Outlook for Italian stability

Nation on a poor path

Sunday’s No vote in Italy against Matteo Renzi’s constitutional reform proposals was bigger than expected. The prime minister has tendered his resignation. I expect the outcome will be a new government in place soon, led by a minister in Renzi’s former administration. This will provide a measure of stability ahead of a general election that must be held by February 2018 at the latest.

As someone who himself called for a No vote – as Renzi’s proposed changes would not have fulfilled the objective of making government more streamlined and efficient – I did not think that Renzi had necessarily to leave office. But in view of the scale of his defeat, I respect his decision to step down, which he will carry out after pushing through the budgetary law now before parliament.

President Sergio Mattarella is in charge of the process and we expect progress on a new government in the next few days. I hope that today’s action by the European Central Bank on maintaining flows of liquidity to the banking system will underpin these advances in stability.

Foreign observers need to be aware that Sunday’s outcome was not a straightforward victory for populism. In contradiction to some comments in the international media, this was not the third episode in anti-establishment reverses after the British decision to withdraw from the European Union, and Donald Trump’s victory in the US presidential election.

In international opinion, we often see a degree of understanding of Italy’s position that is somewhat superficial. Barack Obama, the US president, and Wolfgang Schäuble, the German finance minister, did nothing wrong by calling on Italians to vote Yes, but they did show a certain misunderstanding by appearing to equate support for the constitutional proposals with support for effective change.

Not all those in the No camp – I am among them – oppose sensible reforms, quite the opposite. Some of those who rejected the Renzi reforms were doing so from an anti-European standpoint. But others, such as myself, believed that the proposals were ill-conceived and did not serve the cause of genuine reform.

The outcome did tell us something about public opinion. The only category to show a clear propensity for Yes were voters aged above 65. Young people and women – two groups that the Renzi government did its best to embody – mainly voted No. Renzi indeed implemented some policies favouring the old, in pensions reform and in various bonuses handed out to the population, and this may have had an impact.

As a next step, immediate elections are unlikely. To dissolve parliament is rather unpleasant and costly. An accelerated electoral timetable in the present political context, with an election law that gives an additional bloc of seats to the largest party in the chamber of deputies, would be the wrong path. It could lead to a hung parliament (because the Senate would still have power to block changes) or a destablisingly strong vote for the anti-Europeans.

I found some factors in the campaign slightly disturbing. Before the next election, I hope we can improve matters. Renzi started off as prime minster in 2014 with a strong and respectful attitude towards the EU combined with an agenda of domestic reform. But then, with the dominant need to drive through constitutional change, he became obsessed with the desire to win a consensus. One result was that he started a campaign of visibly protesting about the EU and particularly Germany.

According to a Bertelsmann Foundation poll, the percentage of Italians who wish to leave the EU – not just the euro – is a few percentage points above that in the UK. Most Italians are less anti-EU than leaders of the Five Star Movement or the Northern League, but the gap has closed between the top-down antipathy of people who are worried about the direction of the EU and the bottom-up populism of the extreme parties.

To help gain consensus Renzi has also changed his position on public finances. The result has been a slowdown in budgetary consolidation. The government has been fighting Europe’s stability and growth pact. Extra budgetary leeway that has been channelled directly into current public spending. So we have seen an impoverishment of Italian standards of governance. This is not a good path for the future – and I hope can be rectified.

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