Italy: Beyond the Referendum Defeat

Published on December 4, 2016

Tonight’s Italian referendum was the third in a string of major elections, from Brexit in the UK to the US and Donald Trump, where the polls woefully underestimated the surge of anti-establishment sentiment.

And there can be no sugar coating the crushing blow to Prime Minister Matteo Renzi in tonight’s results.

Populist movements across Europe will take heart at the stinging defeat of Renzi, who found himself uncomfortably on the side of the “status quo,” even while pushing for constitutional change.

But there is no direct line to be drawn between tonight’s rejection of the constitutional referendum and what markets fear most, a swift takeover of the government by the renegade 5 Star Movement, and an eventual exit of Italy from the Eurozone. At least, not yet …

Here are the next steps to expect:

– Renzi will officially submit his resignation tomorrow, having refused President Sergio Mattarella’s request to stay as Prime Minister. The fatal blow for him was the combination of very high turnout and the disastrous result for the “yes” vote, a forceful rejection that was totally unexpected in the polls.

– Renzi’s resignation will put the ball in Mattarella’s court. The President will likely hold consultations for a few days, then give the task to form a new government to someone from Renzi’s center left Democratic Party (PD) who Renzi will have to approve beforehand. The new PM is likely to be someone that is at least actively not against Renzi, and who is liked by Berlusconi and the center-right.

– One new name that has emerged as a contender to replace Renzi is current Economy Minister Carlo Calenda. The other names out there are Finance Minister Pier Carlo Padoan, Economic Development Minister Graziano Del Rio, and Defense Minister Roberta Pinotti.

– The next step will then be to prepare for new elections, but the path to a new electoral law that is likely to be required to replace the current electoral limbo is not that easy.

– As things stand, lower house elections would be held under the new Italicum that establishes a two-step, bonus seat process that, inadvertently, would favor the renegade 5SM. Under the Italicum, the 5SM could make it past the first round as a runner up, and then peel off other parties to potentially defeat the PD in a second round vote. Needless to say, Renzi and the PD would now like to amend that Italicum law.

– Upper House, Senate elections, however would be held under the old, strictly proportional system that tends to favor coalitions and give power to king maker parties. And so the debate will now rage over whether, and how, to amend the electoral laws.

– It took several months to approve the Italicum in the first place, and it’s hard to see how it can be different this time. The Northern League’s leader Matteo Salvini wants a proportional law, as does Berlusconi, while Beppe Grillo is in favor of extending the Italicum to the Senate. The new law will likely be tabled in the Constitutional Affairs Committee after Christmas, but could take longer if the Parliament decides to wait for a Constitutional Court judgment on the Italicum, scheduled for late January.

– The Court could – as it did to the previous system, the Porcellum – declare the majority prize under the Italicum unconstitutional, and restore the purely proportional law that is currently officially valid just for the senate. But the Court could also decide to withhold judgment if political parties pledge to modify the existing Italicum law.

– Given tonight’s defeat, Renzi has decided to bring forward the date of the PD party conference. Renzi would like to hold it as soon as possible, but if there are early elections, there will also need to be a primary vote to choose the PD candidate, which could drag things longer. The expectation is – notwithstanding the constitutional court wild card – the party conference will be held in the spring.

– In short the game plan for the PD will be to slow walk and push for electoral reform that will help their odds in staving off any threat from the 5SM, while the 5SM, with the occasional assist of the Northern League, will be pushing for early elections. In this the PD is counting on the strength of their majority in parliament, and the support of Berlusconi and his center right. And that they have….for now.

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