NEW YORK (TheStreet) -- Italians will vote on December 4 to either accept or deny Prime Minister Matteo Renzi's proposed reform to Italy's government. Renzi's referendum would reduce both the power and size of the Senate, thus limit power at regional levels.

"The stakes are quite high. This referendum could make or break the Renzi government," Eurasia Group Europe analyst Federico Santi said on CNBC's "Squawk Box" Monday morning.

Renzi has pledged to resign should the referendum fail, however, the country is questioning the validity of that promise, Santi noted.

As of Friday, the "No" vote was "firmly ahead," according to Reuters.

"On balance, it's likely that a government defeat would lead to a collapse, which has investors worried," Santi stated. "I think people fear a return of chronic political instability in Italy."

Should the referendum fail and Renzi subsequently resign, it would mark the fourth change in Italy's government in just over as many years.

"And, not in the least the slow, but ongoing process of recapitalization and restructuring the bank system would also probably suffer," Santi said.

Furthermore, Santi believes even if the reform passes the chances the Italian government enacts "meaningful" and "far-reaching" control of the banking system is very slim.

"On top of that," he continued. "I think the fear that a government collapse could lead to elections that could, in turn, propel the populist Euro-skeptic Five Star Movement to power, are overplayed."

At this point, the decision Italian voters make on December 4 will either result in Renzi retaining his position with a "severely" weakened government. Or we get a "caretaker government," Santi noted.