Populism Spreads to Italy Ahead of Referendum

Despite his populist credentials, Italian Prime Minister Matteo Renzi likely won’t have enough backing to survive as leader should the upcoming make-or-break referendum go against him.

Renzi has staked his entire political career on a “Yes” vote in the December 4 referendum, which will ask Italians whether they agree to reform the constitution that would allow the government to implement much needed structural reform. If he loses, chances are high that his opponents in the populist Five Star Movement may march to power in the election scheduled May 23, 2018.

The Five Star Movement, which has vowed to bring the question of Italy’s membership of the euro to the people, overtook Renzi’s Democrats in the public opinion polls earlier this summer.[1] That means if the election were tomorrow, Five Star would likely attain a plurality in Italy’s fragmented political scene. After Brexit and a Donald Trump election win, there may not be anything stopping a populist sweep of Italy and the rest of Europe.

To be fair, Renzi’s chances of prevailing are probably higher than his failed counterparts in Britain and the United States, who were carved out of the same establishment mould that the Italian prime minister has spent his entire career fighting. But in politics and in life, timing is everything. The populist tide sweeping across the Western world, fanned by a rampant migrant crisis and a dismal economic outlook, may prove too strong for the charismatic leader to withstand.

Unlike Britain’s in-or-out plebiscite or America’s presidential showdown, Italy’s referendum appears much more mysterious. Not everybody sees the connection between constitutional reform and the fate of Renzi. But a closer look at the picture reveals an increasingly frustrated leader who has already rendered the country ungovernable.[2] That’s why the reform is needed, and why Italians will head to the polls on December 4. A “No” vote, which appears more likely by the day, would prolong a political stalemate that has kept the Democrats from transforming the country’s institutions.

Unfortunately for Renzi, Italy’s financial system is unstable, threatening to undermine what little progress has been made since the recession. Italy’s economy has contracted more than 2% since 2002; its banks currently hold €360 billion worth of bad debts, which is equivalent to roughly one-fifth of the country’s total debt.[3] This is the backdrop that will influence voters’ opinions in the run-up to the referendum.

For Renzi, the December 4 plebiscite has become a proxy for the government’s ambition to reform the system. A “Yes” vote would enable a complete shake-up of the Senate, which was designed to prevent the rise of an autocratic dictator but is wrought with bureaucratic entanglements that have stymied lawmaking. Under Renzi’s plan, the Senate’s powers would be reduced and so will the number of senators (from 315 to 100).

Had Renzi stopped there, his chances of success on December 4 would have been greater. Instead, he added a major change to the electoral law that would make it virtually impossible to remove an active prime minister before his or her five-year term ended. This has left many Italians worried that the prime minister may would wield too much power.

The vote could very well boil down to economics, as voters may use the plebiscite as an opportunity to voice their discontent at the current administration. Italy’s economy stagnated in the second quarter and expanded very modestly in Q3.[4] It’s unemployment rate is a whopping 11.4%. Its debt-to-GDP is currently 132%.[5] These are all reasons why Italians may be prepared to vote against Renzi’s plan next month.

A “No” vote that may eventually lead to Renzi’s political demise and might spell bad news for the European Union, which is already struggling to contain the side effects of Brexit. Another popular front opening on the EU’s southern shores could be the final nail in the coffin of the pan-European project.

[1] Gavin Jones (July 6, 2016). “Italy’s 5-Star overtakes Renzi’s Democrats in opinion polls.” Reuters.

[2] Theresa Raphael (November 14, 2016). “Italy’s Chance to Buck the Brexit-Trump Trend.” Bloomberg.

[3] Sam Bourgi (October 15, 2016). “PM Renzi’s Referendum to Reform Italy an Uphill Battle as Financial Crisis Looms.” Economic Calendar.

[4] Trading Economics. Italy GDP Growth Rate.

[5] Theresa Raphael (November 14, 2016). “Italy’s Chance to Buck the Brexit-Trump Trend.” Bloomberg.

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