B|Brief: Italy’s Referendum Brings Uncertainty, but Averts Chaos

December 12, 2016

by Michael McKeon

Italian Prime Minister Matteo Renzi resigned his post last week after voters roundly rejected a referendum on constitutional reform. The proposal sought to revise nearly a third of the Italian Constitution’s 139 articles, and would have changed the composition and law-making procedures of the Parliament and granted greater powers to the executive. The referendum would have also abolished Italy’s 110 provinces as seats of local government, and transferred some powers currently overseen by the country’s 20 regions – such as major transportation and civil protection – to the national government in Rome.

The outcome of the referendum has created political and economic uncertainty in Italy and the European Union (EU). Italy’s highly indebted banks are of most immediate concern, as the risk of default has increased with no clear path to new government policy. Concerns that the vote may lead to an Italian exit from the eurozone or from the EU itself are unwarranted though, as the referendum dealt explicitly with domestic issues, and because Italians support EU membership by large margins. In the end, Italy’s complex legislative process – the system left intact as a result of the referendum – may protect the country from other, potentially damaging trends that have recently swept through the West.

Background

Renzi and his Democratic Party (PD) put forth the proposal to reform Italy’s Constitution in the form of a Senate bill shortly after he assumed office in February 2014. The bill moved through several amendment and approval processes in the Parliament over the course of the next year and a half. Because it never met a minimum vote threshold during that time, the proposal was sent to popular referendum. The December 4 vote drew a higher-than-average 65 percent of the Italian electorate.

Renzi staked his position as prime minister on the outcome of the referendum, vowing to resign if the proposal were rejected. By his own hand, Renzi effectively created an opportunity for political opponents to unseat him outside of the normal election process. Sundry political forces – including the anti-establishment, Eurosceptic Five Star Movement (M5S), the right-wing Forza Italia and Northern League parties, the left-wing Sinistra Italiana party, and factions of Renzi’s own PD – aligned in their opposition to the prime minister and soundly defeated the proposal. In the days following the referendum, its opponents rejoiced not in preventing constitutional change, but in defeating the man behind it.

Ostensibly, the referendum was about creating a more transparent and efficient government. However, for many Italians the “no” vote was a rejection of Renzi himself and a cry against lingering economic stagnation and a seemingly out-of-touch ruling class. Italy faces an uncertain political and economic future – an all-too-familiar prospect for a country that has seen more than 60 governments in the course of 70 years – and some stakeholders now fear that calamity in the style of Brexit may follow.

You say Tomato, I say Pomodoro

Eurosceptic voices both in and outside of Italy, including M5S leader Beppe Grillo and France’s Marine Le Pen, praised the result of the referendum as a wider rejection of the European project. Some view the “no” vote as the latest success of populist movements upending decades of established order in the West, and predict that Italy is headed toward withdrawal from the eurozone, if not from the EU entirely. By most accounts, though, the vote reflected domestic concerns, and does not portend political upheaval or Italexit from the EU.

The United Kingdom (UK) referendum on EU membership and the Italian referendum on constitutional reform both attracted a surprisingly high proportion of voters to the polls, and both resulted in the ouster of a prime minister who was supportive of EU membership to some degree. The similarities do not extend significantly further though. In Italy, the rejection of Renzi had much to do with perceptions that he had failed to deliver on promises to improve Italy’s economic standing, despite having made meaningful reforms to the tax code, state bureaucracy and laws related to hiring and firing employees. This was particularly true in the south, where unemployment rates still hover around 20 percent in most regions. Although he entered the national scene as a challenger to Italy’s notorious gerontocracy, Renzi came to be seen – primarily by the disaffected working class – as yet another political insider who was out of touch with the needs of the general population.

On its face, the youth vote in the two referenda were the same; that is, both populations voted overwhelmingly to reject the proposal at hand. Here, too, the similarities extend no further, because the aims and the implications of “no” were entirely different in the two plebiscites. One, explicitly outward-looking, aimed to undo decades of integration with other EU member states. The other sought, at least in name, to break down institutional and procedural barriers to government efficiency. In rejecting the referendum, young Italians expressed disillusionment with a government that had not significantly reduced unemployment and increasingly seemed to operate under business-as-usual rules. The youth “no” vote, reactionary and anti-establishment in nature, ironically contributed to keeping in place the complicated, slow-moving system that has stymied legislative – and in turn, economic – progress for decades.

Unlike in the UK, where exogenous forces such as immigration and perceived EU burdens on British taxpayers fueled the vote for an exit, Italians voted explicitly on issues of Italian law and government. While Renzi was certainly in favor of remaining in the EU, he clearly fought for Italy’s interests on issues ranging from mass migration to the euro crisis and austerity measures. Inference of widespread anti-EU sentiment reflected in the “no” vote is speculative, at best, and is more likely Eurosceptic political opportunism than the product of reasonable deduction.

Perhaps the clearest indication that the December 4 referendum is not a harbinger of another Brexit scenario is that Italians support EU membership by significant margins. While not wholly enthusiastic about all of its dimensions, most Italians believe that the country is better off inside the bloc than out. According to a November 2016 survey , nearly 65 percent of respondents believe that the economy would suffer if Italy were to leave the EU. Furthermore, approximately 72 percent feel that abandoning the common currency and returning to the lira would worsen the country’s economic problems, and 56 percent believe that the question of EU membership should not be put to a popular vote at all.

Although it may be tempting to draw similarities between the referenda in Italy and the UK, the two are more different than they are similar. Undoubtedly, the outcome of Italy’s referendum will have economic and political ramifications. The country is the second-most-indebted in the eurozone (after Greece) and its banks owe European financial institutions nearly 400 billion euros. Insolvency of Italy’s largest banks and financial market instability could have far-reaching consequences, even beyond the EU, but there is little risk that the country will quit the European project anytime soon.

Through chaos, stability

A silver lining of last week’s referendum is that the legislature’s unchanged structure could prevent an anti-Europe party from ever pulling Italy out of the EU or the Eurozone. The complicated, deliberative lawmaking process, devised after World War II to prevent unilateral action by a Mussolini-type leader, ensures that major policy proposals receive the approval of the majority in both houses of Parliament, which together hold 950 members, before becoming law.

It is worth noting that a 2015 electoral law, known as “Italicum,” could make it easier for a party like the Eurosceptic M5S – which holds the second highest number of seats in Parliament, after the PD – to gain a ruling majority in the Chamber of Deputies (the Parliament’s lower house) without having won a majority through regular election. The law was put forward by Renzi in 2014, and essentially creates a two-round voting system that awards bonus seats to whichever party secures 40 percent of those in the lower chamber. The law is meant to assure a majority, thereby facilitating passage of a party’s priorities and strengthening the prime minister’s hand.

However, any law proposed in the Chamber of Deputies would have to be approved by the Senate (and vice versa), to which Italicum does not apply. M5S has not formed alliances with other political parties to date, and the likelihood of any single party gaining an unchallengeable majority in both houses is low. In a time of uncertainty brought upon by populist responses to complex policy issues, Italy’s slow-moving, gridlock-prone government could be its saving grace.

The result of the Italian referendum will likely carry economic consequences for Italy and the Eurozone, but it will not irrevocably change either polity. Italy has weathered many crises in its history – even in the past 70 years alone – and its citizens recognize the strategic value of global engagement and continued membership in the EU. By most accounts, the vote was a domestic political decision, which in the end may serve to steer the country on a slow, if bumpy, path to prosperity.


Michael McKeon is project manager for transatlantic relations at the Washington, DC-based Bertelsmann Foundation. Michael.McKeon@bfna.org