While the result of the vote – which will seek a popular mandate for prime minister Matteo Renzi’s proposed constitutional amendments – is not quite the zero-sum game of Britain’s departure, it could have a much more profound impact on the European project.
The referendum is due to be held later this year, the date of which will be determined within the next 60 days by Renzi. 
At issue is the scope of executive power to enact potentially painful economic reforms. Like the UK, polling suggests the electorate is split, with a vanishingly small majority backing the government. At stake are the survival of the government and appetite for wholescale change to a sclerotic system.
‘Unfortunately this is a binary call,’ said Kevin Lilley, manager of the Old Mutual Europe Equity fund. ‘If Renzi wins, he retains his leadership and the reformed constitution will be good for the market.
‘There will be greater confidence in the Italian economy as it will speed up the political decision making process and be good for business and consumer confidence in Italy and Europe will be perceived as being stronger.
‘If he loses the market will fear risks of a eurozone break-up and the European project will be called into question again, business confidence is likely to be damaged and growth will slow.’
A coalition of opposition groups led by the populist anti-politics Five Star movement, together with the conservative Northern League and Italian Left parties, have countered that the reforms are poorly designed and grant excessive power to central government, however.   
Complicating the vote is the parlous state of Italy’s banking sector. The country’s financials hold an estimated €350 billion (£293 billion) in non-performing loans; equivalent to 21% of GDP.
The EU’s current bailout rules emphasise bondholders must take the initial write-down, but given that $235.6 billion of Italian household wealth – 14% of the total – is held in bank bonds, this carries a high probability of devastating the domestic economy.   
Negotiations over who would carry the can on deep capital losses were shaping the debate and could ultimately decide the country’s status as a member of the single currency, said Charles Gave, co-founder and chair of Gavekal Research.
‘Brussels and Rome are engaged in a shadow boxing exercise over a mooted €40 billion bailout of Italian banks which seemingly breaches state-aid rules adopted this year by the EU,’ he said.
Unless Brussels is able to carve out some exemption to rules drawn up following the disintegration of Cyprus’ banking sector, the country would likely see the poll as a protest vote against European rules, added Gave. 
Should the Renzi government be dissolved, the only obvious contender to form a government would be the Five Star movement, led by former comedian Beppe Grillo, which has little in the way of a policy platform beyond opposition to the political and economic elites.
‘A UK-style outcome may materialise,’ said Gave. ‘And such is the asinine construction of the eurozone that an exit from the single currency will likely necessitate Italy leaving the EU.’
Similarly to the UK, Lilley warned that rather than think the unthinkable, investors had instead ceased trying to price a potential negative outcome.  
‘The Italian market is trading on a higher multiple than the Euro Stoxx 50 index [on a price to earnings multiple of 13.87x, versus 13.75x].
‘Yes, it has been weak, but this is a result of both banking recapitalisation fears and the referendum. If Renzi’s popularity is damaged by a resolution to the banking issues then the market is likely to weaken further on a raised probability of losing the referendum.’
Lilley currently has a zero weighting to Italy due to the banking recapitalisation issues and the subsequent referendum.
However, he says that if the government is seen to deal with the banks in a way viewed favourably by the general population of Italy, that he may add an Italian position to his fund.