By Luisa Zargani
with contributions from Robert Williams
 on December 6, 2016
Matteo Renzi and President Obama

MILAN — Don’t panic — but be concerned.

That seemed to be the consensus Monday among fashion and retail industry executives and analysts following the resignation of Italian Prime Minister Matteo Renzi in the wake of Sunday’s referendum defeat. The concern is that the ensuing uncertainty will be a further blow to already sputtering consumer confidence in Italy and perhaps in the rest of Europe.

Some observers also characterized Renzi’s resignation as the latest in the wave of political turmoil that began with the Brexit vote in the U.K. and continued with the election of Donald Trump as U.S. president and warned more upheaval could come as France, Germany and The Netherlands head to the polls next year.

Markets in Europe generally moved higher Monday, with the Frankfurt’s DAX rising 1.6 percent to 10,684.83 and Paris’ CAC 40 gaining 1 percent to 4,574.32, although the FTSE MIB in Milan slipped 0.2 percent to 17,050.21.

Shares more exposed to the U.S. performed better, including Fiat Chrysler Automobiles, up 4.58 percent.

“Italians have lived through many governments since World War II. So, this is not the end of the world — in principle,” said Luca Solca, managing director and sector head of global luxury goods at Exane BNP Paribas. “Having said that, Italy has used debt and devaluation in the past to absorb social tensions. The problem is both are no longer available now. What is on the menu today is more austerity. European authorities were quick to ask for additional measures in the full-year 2017 budget, just as soon as Rome became weaker with the Renzi resignation. If a caretaker government finds that obeying European dictates is the way forward, then higher taxes may come and the fragile consumer confidence you have today will shatter.”

Raj Badiani, senior Italian economist at IHS Global Insight, said in a research note that it is “critical the new leader has sufficient time to soothe an electorate that is increasingly agitated by the costs of what they consider to be unsympathetic treatment from their euro zone partners.”

According to Badiani, consumer confidence “is already under increasing pressure during 2016, and deteriorated during the four months to November, illustrating that households are increasingly fearful of accumulating risks, namely growing political tensions, the country’s banking sector tensions and disappointing labor market developments in recent months. The political mess and the prospect of a particularly hostile future general election could spark a further retreat in consumer confidence during 2017, which would be a major risk to our assessment that consumer spending will underpin near-term growth prospects.”

Positive factors include a less severe drag from Brexit and a weaker euro.

“Clearly, a weaker euro in the latter stages of 2016 and 2017 will relieve some of the pressure on Italy’s export market shares from high-unit labor cost growth and increased global competition in Italy’s areas of specialization,” Badiani wrote.

On Monday, Renzi met with Italy’s president Sergio Mattarella to discuss the future of the government and the results of the referendum, which saw the “no” front win with 59.11 percent share. While Renzi did not make any comment, Mattarella issued an official note emphasizing the need to ensure that deadlines be met. Case in point: the yearly balance bill, which needs to be approved by the end of the year, or interventions on the issue of migrants arriving in and passing through Italy.

As reported, Renzi had been promoting a referendum to vote on a change in the country’s constitution, which he claimed would streamline Italy’s government decisions. Renzi, who had vowed to step down if he lost the referendum, took full responsibility for the defeat. According to reports on Monday, Mattarella could “freeze” Renzi’s resignation for five days until the balance bill is approved.

Corriera della Sera provided five post-Renzi scenarios, including general elections. Other alternatives were: Mattarella could ask Renzi to step up again. He could also turn to a high-profile individual such as Mario Draghi, president of the European Central Bank; Pietro Grasso, president of the Senate, or Pier Carlo Padoan, minister of economy and finances, to succeed Renzi. The latter has been working on trying to solve Italy’s banking crisis and is seen as close to Renzi, but less “visible.”

Reacting to the vote, analysts at Intermonte brushed concerns away. “We don’t see a great negative impact, actually we had indicated an overweight rating for the sector in case of victory of the ‘no’ front.”

Considering the exposure of the luxury sector to the Chinese consumer — around 30 percent — and given that the Italian consumer accounts for less than 5 percent, according to Intermonte estimates, “the impact is really limited if not nil. Also in the short-term we remain positive. The fourth quarter should continue to benefit from consumer spending in mainland China, voiding the negative effects of the terrorist attacks from last fall. The political uncertainty should in no way impact Asian tourist flows in Europe and the confidence indicators of consumers in Europe remain quite resilient at the moment.”

Armando Branchini, deputy chairman of Milan-based InterCorporate, concurred, saying he did not believe in a direct impact on consumers. “The ‘no’ front was so large that those voters will breathe a sigh of relief. They will be much more pleased than I am, as I knew that the ‘yes’ front would not have won.”

He remarked on the “40 to 50 percent of those 19 million voters in the ‘no’ camp who were socially angry.”

“Globalization has transferred wealth from the middle class in mature economies to the middle classes in emerging economies. We live in a moment of financial capitalism where wealth is in the hands of very few. There is a lot of insecurity and social rage, with their vote, they say you don’t know how to solve our problems, the cost of life, unemployment and uncertainty,” said Branchini, seeing the referendum vote as the third step following the Brexit vote and Donald Trump’s victory. Conversely to the past, young people today don’t expect the future to bring progress.

“Whoever had proposed the referendum would have had the same result,” remarked Branchini, addressing Renzi’s personalization of the referendum.

Asked about the possibility that investors would be wary of Italy going forward, Branchini said it depended on the scenario. If Mattarella were to pick someone such as Padoan to succeed Renzi, “the message would be that the economy is under control. It would be risky if the yearly budget bill were not approved,” and send a wrong message to Brussels and Europe. Asked about Carlo Calenda, minister of the economic development, who has been very supportive of the fashion industry, Branchini saw him as fit as a prime minister “in the long-term.”

Brunello Cucinelli chose to focus on the “exceptional” turnout among young people, who had been disinterested in political discussions for decades, he said, remarking on “a new wish to live in a different way,” emphasizing ideals, “life values” that he thought had dimmed and a “dream to find those eternal values that count,” attentive to “life of those human beings with fewer possibilities. The seed of political and human renewal in our country has blossomed and can’t dry out.” Cucinelli also highlighted the relevance of Italy’s manufacturing, “second only to Germany in Europe.” “It is as parts of this political, social, economic and human scenario continue to work always with passion and great hope for a better future not only for ourselves but for humanity,” concluded the entrepreneur.

Massimo Giorgetti, creative director of Emilio Pucci and designer of his namesake brand, was firmly in the “yes” camp, and did not hide his disappointment. “Unfortunately, I think this is a sign of the dissatisfaction of the times. We are privileged but we must not live in a bubble and realize that the middle class has disappeared, also as voters.”

The referendum’s result “was a sign of unhappiness and is reflected in the economy. Consumer spending in the middle-range is disappearing,” said Giorgetti.

As an entrepreneur, too, he said this “forces us to map out and keep our eyes on new strategies without making mistakes. Currencies and the image of instability are a problem.”

Asked if he had voted “yes” because he agreed with the changes in the constitution Renzi was promoting, Giorgetti admitted his vote was “more in favor of Renzi, to avoid facing instability and uncertainty.”

He touted Renzi’s hard work and efforts to be proactive. “He has done a lot, he’s young and modern, he was the first prime minister to open Milan Fashion Week, and the alternatives, the Five Star and Lega [parties] terrify me. These are parties that see fashion as a clique of chosen ones.”

Giorgetti said he was disheartened. “I found it sad that Italy always has the need to find someone to complain about.”

He conceded that Renzi made a mistake in associating his persona with the referendum, similarly to then-U.K. Prime Minister David Cameron and the Brexit vote. “We are more and more living in a world that is split in two — the general population and the high-end bourgeoisie — and, globally, the elections show this and fashion must be aware of this. We should never stop listening to buyers, entrepreneurs and journalists, we can’t live in a bubble and we must challenge ourselves,” he said.

Still, while Renzi’s resignation will lead to some upheaval in Italian politics, observers’ greater concern is what might happen in the French elections next spring. The worry is that the extreme right Front National party led by Marie Le-Pen might ride a wave of economic discontent and controversy over immigration and pull an upset.

“The French elections are the real political acid test of 2017,” said Exane’s Solca, noting that if the Front National won, “which we and consensus do not expect, then both the European Union and the euro zone would dramatically change. This would be a massive shock to both luxury and the broader global economy.”

The center-right politician François Fillon is broadly favored to win since the Socialist incumbent François Hollande has declined to seek reelection in the face of historically low approval ratings — dipping as low as 4 percent in some polls.

Former Socialist Minister Emmanuel Macron will run as an independent but neither he nor any of the potential Socialist replacements for Hollande is currently polling high enough to suggest they would make it to the second round of voting.

Center-right Fillon has been branded “a French Margaret Thatcher” for his tough stances on liberalizing French labor markets. The private sector has long lobbied for liberalizing reform in a country where laws make it prohibitively expensive for companies to fire workers. But tampering with these laws along with proposals to raise the age of retirement and discontinue the 35-hour work week is likely to be met with significant opposition.

France saw a spate of violent riots and strikes this past spring when the Socialist government pushed through a series of reforms that were much less far-reaching any proposal of Fillon’s. Pro-business reforms under a Fillon presidency could provoke a long and even paralyzing period of social unrest.