– This is the script of CNBC's news report for China's CCTV on December 2, Friday.
Welcome to CNBC Business Daily, I'm Qian Chen.
Voters get another chance this weekend to throw markets and banks for a loop.
This time it's in Italy, where citizens are getting ready for a crucial referendum Sunday that may decide the fate of Prime Minister Matteo Renzi and could dramatically overhaul the way the country makes laws. But it's Italy's banks that could suffer the real blow, if voters shut down Renzi and his proposed reforms.
Renzi, an ambitious politician who at age 41 is the youngest prime minister in Italian history, wants to change the constitution so that the executive branch needs approval only from parliament's lower house in order to pass laws. Legislation is a slow, arduous process in Italy, where there are a high number of lawmakers relative to the population, and where the two houses of parliament essentially have the same, duplicate powers.
A "yes" vote would make it easier for Renzi to push through reforms to boost the national economy. A "no" vote, on the other hand, means the country's current checks will stay in place and could cost Renzi his job - on Nov. 17, Renzi doubled down on his promise to resign if the referendum failed.
If the referendum fails, it could be a problem for the country's banks, because recapitalizing those financial institutions could be harder.
Market watchers around the world are also paying attention to the referendum because it could increase support for right-wing parties such as the Five-Star Movement and the Lega Nord. An increase in their power, combined with the uncertainty surrounding the banks, could make markets more volatile in the short term, Peter Donisanu, global research analyst at Wells Fargo Investment Institute, said in a Nov. 10 note.
Italian banks are hampered by a staggering number of nonperforming loans - meaning loans that are in default, or close to it. The International Monetary Fund said in a July report that Italian banks held approximately
$381 billion in nonperforming debt, which marks a tremendous 18 percent of outstanding loans.
Shares of Italian banks UniCredit, Unione di Banche Italiane, Banca Popolare di Milano and Banca Monte dei Paschi have all dived at least 60 percent in 2016, with Monte dei Paschi down around 83 percent year to date.
Italian bond yields have risen sharply since bottoming out in early September, with the benchmark 10-year note yielding around 2 percent on Thursday.
Following Brexit, equity markets across the globe fell sharply as investors were unprepared for the June plebiscite result, before kicking off a rally.
And a sharp overnight sell-off in U.S. stock futures the night of the U.S.
election was short-lived, as stocks skyrocketed into record highs.
Polling in Italy currently indicates that "no" voters lead by 3 percentage points.