Message From Italy's Failed Referendum: More European Uncertainty Ahead

Dec 5, 2016

Italy is headed toward a period of political uncertainty following voters' crushing rejection of constitutional amendments and of their champion.

The 41-year-old Prime Minister Matteo Renzi is slated to hand in his resignation Monday after only 2 1/2 years in office and after acknowledging his stinging defeat in Sunday's referendum.

Just over an hour after the polls closed, Renzi appeared before the media.

Usually brash and confident, he held back tears acknowledging defeat.

"I take full responsibility. In Italy, politicians never lose, they just hang on. But I lost and I say it loudly. This government," he added, "is over. The post that gets eliminated is mine."

Renzi's midnight resignation announcement sent the euro lower and jolted stock and bond markets. But the financial world bounced back by morning. After a shaky start, even Italy's fragile banking system — which must raise some $21 billion over the coming months — staged a comeback on the Milan stock market.

But the referendum outcome sends a message to Italy's EU partners of more uncertainty ahead. A "yes" vote — favored by Italy's business and banking world — would have been an added element of stability as the EU is called on to tackle urgent economic issues and the migration crisis, and as it faces crucial elections in 2017 in the Netherlands, France and Germany — all buffeted by the anti-establishment wave.

Renzi's resignation adds yet one more element of instability to the EU mix.

But Italians were not thinking about the EU as they went to the polls Sunday. In an unexpectedly high turnout — more than 68 percent — six out of 10 Italians voted "no" to measures the government said would streamline the legislative process and modernize the Italian political system.

Opposition parties had turned the campaign into a vote of confidence in Renzi himself. Voters seemed less interested in the technical issues and more motivated by the grim economic outlook.

A youth unemployment rate of close to 40 percent may be the reason why the "no" vote was highest among the young — 70 percent of Italians under 35 years of age voted against Renzi's reforms.

Analysts agree that the big winners in the referendum are the two major euroskeptic parties — the anti-immigration Northern League and the maverick 5-Star Movement, which waged the most vitriolic campaigns. Renzi — who pushed his way to power in 2014 on an anti-establishment platform — was pushed aside himself by an electorate impatient to see fast results.

Political analyst Giovanni Orsina, who teaches at Rome's LUISS University, says the referendum outcome was driven by sentiments of anger, disappointment and irritation.

Governmental action, says Orsina, needs time. But, driven by technological advances and fast communications, politics is "much more exposed to the changes and vagaries of public opinion," he says. "Whoever is in government starts being weakened very soon and starts losing the political strength he or she needs in order to make reforms. This is becoming a major problem for all democracies."

The Italian political system has the additional problem, rooted in its history, of a weak civic culture. This has produced a political system based on veto powers where nobody trusts anybody else and all decision-making is reduced to the lowest common denominator issues on which all parties can agree.

Change is extremely difficult in what is essentially a very conservative system that guarantees the status quo for all parties — from left to right.

Analysts widely agree that Sunday's resounding "no" vote means no reforms of any kind are likely to be approved for many years to come.

One scenario for the immediate future is that President Sergio Mattarella could appoint a caretaker government that would ensure passage of important commitments, such as next year's budget and reform of an electoral law that was premised on approval of the constitutional amendments. Mattarella is expected to make a decision within a few days, after consulting with all political party leaders.

As the law stands now, and if elections were held within the next few months, the big winner would likely be the anti-establishment 5-Star Movement. Founded by comedian Beppe Grillo, its platform causes nightmares in Brussels and other European capitals: It calls for a government-guaranteed universal income, abolishing Italy's fiscal commitments to the European Union and a referendum on Italy's membership in the euro — a prospect that could unravel the entire single-currency eurozone.

As soon as the "no" victory was announced, the likely 5-Star candidate for the premiership, Luigi di Maio, said: "Today, the arrogance of power has been defeated. Tomorrow we start working to create the platform and the team of the future 5-Star government."

The 5-Star Movement is the elephant in the room — and the prospect of its coming to power may be sufficient to persuade all the other parties in Italy to sit down and draft a new electoral law.

If they do agree, the new law may not necessarily lead to creation of a viable coalition government. But it will likely try to ensure that the elephant is kept at bay.

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