Italian referendum, European risks

Photo: Reuters/ScanPix

In a few months, Italian voters will be asked to endorse or sink the most ambitious constitutional reform ever attempted since the establishment of the republic in 1946. The reform affects more than one third of the 139 articles that nowadays constitute Italy’s fundamental charter. The reform proposed by the Renzi government has the main objective to make the functioning of the state institutions more agile by overcoming the current system of equal bicameralism, reduce the number of parliamentarians, cut the costs of the ineffective state machine, and increase the effectiveness of Italy’s byzantine state organization. The vote on the reform is likely to produce very visible effects both domestically and internationally.

From a wider perspective, a yes vote might have the effect to empower Italy as a driving force towards a renovated and more ambitious European Union in its way out of the crisis, while a victory of the no side might determine unpredictable consequences in terms of stability of the country, whose effects are likely to severely impact the stability of the Eurozone – not yet recovered from the recent waves of crisis – and the very survival of the European Union, as we know it.

Recently, analysts of Citigroup – an American multinational investment banking and financial services corporation – have called a possible failure of the Italian referendum on constitutional reform “the single biggest risk on the European political landscape this year, bigger even than Brexit”. The same stance was echoed by different international outlets, from the New York Times to the Guardian.

When Renzi and his inner circle of reformers in the Democratic Party launched the process of constitutional reform in mid-2014, a few months after having substituted (following a sort of intra-party coup) the third prime minister in two years, the effort to simplify and improve the stability of Italy’s political machine appeared in line with the intention to structurally change Italian politics. The main challenge of the new cabinet was to mark a strong discontinuity with its forerunners and to introduce substantial changes not only in governing style but also in practice. Reforms were not only strongly requested by a wide majority of the electorate and but appeared vital to re-establish the international credibility of the country, following Berlusconi’s catastrophe.

In a few months, public financing of parties was abolished, a new electoral law was put on the table, and the job market was made more flexible and liberal, while a process of rationalization of public expenditures was set into motion, meeting most of the requests by international partners. In this sense, the constitutional reform package should be seen as part of a broader attempt to modernize the country and goes hand in hand with the economic, fiscal, and administrative reforms.

Despite ongoing criticism – both within and outside the Democratic Party – and frequent accusations of leaderism, the Renzi’s government seems to have partly regained international trust. If on the one hand, the government’s self-confidence has led to more assertive stances towards the European institutions in the direction of more budget flexibility, it has also made Italy’s voice in Europe stronger and increased Rome’s commitment to contribute to the development of an “ever closer Union”. In this sense, while a constitutional reform is by definition an instrument of domestic policy, its implications are likely to affect Italy’s role in Europe and its credibility as part of the new big-three group, with France and Germany, following the withdrawal of London.

While Italy’s constitutional reform is about introducing fundamental institutional changes and simplifying an over-complex and slow legislative system, the political profitability of a rejection is huge. In an environment of diminishing trust in elites, the temptation by the populist sectors of the opposition to seek political legitimacy through the referendum is tempting. This risk appears even more concrete following Renzi’s early attempt to personalize the vote by linking the future of the government to the success of the reform.

Although Renzi has tried to sever this link over the last weeks, if the referendum fails, the government is unlikely to survive the shock of a negative vote and the Democratic Party is likely to face growing internal turbulence. Italy is also likely to return to the sort of political anarchy and economic instability that followed the resignation of Silvio Berlusconi, without a clear political direction.

The enemies of the reform are many, from the populist and euro-sceptic Five Star Movement and the far-right Northern League to the internal leftist opposition within the ranks of the Democratic Party. The one who might more directly profit from a defeat of the referendum is Beppe Grillo’s Five Star Movement whose populist claims – against the Euro and the EU ‘corrupt’ elites – are supported by a growing number of voters frustrated by Renzi’s economic policies and reforms. The most recent surveys depict a grey picture with a high number of undecided voters and a very tight margin between the two opposite camps, with the concrete possibility of victory of the no side.

According to John Mauldin, a renowned financial expert, “Matteo Renzi, has basically bet his career on this referendum, which would allow him to enact much-needed reforms. […] A “no” vote would throw Italy into a political crisis”. Then there would be a real potential to bring to power parties – such as the Five Star Movement – with a very disruptive euro-sceptic agenda and no previous governmental experience. At this point, the prospects of a referendum on whether to stay in the Eurozone – as already asked by Grillo in a few occasions – would appear realistic and its outcome unpredictable, considering the growing euro-sceptic sentiments of the Italian electorate following the EU’s inaction in the refugee crisis and Brussels-sponsored much-hated austerity measures.

Considering the already alarming number of Eurosceptic governments in a few Member states and the impressive growth of populisms EU-wide, the perspective of a government with a destructive European approach in one of the largest EU member states sounds particularly alarming, especially for the stability of the Eurozone. But, hardly anyone outside of Italy seems to pay enough attention to the forthcoming referendum despite Renzi’s numerous calls for support to the European partners. The EU leaders – including Merkel and Hollande, more concerned about domestic electoral debacle – seem to be completely passive, as in the case of Brexit, despite the very concrete risks for the whole integration process.

Isolating Italy on issues such as the refugee crisis or deficit limits – as happened in the recent Bratislava summit, defined by Renzi as nothing more than “a nice cruise on the Danube”– will have the effect of further delegitimizing the government’s credibility in the eyes of the Italian voters on the eve of a vote whose European implications are widely foreseeable.

From this perspective, the referendum in Italy appears more dangerous than the Brexit. But, like the latter, its debate and uncertain outcome reflects the decline in support for the mainstream parties and the de-legitimation of traditional politics emerge as a clear and concrete challenge, not only for the Italian, but for the whole European establishment. Breaking the linkage between voters’ disaffection and populist parties might prove more difficult than expected, as proven by the Brexit vote. And like in the British case, the Italian vote is rife with emotion – rather than tangible reality – and political turmoil, making the outcome too close to call.  This makes it more difficult also to address voters’ fears and counterbalance populist slogans with concrete actions from the governmental side.