, which i think is still the 2018 kind of story. I think the market fears this leads inexorably to a five star win. I would not be surprised if the market calms down throughout the day. Guy if you were jpm, a m eiddia banker, would you pull it this morning . I would consider it, but they are not surprised by this. We are getting into a nasty feedback loop. I think clearly, they have to consider very carefully whether they will be able to get the deal away. Ever, i think cool heads it is priced into the bank. It is very important, though, that you know, padoan not go to brussels today. If that is indication there is a plan b, the market will look to that. If there is not, we have this vacuum, and that is the danger. Matt i mean, look, padoan staying on would provide some sort of stability that might give confidence to an outside investor to help the mps, right . You could also see an ecb solution, even if they are not bailing out the mps, it kicks the can down the road,a as europe has been doing for the last seven years. Do you see any signs that cooler heads will prevail . I think the ecb on thursday i dont believe they will signal they will buy the on the capital needs. I do think that draghi will want to calm things down. Unless we get a major ratings shift, which i do not think is likely in the shortterm. So, that is in the shortterm and is entirely plausible. The problem is, italys growth. We are not in a surprising political position. The real issue for the Banking Sector is the level of gdp, it is 12 lower than the peak in 2008. We have a healthy Risk Management function, but the cash flow is now. The mediumterm picture for italy without reform is my concern, without reform from the political system, it will be very hard for investors to confidently come in and buy real assets from italian banks, unless the price is right. Or, unless there is hope of change. Ine sort of euro level, terms of recovering the mpl. Getting italy growing again is lacking. Matt we only see the euro down 0. 5 righht now. Did you say you dont expect the ecb to come up with some shortterm solution, for example, buying italian debt, if there is a lack of demand . They certainly would not offer that up. Unless they are pushed into that position, it would be difficult for them to do that. But whatever it takes is very much an operation here. On thursday, mario draghi will be after that question. I think he will try to skirt it. Again, thats fully priced in. I think the market response is fairly understandable. Personally, i think the pressure really shifts into the market in france. Guy lets talk about that. Will increasingly in draghis mind be this existential crisis . The movement is, in theory, antieuro. Whether or not italy would be withdrawn from the single currency would happen, if you look at what marie la pen is saying, she is pushing for a referendum. Do i need to start thinking edomination risk . Inatio well, the famous bumblebee speech. Said that is not allowed, there will be no breakup. If that were to occur, it would be very hard for the ecb. They already own, a great deal of the bonds out there. The good news for a lot of these is the peripheral markets selling pressure out of germany and holland is gone. I think the existential threat is there. In the italian case in particular. I think it is 8020 to remain in the euro. That is a massive hurdle for fivestar. Guy we have a lot to talk about and kevin gaynor will stay with us. Matt coming up, populism suffers a setback in austria. That country chooses a proeu path in sundays repeat president ial runoff. Bank backlash. An what will this deceit mean for . He likes of monte paschi and later, judging brexit. We are live on the ground. This is bloomberg. Guy 12 minutes until the cash markets open in europe on equities. Lets check on the assets lets check on the assets. 1. 0603 with the eurodollar. Not as big of a selloff as you would have expected. On my terminal is the ecb bond spread. I want to show you what the last few days looked like because the market got a little bit more relaxed over the last few sessions. Yes, we have retraced some of that. But we are not up here, given the size of the lost, someone expect to say, why not, that we are looking at the complications surrounding italy. Matt, it is not just italy, though, is it . Matt no, obviously, european populism has been an issue across many countries, many different elections. That rightwing populist movement has suffered a setback set to be austria next president. He is a green party backed candidate. Hedefeated the Freedom Party told reporters that his win was a signal for your. Bloomberg daybreak europe it is it is a signal to the rest of europe, all of europe, and the european union. Matt still with us is kevin gaynor. Kevin, do you see this as a turning point, that you know, a proeuropean candidate can win, and it is maybe not all about rightwing populist movements sweeping all over the continent . No, in short. I think this is the limit to populism. In a core european state, we very much have the memories. I think the extreme right wing will struggle to get into power, even in places like austria, that have a record of sk irting. France is a slightly different sory because Marine Le Pen agenda has shifted to more social policies, like benefit giveaways. She is polling very well up in the northeast of the country, on the border with germany. Re thats a risk the because she has moved away from some of the more flowery rhetoric, i have heard it that ideas,d copping trumps she could do very well. I think there is a natural limit in places, certainly in europe, to these more extreme positions. The populous migration surrounds economic exhaustion and flatlining economies. Change something, right . But there are natural limits in europe. Guy we will carry on the conversation with kevin and export the french bond market. We are minutes away from the cache open. Up next, we take a look at the movers in todays trading. Up next, we have italian banks in focus. How will the market take it this morning . That is rome. This is bloomberg. Guy five minutes until the european cash open in europe. The early calls are painful, particularly if you are mps. Unicredit will be in focus, as well as the big meeting today at jpm and the underwriters on the mps issuance. Some of the numbers this year, matt, are spectacular, in terms of the share losses. Take a look at this board. Some of these stocks are trading to. 2 . Matt that is the most interesting, stat. Than 6 trading at less of its book value now. Is that right . Guy now, it will be a lot less than that. I can tell you in a minute. I cannot remember the exact number, but it is trading below 1 . I think the big question everyone will be asking surrounding mps is whether we will see some sort of nationalization. The government has to step in. That will be the question that people will ask surrounding tha t stock. We are seeing some really very sensitive calls. Open. E the market it is coming up in four minutes. This is bloomberg. Guy you are watching Bloomberg Markets the european open. We are moments away from the start of european trading and matt has your morning brief. Matt renzi will resign. The italian front minister matteo renzi to step down as the countrys vote is no in the referendum. Are early elections now inevitable . The referendum roils the market and the euro touches its lowest 0 months. 2o and the brexit challenge. The u. K. Supreme court begins hearing theresa mays appeal on her right to trigger article 50. If she loses, is hard brexit off the table . Guy matt, when he to talk about italy and the european equities. We need to talk about italy and the european equities. Ine. Ve added that pink l the ftse 100 is opening soccer. Europe is not called that much softer. 2 ,n is only down by though it is still falling. You will see how Continental Europe opens. I am really fascinated to see the cac. It is opening sharply lower. The dax is now open as well. The one market that is not open yet is the italian market. There we go, just opening up. The italian Equities Trading as well, and i imagine it is fast and furious down there. Lets find out what is happening below the surface with manus cranny. Manus guy johnson, the Third Political disruption that markets will have to interpret and eadeal with. Our ability to react and interpret the markets is changing. The futures open at 7 00 a. M. And they were down by 1 . The euro was at a 20 month low. We have now managed to claw back some of those values. Also, you can see, in terms of the commodity strip on the far right hand. Gold is down now,. 4 . We have rallied as much as. 9 . The euro is pulling back some of his losses. Gold is turning around. When it comes to the European Equity complex, this is the story. This is the key issue. Financials are down by 1. 30 . Where Italian Government bond market goes, so do the italian balance sheet. We have an initial futures loss. Out possible euro crises. Moving on and looking at the italian and germany spread. How much premium do you want to spend . 192 basisetest points, which is the widest since 2015. The banks, the banks, the banks. It is almost like a shakespearean play. We are waiting for unicredit to reopen. Banca monte dei paschi is the eye of the storm. What is the political risk, in terms of taking on bank equity in italy. Down 5. 6 . Are, down bysta sanpaloa, 4. 6 . I leave that thought with you, guy johnson. Guy it is very good to have you back, manus. And quoting almost shakespeare and italian playwrights, what more could one ask . Manus just showed us some of those stories here. This is the ftse, which is down 2 , but we still do not have a price for banca monte dei paschi or unicredit. We do have a price for popolare milano, and it is trading down 5 , but the calls for these others are a little more negative. This is the unicredit share. We have seen a pickup. I suspect made a little more volume to get a good price. Remember, the unicredit cvs has priced a little better over the last few days. Robinson of Bloomberg News from the finance team, still with us. Off andlets start think about how the rest of the day will unfold today. You have a key meeting taking place. The underwriters of the paschi issuance will be figuring out it. Her they pull speculate on what they will be talking about. They will be discussing what will be happening in rome. Can renzi he will talk with the president this evening and they will try to put together a caretaker government. That caretaker government could be called to make sure the 5 billion euro Equity Offering is undergoingchi will continue. They will be sizing up, what are the chances that the government cannot jump into the breach, if we need them to . That has to be the top of the agenda. Matt edward, what are the options if they are not able to pull off this Capital Raise normally with a share sale . Is nationalization the top of the list . Is there a Sovereign Wealth Fund that could jump in . There is a lot of speculation that perhaps, ceo Marco Marelli has an anchor investor up his sleeve. That is one scenario, and that would calm everything. The second scenario is that the government already has a contingency plan in place, perhaps even with the european s endorsement, to put together guarantees. I would call this a soft intervention, where they could guarantee equity, and that would calm investors and perhaps, get them to the finish line. The third scenario is the worst case, which is some kind of nationalization would take place. But i think a lot of other steps a lot of other hurdles will have to be cleared before we reach the n word. Guy a lot of hurdles still to be cleared. It is not just paschi that is in focus. It is interesting that paschi and unicredit are not open yet. When i look to the 13th, what is the size and scope surrounding unicredit . That is a big one, in terms of the size. What are we looking at this morning . Is that something that could be deferred . Layed, dif i think anything could be delayed. Though,me tame time unicredit would probably love to be able to say, no, we do not need to delay. They want differentiation with paschi. They want to ensure their investors, we are not banca monte dei paschi. We are a strong bank with a strong, Strategic Plan going forward. Do not link us to paschi. I think they will put off any kind of delay for some time and trying to hold to that, unless events force them to. Matt well, they need to raise more capital, right . They need to raise 7 billion euros and bnps, 5 billion euros. Do you think these two are in the same boat, or is bnps on its own island, in terms of endangered banks . They are not in the same place. Whoever is in power, whatever the ecb is doing, the italian broke. Sector is over the state will have to do something to force change at these banks towards consolidation, a proper look at assets, reducing the level of broking into the economy and trying to get these assets off the balance sheets, so we can get credit growth going again. Renzis government did get some reforms through, which was welcome. We now have this vacuum. I hope there is a vacuum, whether it is padoan, for the president of the senate, putting a bridge up over the next, you know, one year until the election. I do not see anything happening there. This issue will not go away, in my opinion, even if we do recapitalize. Change has to happen. Guy lets talk about how investors are feelinviewing, this, kevin. This is the price to book on paschi. At what point can investors smell value . Absolutely. The part of the reform issue in italy is, even if i open the books up and look at them, have you ever sued anyone in italy . I have. It takes years. You might as well give up. To foreclose and extract value it is expensive and timeconsuming. There are many issues that make up that price to book ratio. They are very difficult to value. Matt kevin, you will stay with us. Edward robinson from Bloomberg News, thank you for your input there. Take a look at italian banks and see if we have got it open yet for bnps or unicredit. We do see red arrows across the board for other banks, even outside of italy. The banco poplare, down. The banca monte dei paschi, not yet open. Guy the eurodollar, trading at a 20 month low. We are not selling off as aggressively with an italian bonds as you might have thought. We did have some big opens and we are watching for the ftse. We have come back quite a long way. The ftse is only down by. 7 at the moment, that we are waiting to see how unicredit opens. We will wait and watch and bring you that number. This is bloomberg. Guy welcome back. Lets talk about the italian market. We have a price for unicredit. Down by 3. 55 trading at 2. 02. We are watching the 13th to see if it will be able to deliver that raising exercise. Is up bye italian cvs 13 basis points. What we do see is a snapback in equity markets. Let me take you to my bloomberg and show you this. The pink line is italy. , but sincedown below then, germany is up. The dax is higher. The ftse is up as well, bouncing back off its earlier lows. Italy, just rolling over as unicredit opens up. Were still waiting for a price on paschi, matt, but at the moment, unicredit is trading to 3. 48 . Given the scale of the lost matteo renzi suffered, someone argue that is not a bad performance. We will see how the political events unfold. It is not just italian banks, is it matt . Matt obviously, the referendum in italy and the election in austria are front and center as far as news is concerned. If you are a banker, you might be worried a little bit about the Credit Suisse news, the fact that they will fire another 1300 bankers. That is according to a newspaper, i should point out. Here you see a two day trade. So, friday, Credit Suisse shares came down. At the open, they dropped. But they recovered to pretty much unchanged. One function on the bloomberg, loss, which you can use with any equity, shows you job losses over time. It is a fascinating function. If you look at it for credit squeeze, this goes back to 2008, you can see almost 30 different instances of job cuts. It is very interesting to see the degradation of credit squeeze workforce, but as a banker in general, this is a very sad picture. Lets get now to bloombergs first word news. Reporter thank you. New zealands prime minster will step down and he has backed his deputy bill english. Hes said for family reasons he could not commit to serving a full fourth term. The new Zealand Dollar slips on the news. A green party backed leftist will be the next president of austria. Alexander van der bellen ran as an independent and took him 52 of the vote as he defeated norbert hofer. This comes in the face of a resurgence of rightwing antiimmigrant parties around the world. The french Prime Minister valls will make an announcement at 5 30 p. M. U. K. Time. Thousands expect him to declare his candidacy in frances 2017 president ial election. President Francois Hollande said last week he will not seek reelection. President donald trump has used twitter to renew criticism of china after a backlash over time aaiwans president. Trump tweeted that beijing did not ask permission to surge its military presence in the china sea, or devalue its currency. Global news 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries around the world. This is bloomberg. Matt . Matt sebastian, thanks. Lets take a look at banca monte dei paschi. It has opened up. It is down by just 6. 2 . So, not quite as nasty as had been expected. It closed friday at 19. 50 and now it is trading down to 18. 41. It has already lost more than 80 of its value year to date. Price to book is down 94 . Guy, what it is a price to book is now for banca monte dei paschi . Guy . 007. Which is not great, to be honest. Headt is hard to get your around that number. This institution has some good assets. First of all, the intraday low on paschi, we are still some way north of the alltime low. The other thing i want to mention the European Equity markets this morning, we have a lot of green on the screen. Yes, italy and spain are down, but look at what is happening around europe. The cac is up by 0. 5 . The dax in germany is up by just shy of 1 . Lets look at the sector story. This is the stoxx 600. Personal good and health care are the safety areas. People are rotating to the safety areas. There is a definite safety bias, rather than a growth bias. Banks are the negative story. That is the banks down at the bottom there, not surprisingly. Is this a logical reaction . For want to thank matt starting my monday by telling me how the banker jobs are at risk. Trumps victory, the equity market has been incredibly robust. The snps roundtrip throughout the year. Europe has been lagging behind. There is an almost total guarantee that the ecb will continue for another six months. Guy this morning, these are the bond proxies. This is nestle and novartis. But look at utilities, down at the bottom. It is a very mixed bag. Im not certain. Things are certainly very noisy, but we are in a bullish mood. Guy we are, despite what matt tells us about abnbanker jobs. The u. S. President elect comes under fire for a call with timaiwans president. This is bloomberg. Guy welcome back. Lets show you italian assets at the moment. The banks are softer, maybe not as soft as was anticipated. Aa big meeting taking place with the underwriters of the paschi issuance. Matt, interesting morning for italy, but it is not just europe that is in focus. We are watching this call between donald trump and china. Matt that is something i have been watching all weekend. Donald trump took on china on twitter again yesterday. On friday, he took a phone call president ,s breaking decades of precedent. Trump came under fire and has since taken to twitter. He said he would not be told by china who or whom he should not talk to. For more, deborah miao is on the line. Deborah, what is the reaction in taiwan to this . Reporter matt, i have to say the reaction is very broadly positive. In taiwan, it is hard to get the two main parties to agree on anything. This is one thing they have agreed on as being a positive development. Also, if you ask people on the street, they are just very happy that the two leaders forrom both sides are finally having a chance to connect on such a direct level. Matt i can understand that the u. S. President has, for decades, technology chinas sovereignty, but has no u. S. President really taken a phone call forom taiwans president in decades . It is hard for us in the public to know if there has been direct contact or interaction. It would have been behind the scenes, not in public. And this time it was a coordinated public release. Donald trump did not start tuning until after the taiwan side had released their public statement. Guy we believe it there. Thank you. Gaynor, one final question. The market has priced in so much for donald trump, but the unpredictability factor, how do i price that in . You are right. The market has priced Global Growth from 2 up to 4 . The market seems to be looking at all the good news in the economy, or the assumed good news, without thinking about the rise in protectionism. He promised unpredictable the and he has delivered he promised unpredicteability and he delivered. I think there is further to go in this. We have to be quite careful that what trumps promising is not growth, it is inflation. I dont think that will end very well for the u. S. Or global equities. Matt are you concerned about the protectionist trade policies more than you are happy, i would guess, about stimulus . I think the stimulus, at this point in this business cycle, it is down to what most would consider to b e full employment. The corporate sector are the ultimate arbiter in the u. S. Ov er the next several years. I am worried about the protectionist angle, of course. Matt thank you, kevin, head of International Research at nomura. Up next, we are live in rome after the referendum vote. Planting a sizesix, nonslip shoe into that door. On this side, i want my customers to relax and enjoy themselves. But these days its phones before forks. They want wifi out here. But behind that door, i need a private connection for my business. Wifi pro from comcast business. Public wifi for your customers. Private wifi for your business. Strong and secure. Good for a door. And a network. Comcast business. Built for security. Built for business. Hey, drop a beat. Flix . Show me orange is the new black wait, no, bloodline how about bojack, luke cage oh, dj tanner maybe show me lilyhammer stranger things, marseille, the fall in the same place as my basketball . Narcos, fearless, cooked the crown, marco polo, lost and found grace and frankie, hemlock grove, season one of. show me house of cards. Finally, you can now find all of netflix in the same place as all your other entertainment. On xfinity x1. Guy 8 30 a. M. In london. 9 30 a. M. In rome. How are we trading . A very positive picture in europe. Is this good news meaning bad news for the market . The dax is up more than 1 . The stoxx 600 is also up. Runs you through the italian banks because there is some negative news there. Brent is sparking sharply. 15 month high. Risk on this morning. Very much risk on for europe this morning. Matt absolutely. Youing from the movers showed us earlier, we can see everyone is doing well but for banks. The italian banks. They are down across the board. Is downing that bmps only 1 . That may be a case of cell on the rumor, by on the news. Popular down by more than 5 and san paolo down by the same amount. Italian banks doing quite poorly this morning. Another blow to the status quo in europe. Renzi is going to resign after his reformjected failure. Francine lacqua is joined by a guest. Joined by megan green. And as that managing director and chief economist and looking at the political turmoil and political limbo in italy. Thank you so much for coming on. Looking at Market Reactions. Thanks are taking a beating but most was priced in. I was surprised we did not see a bigger reaction. We did see a reaction in the asian currencies. But from today on, it will primarily become a banking story. Has recouped ae bit of its losses. A lot of commentators come market insiders were expecting a no vote. Means renzi will not have a part in the transition team. This is the second definitive defeat. Opinion polls got it wrong again. Once the electoral law is reformed, we could see an early election next year or we will have one in 2018 when the legislation runs out. Moment, if at the it could give a lot of power to the populist power. The no vote is a terrible thing for the fivestar movement. Most investors have been concerned that this would pave the way for the fivestar movement to win. It came out ahead. Because the fivestar movement can benefit from this pump in seats off the back of the second round vote given that the Electoral Reform will have to be totally revised, there is little way to see a relisted a realistic path forward. Francine how much do we know about the main people that could take over from renzi . Would it be a technocratic government . Will the president put someone who can form a majority . The Prime Minister is on top. That would be a good choice. Not just because he has broadbased support across the party which is quite divided in itself but also because this is going to be a banking story quickly and he has credibility in that area. Ceos of banks can do to reassure shareholders . Putting forward a credible Business Plan needs to be the top priority for banks across the euro. There is little they can do to try to stem the contagion from this crisis. That will be up to the Italian Government. How the government handles this in the next few days will depend on whether we have a Prime Minister or not. Contagion, them the this will not become a european wide banking crisis. Otherwise, there is little european ceos can do. Up but they are beholden so they cannot do that forever. Francine it is unlikely that monte dei paschi will be able to raise enough capital . I think that is the case. A consortium of investors is meeting right now to decide about the private sector deal a have come together with four mp s. They have a clause that says they could back out if the market weakens and this would qualify. Francine we know they are discussing and we could not jump we should not jump to conclusions. Will they nationalize monte dei paschi . Likelyeems the most option is the private sector deal falls through. It would have to bail in some subordinated bondholders. 65 of monte dei paschis bondholders are retail. The government may try to reimburse them but that would be incredibly politically toxic. The european rules if they will break those, they will bail out. Francine if they break the rules it would be with the consent to of germany. It would not just be italys thing they do not want to conform to the rules. Political turmoil is almost a perfect excuse to be more exible. There would be a lot of links mentioned. They would have to have the tacit consent is leased from germany otherwise the ecb will say they do not count it as capital. They would need tacit support. In any case, it would undermine the Banking Union which is the one area where europe has made reforms has made progress in its reforms. Francine what will happen now to renzi . There is no chance now that he will play a role in the coming government and he may also have to step down from his party. I dont think he wants a role in the next government. We may see a lot of drama in the Banking Sector and he was like to be clear of that. He may lose his seat as the head of the party but i dont we will see the end of him. He is only 41. There are few challengers to him. I think we will see him in the next election. , we have twoing up great interviews. We speak to the former finance minister and we will ask them what this political turmoil means in italy and what reforms at what reforms would he like to see pushed through an later on, pauloo speak to the san ceo. It will be interesting to see what his take is. Even that the italian banks are under pressure today. Looks beautiful. A beautiful day. Great stuff. Meganyou, francine and to green as well. If you want to follow this story eat by beat beat by beat there is an ongoing markets discussion. It sits nicely on your terminal and you can follow what is going on. There are a lot of moving parts. Let us continue to dig into that Market Reaction of the italian referenda. The referendum is one part of the political story we are digesting this morning. Plenty more as well. We need to discuss the u. K. And austria. Thisarkets are taking story quite calm lake calmly this morning in many ways but we still do not know what will or in termsin rome of the recapitalization of the banks. Is that what we are looking at we just do not know . Think that it was priced in, maybe not to the extent we have seen. There is a general assumption that we will put together a caretaker government fairly quickly. It will not be as easy as some people think. At the end of the day, you have a winning camp that is not able to propose an alternative and you have the losing camp which may still control the parliament as a majority. But there is turmoil. Renzi will likely leave as a party leader. You have the centrist party in the middle without a clear reference point. The efforts to put together a caretaker government and finding a parliamentary majority may take longer than we think. View, and, in our leaving aside the banks, the key issue for italy is medium longterm. Meaning that we may end up after changing the electoral system in a more proportional direction with a government unable to do reforms, potentially boosting more skeptical sentiment. The risk is not what has happened in the last few weeks if i leave a side the banks, talking about politics. On the political front, things are much more medium term in our view. Ps is i do see that bn turned out. It seems investors had priced in this issue. Why would they not have it was forecast . Bankow they are bidding up of monte dei paschi to higher than where it closed on friday. Can we count on some italian stability . There have been 12 u. S. President since the Second World War but 63 different Italian Governments. Argue used to this and have to continue . Whip inhe democratic the Parliament Says we can deal with this. Our institutions are resilient enough. There is certainly plenty of knowhow on how to deal with a crisis like this. Think, it is it is a complex situation. As i said before, we have a winning camp mainly represented by the fivestar movement in the Northern League that cannot express an alternative and they should not. And we have the losing side which will face white a bit of turmoil in the next few weeks. Yes, we can assume the caretaker government will put together with a very difficult task ahead. It is not just about the banks. There is still a budget for next year to approve. Government will face quite a few challenges in the short term. Iy turning to the market, want to show you what is happening with italy. You can see it is turning positive. Looks like we are just in the positive. The pink line is the italian market, popping higher. Edging lowered now as the ftse edges back into negative territory. That is not a bad performance. Equities are better bid than you would have thought early this morning. When i think about what is happening with the markets, the initial reaction was to sell the euro. That was what happened this morning as we got into asian trade. Logical reaction. Ecb meets thursday. You spoke earlier about the mediumterm risks to the eurosceptic elements of society growing stronger. France is coming up again. Marine le pen is antie. U. And antihero. Are we back thinking about the breakup of the euro as a result of these polls . I do not think we should. The italy vote was mainly a vote about renzi. It was not a populist reaction against the mainstream. It was not a vote about the euro. Guy but you extrapolate. I think we should be very careful about that. Have a secondll round of electoral system in france which will likely minimize the worst scenario of a Marine Le Pen victory. Now, if you look at it historically, there is no french president that has managed to win an election by relying on their own votes. You have to reach out to the center. His ability to do that is much higher then Marine Le Pens. Matt wolfgang, we saw in austria what some have taken to heart as a turning point. A proeuropean candidate beating a rightwing populist. On the other hand, it was only 5248 which is not a resounding defeat. And they had the first thirdparty winner in 70 years. Leastt this signify at that nobody is happy with the establishment anywhere . I would agree with your analysis in terms of austria. There was relief about the victory of an independent candidate. But it is clear that the country is divided. 5347. There is still a risk of an election next year. Was a relief but it is not the end of the story. This kind of dynamics, they have been cooking for quite some time. It will take a very long time to try to contain and minimize the risks caused by the Antiestablishment Party across the board. If i take you back to italy, the fivestar movement is in a phenomenal position. They can sit back and enjoy the show. Whatever happens next, they will most likely benefit in the short term. Ecoscreen up on my bloomberg now. Coming through a bit stronger than expected. 53. 4. In terms of the survey data, strength for italy. Nevertheless, i am curious to discover your thoughts on what we are voting on was it the economy . Were people worried about centering power in one persons hands . What was this boat about . Renzis performance in government. Renzis character. The personalization of the referendum. Itit was renzis inability to deliver for the youth. What is striking is that the analysis is suggesting that 80 of the people voted for the other. Voted for no. The youngest Prime Minister we have had did not deliver for the youth and has been penalized by the youth. Mixture of factors that led to the striking defeat. Looking at the regions, the yes won in only three regions. In the big cities, leaving a side the lawn, florence, and won everywhere else. This is a nationwide defeat. This is not country countryside versus city. Matt thank you so much for joining us. He is going to stay with us. More intense attention. We turned back to brexit today. The ok Supreme Court begins its process of deciding whether the Prime Minister needs to hold a vote in parliament before triggering article 50. Joining us now is patrick. What is the atmosphere like down at the Supreme Court which it normally does not have this much attention focused on it right . Patrick there is a Huge Police Presence here today. We are not forgetting that nigel frosch was going to march toel farage was going march but that has been canceled. It is quite benign at the moment. It does not start for a couple of hours. There are a few protesters around. Matt what has changed since last months ruling against the government . What is new . Patrick the case has gotten bigger and bigger. There are more intervenors including unions. Prominently, Nicola Sturgeon has sat down and sent her most senior legal advisor. Guy let us rapid out. What are the chances of the Supreme Court siding with the ,igh courts and if that happens where does that leave the government in terms of its options in writing legislation . Been taking ave look at the numbers. And the last 12 months, the Supreme Court has turned over about half of the decisions that have come up from the lower courts. If you look at that alone, you could flip a coin. Thathe papers are saying theresa may is preparing to push a bill through parliament in as short as five days if she loses. Ins the expectation what form is that legislation expected to take . She could write something very brief or will she be forced to go with a full bill and bright something substantial which would be easier to amend . Patrick i think a bill is most likely but it will be short. It has to go through multiple readings. In the house and then the house of lords. Conversationn some that it could be as little as three lines long. That would be simple in theory to push through. Guy great stuff, patrick. You will be a busy man. Joining us out stuff outside the court. If the government loses the case today, does it make the hard brexit option difficult to pursue, do you think . No, it is more of a question of time like. If they lose the case, it will be a short and tight till so they do not risk and amendments at the committee level. There could be some noise in the house of lords but they know no one elected them so going against the will of the people there is a bit of a question mark about the timeline. Will be able to move in spring. If you look at the electoral calendar in europe the election in the netherlands in march and in france at the end of april if germany, september, even we start article 50 next year, there will not be much clarity. Guy there must be a certain sense of nervousness. If they pursue a tight piece of legislation, there will be those in parliament who feel the government has been told to go with the will of parliament and yet they are putting something in front of parliament which makes it difficult to deliver up on that. It may be difficult for the conservative party. They have a proeurope wing. If they lost that vote, theresa may would be in a difficult position. If the vote is lost, theresa may will be gone. But i think that is an unlikely scenario. It would be difficult for mps across the board and especially from the conservative party and even the labour party to go against the will of the people when they know that their seats could be grabbed. Guy she could put a very short piece of legislation in front of the house that would effectively steamrolled the house. Name dont want to and they dont want to go against the will of the people but they will want to put amendments in. That short piece of legislation could backfire. It could but they are in no position to put forward more because the more they do, the more they will expose themselves to internal attacks. Also does the government have an idea of what it wants to achieve. If you look at how they have managed this from the 23rd of june, it says that not much preparatory work has been done. From the governments point of view in terms of trying to get this approved quickly and in terms of avoiding internal turmoil within the conservative party, it makes more sense to keep it short and tight. Guy thank you very much indeed. Matt . One we do see still a dollar 27 1. 27 for the pound. It is a busy day for the markets. We bring you the charts that matter. It is all about italy, ecb and data across the world. The charts are next. This is bloomberg. Guy italian banks, heavy trading. Let me show you the picture. Some are in positive territory. The losses are not as big as predicted this morning. If you want to follow this morning, there is a market chart available. There is dated to deal with, isnt there matt . Matt absolutely. We have services pmi in from germany. Better than had been anticipated by economists that we survey. We were looking for 55 flat and we got 55. 1. Not only beating the survey but also beating the prior month. German services pmi have come ack from almost a 50 reading few months back. It is doing much better than it had been doing and much better than expected. Stay with us. Up next, is surveillance. Guy and i am joining the radio team in london. This is bloomberg. Renzi to resign. A resounding rejection of his reforms plunges italy into a political crisis. The euro touches a 20 month low. Italys lenders teeter in the results. Banca monte dei paschi meets. And populism push back. Dependent defeats a right