Following the United Kingdom’s decision to leave the European Union and the election of Donald Trump, a “no” vote in Italy’s upcoming constitutional referendum could further agitate the international order.
Over the past few months, the American elections have left little space for substantial media coverage of the December 4 referendum. If approved by Italian voters, the measure would increase the power of the lower house of parliament, the Chamber of Deputies. Additionally, it would relegate the Senate to an advisory role, similar to that of the House of Lords in the UK, and reduce the number of senators from 315 to 100. Therefore, the party that controls the Chamber of Deputies would gain more power. Currently, Prime Minister Matteo Renzi’s center-left Partito Democratico (PD) controls a majority of seats.
Renzi claims that the constitutional changes would enable him to implement a number of economic reforms to revive the ailing Italian economy. He has pledged to resign if the referendum fails to pass. The prime minister is a staunch supporter of European Union policies, and a “no” vote would be an outright rejection of not only his leadership, but the EU and the Euro as well.
Proponents of the referendum argue that the constitutional reforms are necessary to kickstart economic growth. According to Lorenzo Codogno, the former chief economist of the Italian Treasury, these reforms “would allow the government to regain certain key responsibilities, which would make the public administration more effective.”
A rejection of the proposal would increase the political standing of the populist Five Star Movement (M5S). The leader of M5S, comedian Beppe Grillo, has called for Italy to withdraw from the Euro and return to its own former currency, the Lira. An “Ital-Leave” from the Eurozone would threaten the stability of the Euro and the overall European monetary system.
In February of this year, around 60 percent of voters expressed a favorable opinion of the constitutional changes. Polls now appear to indicate a “no” vote, with slightly more than half of voters opposed. Nonetheless, the past year has clearly shown that polls are often wrong.
But markets, too, are currently predicting a rejection of the proposal. Italy’s Target2 balance, or its real-time gross settlement system, shows a tremendous capital flight from the country over the past few months. A “no” vote next week would almost certainly devalue the Euro and increase capital flow into American markets (strengthening the U.S. dollar even further).
Given the current economic conditions in Italy, rejection of the referendum and the political establishment would come as no surprise. According to the International Monetary Fund, real income per capita in Italy is 12 percent less than in 2007, just before the global financial crisis. Unemployment continues to hover around 11 percent, while youth unemployment is 40 percent (50 percent in southern regions). According to Eurostat, government debt is 133 percent of GDP.
Furthermore, Italy has grown much more slowly than other EU members since the end of the recession. The appalling economic conditions have created the ideal conditions for populist movements. Like their counterparts in the United States and Britain, working-class Italians feel alienated from the political establishment. The idea of a group of German bureaucrats sitting around in Brussels, crafting the nation’s economic policy, does not appeal to unemployed blue-collar Italians. They believe that the parliamentary reforms will give them more say in Italy’s economy than they currently have under the EU, which is dominated by representatives from other European countries. Despite such concerns, only time will tell if a rejection of the referendum produces an overall positive outcome for the Italian people.