Italy’s Populist Revolt That Isn’t

Groups from across the political spectrum are urging voters to reject Matteo Renzi’s constitutional referendum. But a no vote could still spark disaster.

Italian Prime Minister Matteo Renzi gives a press conference focused on the shipwreck of migrants last night off the Libyan coast, on April 19, 2015 in Rome. Prime Minister Matteo Renzi said Rome would be seeking the extraordinary meeting after up to 700 people were feared to have drowned when a boat carrying them towards Italy capsized off Libya. "We are working to ensure this meeting can be held by the end of the week. It has to be a priority," Renzi told a press conference.  AFP PHOTO / TIZIANA FABI        (Photo credit should read TIZIANA FABI/AFP/Getty Images)
Italian Prime Minister Matteo Renzi gives a press conference focused on the shipwreck of migrants last night off the Libyan coast, on April 19, 2015 in Rome. Prime Minister Matteo Renzi said Rome would be seeking the extraordinary meeting after up to 700 people were feared to have drowned when a boat carrying them towards Italy capsized off Libya. "We are working to ensure this meeting can be held by the end of the week. It has to be a priority," Renzi told a press conference. AFP PHOTO / TIZIANA FABI (Photo credit should read TIZIANA FABI/AFP/Getty Images)

On June 2, 1946, just a year after the end of World War II, Italians went to the polls to make a fateful choice: whether to remain a monarchy or to become a republic. The republicans won and swiftly moved to set up a constituent assembly, which gave Italy its fundamental law. Aside from a number of changes introduced through the postwar years, the Italian Constitution has governed the country ever since.

On Sunday, Italians will head to the polls to make a choice again, and if the stakes aren’t quite as high as they were 70 years ago, they are nonetheless higher than they might seem at first glance. Matteo Renzi, who began his term in 2014 as the country’s youngest-ever prime minister, is asking voters to confirm the sweeping changes to the national government’s constitutional setup that he has already pushed through Parliament.

This isn’t a vote simply about institutional infrastructure, however. Renzi has staked his political career on the reform; a defeat would almost certainly deal a mortal blow to his cabinet. A government crisis could hurt Italy’s fragile recovery and make it harder to find investors willing to prop up the country’s ailing banking sector. An Italian crisis could hit the EU, where Renzi is still seen as an important bulwark against the rising wave of populism. And right now, Renzi looks poised to lose his bet.

With the vote coming only weeks after Donald Trump stormed to victory in the U.S. presidential election on an anti-establishment platform, Italy’s populists are increasingly confident of a win. Not least, that’s because the prime minister made a decision, unusual for a head of government, to thoroughly embrace one side in a foreign election — the side that ultimately lost, as it happens. Renzi had openly supported the Democratic candidate, Hillary Clinton, while in turn Italy’s prime minister received strong backing from outgoing President Barack Obama, who had praised his institutional reforms during a carefully choreographed visit to the White House in October. The American political superstars who were meant to reflect their glory back on Renzi now look more like baggage.

The particulars of what Italy’s referendum vote is actually about have, to some extent, been lost in the discussion over its larger implications. Renzi’s constitutional reform aims to streamline decision-making in Italy and strengthen the powers of the executive. At the moment, Italy’s notoriously unwieldy Parliament is made up of two branches: the Chamber of Deputies and the Senate, each with equal powers. To become law, a bill needs to be approved by the two chambers. Both can suggest changes, slowing the process down still further.

The proposed reform would transform the Senate into a smaller, unelected chamber and strip it of most of its powers. It would also bring back to the central administration many functions that have been given to the regions, eliminating a host of overlaps. The reforms, supporters say, will help overcome Italy’s chronic political instability, which has produced 63 governments in 70 years, and will also make it easier to pass the reforms that are needed to boost the economy. The country’s business and banking communities — including Confindustria, the entrepreneurs’ federation — have spoken out in favor of the changes.

There are real reasons to oppose the proposal. Opponents, who include constitutional experts like Gustavo Zagrebelsky, a former president of Italy’s Constitutional Court, fear that the law would give excessive powers to the prime minister. Others say the reform itself would do little to reduce the fragmentation across and within parties, which is arguably the biggest source of political instability in postwar Italy. The Economist magazine, for instance, advised Italians to vote no, as did Mario Monti, the economics professor who led a technocratic administration during Italy’s sovereign debt crisis and who has accused Renzi of passing a budget law full of irresponsible giveaways in order to buy consensus ahead of the vote. Such opposition complicates the idea that a “No” victory would simply be another win for populist forces.

But it’s not clear that any of the most prominent names taking a stand against the reforms really oppose them for their constitutional implications at all. Instead, in the referendum, they see an opportunity to take down a prime minister who has lost much of his popularity since taking control of the Democratic Party and leading it to an emphatic win during the 2014 European Parliament elections.

The opposition spans the political spectrum. Within Renzi’s Democratic Party, the more left-wing faction, led by former party leader Pier Luigi Bersani, is now opposing the reform, despite having backed it in Parliament. Bersani and his supporters accuse Renzi of implementing an exceedingly right-wing agenda that has made the labor market more precarious for workers while making all the important decisions by himself or with his inner circle of advisors. Silvio Berlusconi, the tycoon and former prime minister Monti replaced in 2011, once in favor of changing the constitution together with Renzi, has come out against the reform. And, of course, the vote has met with fierce opposition from the hard-right Northern League and the populist Five Star Movement, both of which would love to see the Renzi government fall in order to clear the way for Italy to leave the eurozone and abandon austerity after years of stagnation.

The last public polls on the referendum consistently showed the “No” camp ahead, having built a 6 to 7 percentage point lead. The “Yes” camp has resorted to pointing to the significant share of the electorate (around 30 to 40 percent) that has not yet decided how to vote and is hopeful that a majority will back the reform to prevent a crisis. And yet the situation appears dire.

Renzi has flip-flopped over whether he would leave office in the case of a “No” win. Having initially pledged to stand down, he then said, “There would not be locusts,” if the electorate blocked the reform. More recently, he has said he has no interest in leading a weakened administration, hinting a resignation may still be in the cards. What would come next, if that were the case, is not at all clear.

Italy’s economy remains fragile. Oxford Economics, a consultancy, expects investment would grind to a halt in the aftermath of a “No” vote and predicts growth could halve in 2017 from an already sluggish 0.9 percent to 0.4 percent. The country’s banking system, which has suffered from a collapse in stock market valuations since the start of the year, remains saddled with around $370 billion in nonperforming loans on their balance sheets; investors are concerned about their future stability. Most market analysts fear that the event of a “No” vote would make it impossible for some of the banks that need capital to raise funds, forcing the Italian government to step in, which would come with its own costs to fiscal and political stability.

For these reasons, most observers agree that even if Renzi were to resign, it is unlikely that Sergio Mattarella, the president of the republic and the only person with the authority to call a new election, would do so; with populist forces flush with victory, the risk would be too high. Instead, most expect a new executive would be selected via a process brokered by the parties. The person who emerges would possibly have to be supported by a broader coalition than the current one. The new prime minister could be, say, a well-respected, technocratic figure, such as Pier Carlo Padoan, the current economy minister. Padoan has been a loyal minister to Renzi, and the prime minister would find it hard to oppose his nomination.

And such a process seems hardly likely to keep populist forces in check; if anything, it seems likely to ensure that the pressure will continue to build until the next election. The Five Star Movement would inevitably attack the new government, arguing that Italians deserve a new election. Italy’s new administration, meanwhile, would be facing the same economic and political challenges as Renzi’s did, with even fewer proposed solutions. And should the referendum results trigger a financial crisis, the new administration could be forced to pass austerity measures while bailing out the banks — a toxic mix that populist parties would duly exploit when the time came.

A Five Star administration governing Italy in the near future remains far from inevitable: In the event of a no vote in the referendum, the country is widely expected to implement changes in its election laws that would make it difficult for any party to govern on its own; the fiercely independent Five Star movement is likely unwilling to govern as part of a coalition.The movement is also poised to potentially lose some of its shine among the electorate soon: The cities of Rome and Turin are currently run by Five Star administrations, both of which are struggling to govern effectively. Some voters may return to the mainstream parties when they conclude that the populists are only capable of protesting.

And so, whether Sunday’s vote goes for yes or no, the ball may still ultimately land in the court of Italy’s mainstream parties. Whatever the outcome, they need to show that they are willing to press ahead with a truly reformist agenda capable of lifting Italy from its present economic and political crisis. Without this, Italy may not be the next domino to fall — but it will always be in danger.

Photo credit: TIZIANA FABI/AFP/Getty Images

Ferdinando Giugliano is economics commentator at La Repubblica.

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