Italian citizens will vote on constitutional reform on Sunday in what is seen by many analysts as the most significant European political event of 2016. Yes, even bigger than Brexit.
Constitutional reform. Prime Minister Matteo Renzi is campaigning for a "yes" victory in an effort to make it easier to govern the nation moving forwards.
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The reforms would remove power from the Senate and mean that proposed laws would only require the approval of the lower house of parliament, as opposed to the current system which requires approval from both houses.
Renzi has even gambled his political future on the referendum having said he would resign if a "yes" vote is rejected.
A "no" vote, as championed by populist party Five Star Movement (5SM), would block the reforms to streamline Italy's public administration and would mean the extensive checks currently required stay in place.
Francesco Oggiano, the author of "Beppo Grillo Parlante", told CNBC on November 14 that he believed 5SM's opposition to the proposed reforms boils down to a new electoral system perceived to be attached to the reforms.
"According to the 5SM, people won't be able to choose their own representatives in the parliament and this is the most important point," Oggiano explained.
"The result (of a 'yes' victory) would be a parliament full of bureaucrats chosen from their parties that, once elected, will just get to satisfy their leader instead of people's needs," he added.
The latest opinion polls, published before a two-week blackout phase of polling in Italy, indicated a 53.5 percent to 46.5 percent in favor of the "no" camp.
Holger Schmieding, chief economist at Berenberg Bank, said in a note on Tuesday he believed the likelihood is that Italy's citizens would reject the reforms.
"Some whispers suggest that more than half of the up to 20 percent of undecided voters may back Renzi in the end," Schmieding said.
"Also, many of the rebellious young people who oppose Renzi may not bother to vote. Whereas the outcome is thus no foregone conclusion, I put the probability of a 'no' vote at 60 percent," he added.
Whatever happens, Adolfo Laurenti, global economist at J. Safra Sarasin, described the post-referendum scenario in a note as "uninspiring".
"While the reform has some intrinsic merits, the domestic debate is centered on the effort to unseat the prime minister. At the same time, financial markets see the vote as a test of the appetite of reform in the country," he concluded.
Analysts from Barclays published a note on Monday to forecast the circumstances in the aftermath of a "yes" or "no" outcome.
If the referendum is approved and the majority of voters opt for "yes" on Sunday, then the U.K. bank expects Renzi to stay on as prime minister, for the voting system to be amended and for an election to take place in the second or third quarter of 2017.
Barclays analysts also anticipated a resilient market reaction on Monday with little movement in Italian spreads.
If the reforms are rejected and the outcome of the referendum is "no" then Barclays analysts anticipate Renzi will resign, the voting system to be modified in order to avoid a hung parliament, early elections to be called in the second or third quarter of 2017 and for Italian spreads to perform poorly in the following day's trading.
Definitely a maybe. Larissa Brunner, analyst for Western Europe at think tank Oxford Analytica, argued that the likelihood of a snap election as a consequence of the referendum is totally reliant on the outcome.
"If the outcome is a win for the 'no' camp, which appears the most likely, then it is dependent on the margin of the victory. Any clear victory for the 'no' camp would mean an election is inevitable," Brunner told CNBC in a phone interview on Tuesday.
Should a national election be called in Italy in 2017 then 5SM appear to stand a strong chance of winning the majority of votes.
Opinion polls suggest they are five percentage points behind Renzi's Democratic Party, however, a referendum loss, party infighting and even a potential split could hand the initiative to 5SM.
"(In the context of Europe), if Renzi wins then he may well become more confrontational and stretch EU deficit laws even further while pursuing a more expansionary monetary policy which could be interesting but if he loses … Well, it's anyone's guess," Brunner concluded.
Very. Officials and senior bankers according to various media reports anticipate that up to eight of Italy's troubled lenders are at risk of failure should Renzi lose the upcoming referendum.
Megan Greene, chief economist at Manulife Asset Management, believed that the referendum in Italy could provoke another banking crisis in Europe.
"In my view the biggest risk is actually for the banking sector, even more so than political risk, and there will be some political instability," Greene told CNBC on Tuesday.
The third-largest euro zone economy had been weakened by a deep recession which left behind 356 billion euros ($377 billion) in gross problem loans and Italian banks need at least 20 billion euros in capital in the coming months to cover losses from fresh loan write-downs and planned bad debt disposals, according to a Reuters report.
A "no" vote could conceivably cause financial instability and possibly even panic among investors which would therefore be significantly detrimental to Italy's banking sector.