Italian voters are set to give mainstream politicans a bloody nose on Sunday

A vote against the PM in a referendum would trigger an election - and jeopardise Italy's future euro membership

Italian voters are set to give mainstream politicans a bloody nose on Sunday

Matteo Renzi / PA / Geert Vanden Wijngaert

Italian Prime Minister Matteo Renzi has bet the house on Sunday's constitutional-reform referendum by announcing months ahead of the vote that he will walk away if his reforms are not passed.

Sunday's vote is effectively a referendum on the future of the Italian government as economic stagnation haunts the country and a wave of populism sweeps across the West.

While the Brexit result and Trump's victory were shocks - voters are expected to turn on Mr Renzi days before polling stations open around Italy. Bookies have the 'No' side out as firm favourite.

A fresh election would open the door for the eurosceptic Five Star party to make big gains - and if it comes to power the party has promised a referendum on eurozone membership.

An activist of anti-establishment 5 Star Movement wears a mask during a protest in front of the ancient Colosseum in Rome / PA

Backlash

Finance lecturer and media columnist, Cormac Lucey discussed the vote with Breakfast Business.

"The real problem for Italy is that since joining the euro it has enjoyed pitifully low rates of economic growth. It's grown by a total of 5% over the 17 years that it's been a member of the euro," he told Vincent Wall.

"That has led to youth unemployment levels approaching 40%," he continued.

This stagnation has contributed to a "severe crisis in its banking sector" - and this should be, "the first area to feel the brunt if the vote is negative."

The country's banking crisis could result in a bail-in - which could in-turn create a run on the country's banks.

Mr Lucey notes that this hit to the banking sector and a wave of political instability could send the country into a "downward spiral" - where the lagging economy creates political revolt, which further damages the economy.

He places the Italian situation in context as part of a "broader revolt against elites."

If Five Star did come to power, Italian rules state that international treaties cannot be changed by popular vote.

So to leave the euro they would need to change these rules - that is unlikely to happen as it would require the backing of two thirds of both houses of the parliament.

Even in that case it could also be challenged by the country's constitutional court.