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Analysis
Italy’s dangerous gamble

Italy’s dangerous gamble

Constitutional referendum clouds economic outlook 

by Antonio Armellini in Rome

Tue 20 Sep 2016

If only Matteo Renzi, the Italian prime minister, had just the banks to worry about. Monte dei Paschi, the troubled Italian institution, now has new management, to the satisfaction of the European Central Bank. As far as Italian public opinion is concerned, the country’s banking crisis has been papered over for the time being. What is really concentrating Renzi’s mind, as well as that of the country as a whole, is a political system in danger of becoming unstuck – a situation largely of the prime minister’s own making.

Buoyed by a more than 40% share of the vote in European elections in 2014, Renzi calculated that the time was ripe to amend the constitution to improve stability and government efficiency. A planned constitutional reform would radically reduce the senate’s powers, ending the need for bills to be passed in exactly the same form by both houses of parliament, while a new electoral law would guarantee the winning side an iron-clad majority. The new, downsized senate would no longer be directly elected but composed of a mixture of mayors and regional councillors: not quite the House of Lords, and not quite the Bundesrat, Germany's upper house representing the regional states.

However, the scheme has many notable weaknesses. The prominence given in the scheme to regional governments – among the most discredited of Italy’s institutions – was viewed as an unwelcome sop to the separatist Northern League, and a potentially dangerous one too. And while the senate would no longer be empowered to participate in confidence votes in the government, it would retain relevant powers, particularly on European affairs.

The new electoral law was designed to consolidate a two-party system in which the winning side would have unfettered power for five years. A law, in other words, designed to ensure a smooth continuation in power for Renzi’s Democratic party, while the centre-right opposition licked its wounds and continued the search for a successor to Silvio Berlusconi, the former prime minister. However, the reality has been somewhat different, and the move to a two-party system has been hijacked by the unexepected rise of the populist ‘5-star’ movement. Elections under the new law would be likely to take the form of a run-off between not two but three formations in which 5-star could come out ahead, a scenario many Italians dread.

Renzi said he would resign and ‘abandon politics’ if the referendum on the constitutional amendment failed, an unwise move. The opposition seized the opportunity to turn what was already a controversial issue into a ‘yes’ or ‘no’ vote, not on the constitution but on Renzi’s continuation in power. The electoral law has been heavily criticised too and is being challenged in the constitutional court, which will hold a hearing on the issue on 4 October.

Belatedly sensing the danger, Renzi has changed tack. He has offered to amend the electoral bill to take account of requests from many quarters (not only the opposition), postponed the vote on the constitutional referendum until November, and launched an all-out ‘yes’ campaign.

Renzi’s main argument involves the claim that rejection of the proposal put forward in the referendum would inevitably result in a new phase of instability for Italy. This, he maintains, would occur regardless of whether or not he resigned and is something the country cannot afford, given its economic vulnerability. To support his case, he has mobilised strong support from European and international partners, notably President Barack Obama. This could either be effective domestically or dangerously backfire, as seen in the UK’s European Union referendum.

On rational grounds, grudging approval for a poorly patched up reform, coupled with substantive changes to the electoral law, could chase away the political stormclouds. But this is far from certain. Renzi’s ratings are falling, trust in the government is low and concern over the economy is high. Polls on the referendum are split 50:50 and edging toward the ‘no’ option.

Getting rid of inefficient bicameralism was a good idea, poorly implemented. The new electoral law is a gamble turned sour.

Antonio Armellini was Italian Ambassador to India between 2004 and 2008. He is a Member of the International Institute for Strategic Studies and Istituto Affari Internazionali, and a Member of the OMFIF Advisory Board.

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