After Brexit and Trump it is also easy to interpret the referendum as another chance for populist to threaten the establishment.
On Sunday, Italy will hold a referendum. On the ballot is a major reform of their constitution that will redefine the powers and status of one of their two legislative chambers. As it is now, the Senate and the House of Deputies have the same duties: they pass laws and the government needs to earn the confidence of both, even though senators and MPs are elected differently, since only Italians older that 25 can vote for the Senate. Proponents of the reform believe that this institutional setting presents two major problems. Firstly, laws can endlessly bounce from one chamber to the other before being approved by both, causing legislative gridlock. Secondly, the need of both chambers to confirm the government is a recipe for political instability – Italy has had 63 different governments in the last 70 years.
After two years of discussions and six parliamentary votes, the reform supported by the government aims to change this structure by drastically reducing the number of senators and limiting their duties. The government will need the majority in only one chamber, thus increasing its chances of surviving till the end of the mandate, but its powers will be unaltered.
Since Mr Renzi, the Italian Prime Minister, promised to resign in case of a “no” victory, the referendum is under the spotlight of EU leaders and international markets. Investors have already shown signs of anxiety at the prospects of further political instability by requesting higher rates on Italian bonds. Higher bond rates and uncertainty can be a deadly mix for the two biggest and least capitalised Italian banks, which risk going bust if JP Morgan and Mediobanca’s deal to provide them with new funds goes south due to financial or political turmoil.
After Brexit and Trump it is also easy to interpret the referendum as another chance for populists to threaten the establishment. The Economist and The New York Times have already warned that the Eurosceptic 5 Star Movement – backed by a third of Italian voters – could be the main beneficiary of the current electoral system that assigns a strong parliamentary majority to the party winning the next 2018 elections. A populist majority, coupled with the more stable institutional setting offered by the constitutional reform, would allow the Beppe Grillo – a former comedian and leader of the 5 Star Movement – to implement his plan of renegotiating the gargantuan public debt and call for a referendum on the EU. This would be a disaster for Italy.
The situation, as most issues in Italian politics, is slightly more complicated, however. Renzi’s political gamble may actually be a win-win situation for him in the medium-term. A “yes” vote will provide him with a stronger popular legitimation, while a tight “no” victory, as suggested by last week’s polls, will have to be “shared” among a group of competing and highly heterogeneous parties like Berlusconi’s Forza Italia, the 5 Star Movement and the Northern League. In both cases, by making the referendum a vote on the government, and more specifically on himself, Renzi will be able to claim more popular support than his opponents. In addition, the electoral law will most probably need to be changed after the referendum, once the Constitutional Court gives its opinion on the law’s constitutionality. The worst-case scenario for the young PM after losing the referendum might entail the formation of a new government with a limited mandate and the only task of changing the electoral law and then holding an election. Let’s hope we don’t see government 64 any time soon.
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