This was not a revolt against globalisation and metropolitan elitesby Luigi Scazzieri / December 5, 2016 / Leave a comment
The “No” vote in yesterday’s referendum was expected by most observers. But its consequences are likely to be less dramatic than many feared. While it is tempting to draw parallels between the Italian vote, the UK’s vote to leave the EU, and the election of Donald Trump, this was not a revolt against globalisation and metropolitan elites. In Italy’s case, the elite was split in two: opposition to the constitutional changes proposed by Prime Minister Matteo Renzi did not only come from the populist Five Star Movement and the far right Northern League, but also from mainstream political figures, including many from Renzi’s own Democratic Party, academics and former constitutional court judges.
Rather than a revolt, the vote marks a rejection of controversial constitutional changes, with shades of a protest vote towards a government that has been in power for over two years. The vote should not be seen as a repudiation of economic reform. The government had overstated the economic dimension of the constitutional changes, which in themselves did nothing to address Italy’s shortcomings, such as its low productivity, rigid labour market, inefficient public administration and lengthy judicial proceedings.
Despite Renzi’s resignation, the spill over from the vote is likely to be less severe than international observers fear. Of course, a degree of market volatility can be expected in the short term following the result. Yields on Italian government debt will probably rise slightly, and bank shares will likely fall. But the ECB will step in to make sure yields on Italian bonds do not rise too far. Italy’s banks will see shares fall and may find it harder to find capital for their recapitalisation needs as investors wait on political developments. But if it becomes clear that Italy’s underlying political stability has not been affected the banks are unlikely to be compromised and volatility will likely be contained.