Italians are set to cast their vote in a historic referendum.
The exact details of the question they are voting on are quite technical – whether or not to accept constitutional reforms promoted by the centre-left prime minister, Matteo Renzi.
But the outcome could have significant political and economic consequences – not just for Italy, but for financial markets and the future of the euro.
Renzi has staked his legitimacy on the vote and declared he will resign if the people vote against his reforms.
In the context of Italy’s weak economy and the rise of Eurosceptic parties, the political uncertainty sparked by Renzi’s resignation could destabilise the financial and political stability of Italy and the EU.
A key element of the proposal intends to alter Italy’s decision-making processes. Currently, both houses of the Italian parliament have the same legislative functions and powers.
Should the constitutional reforms be approved, only the Chamber of Deputies (the lower house) would be fully involved in passing laws.
The Senate (the upper house) would became a body representing local authorities, while retaining some legislative power in key areas such as constitutional reform and the ratification of EU treaties.
A second important change would give the state more power and remove that of local authorities. Supporters and critics debate issues of governability, potential for excessive authority in the executive, and the reduced democratic accountability of the new Senate.
Polls suggest a strong lead in favour of “No”.
Investors are worried that potential uncertainty following Renzi’s defeat could damage the integrity of the euro area, bringing back not-so-distant dark memories of the 2011 sovereign debt crisis.
Crucially, investors have become increasingly worried about Italy’s weak banking sector, which is swamped by non-performing loans.
These are loans that have not made scheduled payments for at least 90 days and are difficult, if not impossible, to collect.