The “defeat” of the Italian constitutional referendum, the fall of Matteo Renzi’s government and the Italian political and economic scenario in the forthcoming months

The constitutional referendum

The constitutional reform was meant to streamline the institutions by reducing the role and number of members of the Senate, reshape in a more centralized way the distribution of powers between State and Regions and abolish certain public bodies deemed redundant.

The constitutional referendum, intended to pass such reform, took place on Sunday, December 4, 2016. The vast majority of voters rejected the constitutional bill.

No attendance quorum was required; the reform would have come into force if the number of votes in its favor were higher than the number of votes against, regardless of the number of electors participating to the vote. The referendum however saw a high turnout, accounting for 68.48% of eligible voters residing in Italy and abroad, and a clear  predominance of dissenting opinions (59.11%) against those in favor (40,89%).

According to several research institutions, a percentage of young people under 34 years varying between 69% and 81% have voted against the reform; the “YES” won only among people over 55.

In Southern Italy the “NO” vote strongly prevailed, while in three regions only (Tuscany, Emilia and Trentino-Alto Adige) the “YES” vote prevailed over the “NO”.

The interpretation of the vote

Prime Minister Renzi ascribed to the referendum a political content, by declaring to consider the vote expressed as a judgement on his government’s action (which lasted about one thousand days) too. This characterization has mislead the vote on the reform from its real content, addressing it to a judgement on Renzi.

The result of the referendum was interpreted as a clear defeat of Renzi and his governmental action.

According to analysists, a decisive factor for the reform’s defeat has probably been the vote of an impoverished middle class, precarious, unemployed and underemployed workers, young people as well as people living in the South of Italy who, rightly or wrongly, perceived Renzi as a representative of the (domestic, European and international) establishment and as a mere executor of the will of the pro-austerity financial elite, therefore far away from their actual needs.

Irrespective of this, the most eminent Italian constitutionalists had expressed deep criticism with respect to the contents of the reform law, which latter was mostly perceived as obscure and confuse.

The political consequences and economic outlook

Right after the polls closed the result was evident and, given the unexpected relevance of the defeat, Renzi announced the resignation of his government and left the office of Prime Minister (though not the leadership of the democratic party).

The opposition asked for immediate elections but it became clear - to the President of the Republic Mattarella first - that the path was not viable; particularly because the electoral law is currently challenged before the Constitutional Court as to some probable legal errors and defects. Therefore, before voting, a new electoral law must be passed.

In addition, some major urgencies, including deadlines to comply with European and international commitments, the general crisis of banking system, and the reconstruction efforts after the August earthquake in Central Italy, called for a government with full powers and authority, and not simply a transitional “electoral” government.

The President opted for entrusting the leadership of the new government to Paolo Gentiloni, former minister of foreign affairs in Renzi’s government and experienced politician very close to Renzi.

Although the political chances of this government are not completely certain since the opposition pushes for elections, a substantial continuity with the previous government has been assured, and the upcoming deadlines and commitments, above mentioned, demand for a government lasting up to the expiry of the natural termination of the legislature in the second quarter of 2018.

Economists' forecasts of a possible stock market collapse and soaring yields and spreads in case of clear affirmation of the “NO” vote have not come true, partly due to their being exaggerated and partly because the markets expected the rejection of the reform and have likely not perceived a negative disruption in the Italian political scenario.

Nevertheless, the new government will have to face all the problems and the reforms that stood on the table of Renzi’s government and progress in the work done so far.

December 2016

CBA Studio Legale e Tributario

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