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The Italian referendum: No Trump nor Brexit

Italian Premier Matteo Renzi acknowledges defeat in a constitutional referendum and announces he will resign on Dec. 5. AP Photo/Gregorio Borgia

The Italians have delivered an overwhelming defeat to Prime Minister Matteo Renzi.

Initial tallies of Dec. 4’s referendum show a vote of just under 60 percent rejecting Renzi’s constitutional reform package, with a little more than 40 percent supporting it. Voter turnout was strong, with more than 68.5 percent of eligible voters inside the country participating.

As he promised repeatedly during the campaign, Renzi has accepted personal responsibility for the bitter defeat and will resign from office. His resignation is sure to usher in a period of political uncertainty both for the Italian government and for the country’s Democratic Party.

This outcome will also likely create major difficulties for the European Union. Many in the financial markets speculate that the no vote could signal the failure of the euro as a multinational currency.

The challenge now for Italy’s political leadership is to avoid any loss of confidence in Italy’s banking sector or in the long-term sustainability of its public finances.

This challenge is both practical and political in nature.

An Italian newspaper headline reads ‘Renzi goes home.’ AP Photo/Antonio Calanni

What’s next

The referendum took place at the end of a long period of recession and slow growth that weakened Italy’s banks and pushed government borrowing to record levels.

On a practical level, that means the Italian government has to ensure that the country’s banks have adequate access to capital. The government also has to raise revenues and cut expenditures. At the same time, it has to manage the more than 173,000 migrants who have come to Italy this year across the Mediterranean from sub-Saharan Africa. And, it has to reform the new electoral law – written based on the assumption that the constitutional package would win approval – before the end of the current five-year parliamentary mandate in 2018. This is a hugely complex policy agenda.

The political challenge is even more important.

The Italian referendum was not like the vote in Britain on European Union membership or the election of Donald Trump in the United States. Italy did not just go through a populist insurrection. Instead, Italians revealed a deep division about how the country should be governed.

Italians did not reject Renzi so much as they rejected what they saw as a strengthening of the national government and reduction of the powers of the Senate and regional governments. The Renzi team argued that these changes were necessary to make it easier for the government to reform other institutions. Their opponents responded that too many voices were left out of the political process as a result.

This division cut across mainstream parties and divided political elites.

Values in play

The referendum forced Italians to choose between a government that is truly representative and a government that can make tough decisions.

Still, both “no” supporters and “yes” supporters would eagerly admit that they want the status quo to change.

Italy has been hard to reform because the government must have working majorities in both chambers of the Italian parliament to pass legislation.

The Italian situation is even more challenging than the deadlock found in the United States. When different parties control the U.S. House and Senate, the president can work to find compromises between the two chambers. Even when the Congress is controlled by a different party than the president, there is still limited room for compromise.

By contrast, if the Italian government loses the confidence of either the Chamber of Deputies or the Senate, then that government falls. That is why Italian governments tend to have such short lifespans.

Renzi tried to break this deadlock by changing some of the basics on how democracy works in Italy. Under the new electoral law written to run alongside the constitutional reform package, leaders of the main political parties would have offered a closed list of candidates for the Chamber of Deputies. If the constitutional reforms has passed, senators would have been nominated by regional governments. Referendum voters rejected these reforms in favor of more direct elections.

While the Italian public agreed on the basics of how they want their democracy to function, leaders from different parts of the country’s political spectrum disagree on what aspects of Italian political and economic life need to be changed, and they disagree on which changes should be prioritized. As parliament turns its attention to reform of the electoral law, it will not be long before the temperature of the debate increases again.

Political fallout

Beppe Grillo’s Five Star Movement (M5S) is well-placed to take advantage of the controversies that will emerge as the dust settles on the referendum.

The M5S straddles the divide between the “yes” and “no” voters by promising to reinvigorate the existing constitution once it manages to throw out the country’s ruling elites. The M5S also seeks to cut out the traditional media and political parties by positioning itself as a grassroots movement with a nationwide reach.

There is nothing surprising in the way M5S operates. Populist movements the world over seek to make direct connections with voters. The point is that this messaging resonates with an increasing share of the Italian electorate that hopes to find some way out of the squabbling among elites that the referendum campaign put on display.

The M5S position was simple: Reject them all.

Polls done for Macro Advisory Partners show that as many Italians have confidence in the M5S governing Italy as have confidence in Renzi’s governing Democratic Party. Moreover, that confidence increased as the referendum debate became more intense.

Even when confronted with the difficulties that the M5S has had governing the city of Rome, they still want to give the party a chance to govern the country.

Italy’s political elites are likely to respond by coming up with some electoral formula to limit the chance that the M5S will emerge victorious in the next round of parliamentary elections. That is when the elites will have to demonstrate their ability to heal the divisions in the country and show their capacity to undertake meaningful and lasting reform.

Failing that, Italy likely will have its populist insurrection. Whether that brings the M5S into power or results in an entirely new political situation remains to be seen. The constitutional referendum was not an Italian Brexit, but that may still come unless Italy’s political elites work hard to avoid it.

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