Italy's Referendum: The Implications for Europe by Edelman

On December 4th 2016, Italian Prime Minister Matteo Renzi was roundly defeated in a referendum to change Italy’s constitution. The outcome was not unexpected, but with 59.1% of the Italians voting against the proposed reforms, and a high voter turnout (68%) it was a heavy defeat for the Prime Minister, and he initially announced his immediate resignation; the day after the vote, pressed by the President of the Republic, Sergio Mattarella, Renzi accepted to “freeze” his resignation until the final approval of the 2017 Budget Law. The Senate passed the Budget on December 7th, after which Renzi formally resigned. Italy is now navigating towards months of uncertainty: President Mattarella will speak to the main parties to form a plan to move forward. The most likely political outcome is a stop-gap government, backed by only the governing Democratic Party or also supported by opposition parties. This will be followed by general elections, either in Spring 2017, after the constitutional court has ruled on the current electoral law, or in early 2018, which is when the next general election is currently scheduled for. The first names touted to lead a new government include those of current Economy minister Pier Carlo Padoan and of Senate president Piero Grasso, a former anti-mafia prosecutor. It is questionable if Renzi will remain leader of the Democratic Party, the country's largest one, or if he will throw in the towel, but the former option seems more likely. If he does, he may be able to contest an early election. The left-wing populist Five Star Movement (M5S), led by comedian Beppe Grillo, and the far-right, anti-immigration and pro-regional autonomy party Northern League, currently polling in

second and third place behind the Democratic party, called for snap elections, hoping to take advantage of this moment. The recently changed electoral law favours majority voting over proportional representation, hence favouring these populist parties. As the constitutional reform was the reason the electoral law was changed in the first place, Renzi’s Democratic party is now keen to reverse it. Doing so will, however, depend to a large extent on the strategic decisions adopted by Silvio Berlusconi’s party, Forza Italia, which holds the key to form the parliamentary majority needed. Looking at current polls, which see M5S at 28%, not far behind Renzi’s Democratic party with a 32% share, new elections could result in a stalemate similar to the one we witnessed in Spain last year.

The referendum result has an economic dimension as well. While the Euro and European markets recovered after an initial fall, Italian bank shares and government bonds fell, fuelling concerns about financial knock-on effects. Most critical is the rescue plan for some of the country’s largest banks (e.g. Monte dei Paschi di Siena), which could now be in doubt; investors will soon meet to decide whether to back the currents efforts to raise the necessary funds. At the same time, the cost of insuring Italian debt against default has hit a three-year high, although it remains well below financial crisis levels. The ‘No’ campaign and populism Although not traditional political allies, the leftist M5S and the far-right Northern League joined forces behind the successful ‘No’ campaign to stop the reform and bring down PM Renzi.

The ‘No’ campaign was further supported by former PM Silvio Berlusconi’s moderate Forza Italia, Scelta Civica, and a small party of the centre-left – while not populist groups, they were concerned about the authoritarian and centralist overtones of the proposed changes. As Renzi stands for the EU establishment and has been praised by many EU heads as a key leader for a stronger EU in the aftermath of Brexit, many of those who voted ‘No’ may have used their vote to express an anti-European sentiment promoted by the Eurosceptic, populist movements from both ends of the political spectrum. Many analysts, however, are unwilling to interpret the referendum result as a new wave of populism in Italy and demand a more nuanced analysis, particularly as the country already experienced 20 years of a Trump-style government under Silvio Berlusconi. In other words, although the European integration question vis a vis the rise of nationalist populism was a contributing factor in shaping the referendum result, we should not overplay its importance. There are many reasons why different segments of the electorate voted ‘No’. The legislative process under the current constitution is slow and complicated, but people value that it was designed in the aftermath of Fascism to create safeguards against attempts to concentrate power. Furthermore, Italy has been experiencing a process of decentralisation of powers and resources to its regions. Many of those who voted ‘No’ might consider the devolution beneficial for economic development and local democracy. Finally, voters may have wanted to express their rejection towards Renzi’s leadership and policies, particularly migration policy – due to its position as a main point of entry, Italy has been affected by the migration crisis. Key takeaways from the vote • In a country where seniors of an older age still dominate the public sphere, the youth argument doesn't always work. In fact, more than 65% of young voters appear to have voted against Renzi.

• Italians are reluctant to allow a return to centralisation (which could have been an outcome of a ‘Yes’ vote): Italian regions will be keeping a degree of autonomy, at least for a while. • Italy's South also strongly voted against the reform; the question remaining is who influenced Southern votes. • In Italy, too, government hired spin doctors to counter negative narratives; however, support from U.S. political strategists on Renzi’s team didn’t have a positive effect, similar to previous efforts by other Italian politicians (e. g. Mario Monti). • Renzi’s strategy to closely link the referendum to his person and tenure, by declaring to resign in case of a ‘No’ victory, backfired; now, Italy will have its 64th government in 71 years of post-war history. • International support didn’t work, and might have even been counterproductive: support for Renzi expressed by U.S. President Barack Obama, German Finance Minister Wolfgang Schäuble, and EU Economy Commissioner Pierre Moscovici didn’t have a positive impact, and was portrayed as an act of foreign intervention by the ‘No’ campaign. • The 2014 “Jobs Act”, Renzi’s government’s package of measures to tackle unemployment, produced a “bubble” for a year, but no significant growth or kick-start. Interestingly, Italy’s 100 cities with the highest unemployment rate all voted strongly against Renzi’s proposed constitutional reforms. Implications for European politics

The referendum result demonstrates a further rejection of the establishment, following the United Kingdom’s decision to leave the EU and Donald Trump’s election as U.S. President. If populist parties, like M5S and the Northern League, were to be strengthened by the referendum result, it could boost the confidence of similar movements across Europe. Internationally, the referendum result is likely to be welcomed by Russian President Vladimir Putin, who is being backed by M5S and the leader of the Northern League, Matteo Salvini.

An Italian “realignment”, away from the U.S.Western sphere, could be looked on favourably by large factions of Italy’s economy, interested in resuming exports to Russia; in this scenario, Italy would ask to remove all economic sanctions imposed by the EU on Russia. The referendum result precedes a year of elections in a number of EU member states: with the Netherlands, France, Germany and the Czech Republic, four EU member states will hold general elections in 2017. In The Netherlands, the antiIslam and anti-EU Party for Freedom (PVV), led by Geert Wilders, has topped some recent polls ahead of March’s parliamentary elections, while far-right candidate Marie Le Pen is expected to seriously compete for the Presidency of France in April and May. According to polls, Germany’s far-

right Alternative für Deutschland is looking to become the third-strongest party in parliament next year. Whatever the next steps will be, Italy will remain in the international headlines in 2017 around three major international events: 1) The anniversary of the EU founding Treaty (Treaty of Rome), which will be celebrated in March; 2) The G7 meeting in Taormina, Sicily, at the end of May, when the new U.S. President Trump will come to Italy; 3) The start of Italy's seat in the UN Security Council, which will allow the country to play a more active role at the international level, whoever will be the Prime Minister in charge.

What was the constitutional referendum originally about? The referendum aimed at reforming the Italian senate and the relations between the central government and the regions. Under the current constitution, both legislative chambers have equal power and therefore both must reach consensus before passing legislation. As this slows down the legislative process, Renzi sought to streamline decision-making, and proposed the following measures: • Reduce the number of senators from 315 to 100: The 100 senators would no longer have been elected directly. Instead, 95 senators would have been appointed by regional assemblies, with some mayors serving as senators. The remaining 5 senators would have been appointed by the president. • Limit the Senate’s power relative to the lower house of parliament: The Senate would only have had the power to weigh in on big issues such as constitutional reforms and the ratification of EU treaties. Most laws, including Italy’s budget, would have been able to be passed by the Chamber of Deputies without consulting the Senate. • Reduce the political power of Italy’s 20 regions by shifting regional decision-making powers to the central government.