The political drama is obscuring a deeper problem with the economyby George Magnus / December 5, 2016 / Leave a comment
In at least three respects, the decision by Italian voters to reject Prime Minister Matteo Renzi’s constitutional reform proposals in a referendum differs from Brexit and Donald Trump’s election. First, the opinion polls got it right, and it wasn’t a big market shock either. Second, it was not a populist revolt per se, as all opposition parties supported the No campaign, as did many within Renzi’s Democratic Party, academics, legal professionals and notable moderates such as former Prime Minister Mario Monti. Third, unlike the UK and the United States where political outcomes have increased the likelihood of economic decline over the medium term, Italy is already in an economic and financial crisis, which may now of course worsen.
All of that said, the “No” vote raises the temperature of instability in Italy and marks a victory for both the Northern League and the Five Star Movement, which are blatantly populist parties. According to the polls, the latter would win a second round of parliamentary elections under current law. It may have to wait, for although Renzi has resigned, President Sergio Mattarella will now try and patch together a caretaker government in the next few days. If Mattarella were to fail, then there could be elections in 2017 (along with those in France, the Netherlands and Germany) ahead of their scheduled date in May 2018. Otherwise, a new government would probably take up some of the proposals for electoral and constitutional change.