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Italy is not heading for catastrophe, says foreign minister

Concerns that Italy is headed for catastrophe in the case of a destabilizing outcome from the referendum to be held Sunday are misplaced, Italy's foreign affairs minister has told CNBC in an exclusive interview.

According to Paolo Gentiloni, increasing market fears of a potential default are only relevant to the Italy of 2011, not the country today.

"We had a completely different economic and financial environment in Italy at this time," he said.

Italians are being asked on December 4 to decide on whether to accept a package of constitutional reforms proposed by the country's center-left Prime Minister, Matteo Renzi. The prime minister has previously stated that he would resign if the reforms are rejected, but Gentiloni said that Europe would avoid any fallout even if the result forces Renzi's resignation.

"In any case we will have a weaker and more unstable country, but not a threat for the European economy," he affirmed.

Marchers in Naples, Italy, hold placards and chant slogans as they protest Italian Prime Minister Matteo Renzi before a reform referendum to be held Dec. 4.
Stringer | Anadolu Agency | Getty Images
Marchers in Naples, Italy, hold placards and chant slogans as they protest Italian Prime Minister Matteo Renzi before a reform referendum to be held Dec. 4.

His comments come despite accumulating jitters among investors over the stability of Italy's 4 trillion euro ($4.3 trillion) banking system, with fears that a period of uncertainty following a governmental resignation would mean valuable time lost in finding solutions for the country's weighty and perilous non-performing loan issues.

But the minister does not expect Italians to reject the proposals, saying the measures to be voted upon represent the culmination of 30 years of discussion.

According to Gentiloni, "I think that the Italian majority - maybe it will be a thin margin - but it will be a majority. They will not lose this opportunity."

"It's the first time that those things discussed for 30 years were decided by the parliament and the reform now has to be confirmed by a referendum," he explained.

The 'no' camp

Against a background of sharply rising sympathy for populist platforms in several key Western economies during 2016, Gentiloni played down the threat from Italy's anti-establishment Five Star Movement, led by comedian Beppe Grillo.

According to Gentiloni, those advocating turning down the proposals include both this movement – considered to be on the far-left – and former Prime Minister Silvio Berlusconi's far-right group, meaning there is no viable political option represented by a "no" vote.

"Obviously if the 'no' prevail, the 'no' is not a political alternative because the 'no' is Berlusconi and the Five Star Movement together. The extreme left and the extreme right together," he clarified.

Nonetheless, while Gentiloni says there is "no high probability at all" of the Five Star Movement forming a government in the wake of the referendum, should a follow-up election reveal the country's preference to be led by Grillo's faction, his government would not stand in the way.

"But in the case they win, they win. This is democracy," he said.

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