ROME Italy's constitutional reform referendum on Sunday could lead to the resignation of Prime Minister Matteo Renzi, trigger renewed turmoil in the country's battered banking sector, and push the euro zone back towards the edge of crisis.
The 41-year-old Renzi has held dozens of rallies across Italy this autumn in an adrenaline-fueled effort to defy the electoral odds and promote a reform that he says will strengthen government rule in the euro zone's third-largest economy.
He has said that if he loses, he will step down after just 2-1/2 years in office. Such a move might well unleash renewed political instability and scare away investors who fear the opposition, anti-euro 5-Star Movement will move closer to power.
A 'No' vote would also be judged part of the same wave of anti-establishment sentiment that saw Britain vote in June to leave the European Union and Americans elect Donald Trump as their next president.
"The world is changing," 5-Star founder Beppe Grillo told a rally in Rome on Saturday. "We have to throw our 'No' back in their faces. This is not a political 'No', it is an existential 'No' and a social 'No' ... Our world is coming."
The biggest immediate loser if the 'No' camp triumphs could be Italy's third-largest bank, Monte dei Paschi di Siena, which is bowed by bad loans and looking to raise 5 billion euros ($5.3 billion) next week to stave off collapse.
Investors are likely to shun the operation if political chaos prevails, meaning a state intervention will be needed to save it. Several other lenders also need a cash injection to stay afloat raising fears of a domino-effect crisis.
"Sunday's referendum on constitutional reform is Italy's Brexit moment and a 'No' vote would send tremendous shockwaves through the markets and the banking system. It could also heap pressure on the euro," said Neil Wilson of ETX Capital.
A Reuters poll suggests investors would expect to demand an extra 25 basis points in yield to hold Italian debt over its German equivalent if the reform is rejected, with the euro dipping 1.25 percent.
The risk to stability, meanwhile, is enough to have the European Central Bank preparing to step in if needed.
It was not meant to be like this.
When Renzi unveiled the constitutional reform in 2014 some 70 percent of Italians supported it, and in a fit of over-confidence that he now accepts was a terrible mistake, the youthful premier tied his political future to the project.
The plan calls for the abolition of an elected upper house and its replacement with a chamber of regional representatives which will have much reduced powers. It also proposes taking back key decision-making powers from the regions.
Critics say the measures will strip Italy of democratic safeguards put in place after World War Two to prevent the rise of a new strongman. But many people are expected to vote 'No' simply to voice their anger at Renzi, who has struggled to revive Italy's chronically underperforming economy.
If he loses, Italian President Sergio Mattarella is likely to try to persuade him to remain in office to oversee crucial electoral reform, which would possibly allow for elections in the first half of 2017, a year ahead of schedule.
The campaign has been long and brutal, leaving the country as divided as at any time since the constitution was originally introduced in 1948, with Renzi's own Democratic Party (PD) split by the reform and facing much soul searching after the vote.
A blackout on opinion polls was imposed two weeks before the vote, at which time the 'No' camp was leading by up to 11 percentage points. Sources in the ruling PD say their private polls show the gap has since shrunk to around five points, with up to a quarter of the electorate still undecided.
"We made a mistake in personalizing this reform," said Matteo Richetti, a PD lawmaker close to Renzi. "But I think we can still win this. Italians realize this is not about Renzi, but about how the country should be governed for years to come."
(Editing by Jeremy Gaunt)