by Marcello Rossi
November 10, 2016

from WPR Website

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Italian Prime Minister Matteo Renzi

flanked by German Chancellor Angela Merkel

after a bilateral meeting, Maranello, Italy

Aug. 31, 2016

(AP photo by Luca Bruno).

 

On Dec. 4, Italians will head to the polls to vote on a series of changes to the country's institutional framework, specifically the Senate, the upper house of the Italian Parliament.

On paper, it is a referendum on amending the constitution. But there is far more than that at stake, for Italy and the European Union.

The Italian government of Prime Minister Mateo Renzi took office in 2014, tasked with reviving a stagnant economy and streamlining Italy's bureaucracy. Renzi promised much-needed reforms aimed at making Italy a more governable country by substantially reducing the scope and power of the Senate in favor of empowering the lower house, the Chamber of Deputies.

The Senate would be transformed into a "Senate of Regions" with 100 senators - mainly regional councilors and mayors - while large amounts of power would be taken away from Italy's regions and centralized in Rome.

Renzi has promoted the reforms as a way to simplify and improve Italy's governance, eliminating a major source of political gridlock.

If given the green light, it would mark a significant breakthrough for a country that has endured two decades of sclerotic politics and has had 63 governments since the end of the Italian monarchy in 1946.

But it is increasingly far from certain that the referendum, which Renzi has staked his premiership on, will pass. Not long ago, victory seemed assured. But a growing number of opinion polls now put the "no" camp steadily ahead.

How did this happen?

When Renzi's Democratic Party scored a stunning win in the 2014 elections to the European Parliament - receiving more than 40 percent of votes, a level no party had reached in any Italian election since 1958 - it boosted Renzi's standing and made it seem that he would be around for a while.

Today, though, his future looks much less bright, as the past two years haven't gone as he hoped.

Renzi's government has failed to boost Italy's chronically faltering growth, while reforms to key areas such as the labor market, education and the state bureaucracy have yielded limited results.

In addition, the country's looming banking crisis, which raised the threat of a major bank failure all summer, isn't over yet; the unemployment rate is still high; and Renzi's once sky-high popularity is dropping.

When the former mayor of Florence sees what happened to former British Prime Minister David Cameron and his own ill-fated referendum on leaving the EU, he must be worried.

Unlike Cameron and Brexit, Renzi did not call the constitutional referendum because he thought he would win, but because he didn't manage to get his Senate reforms approved with the required two-thirds majority in parliament.

But much like Brexit, the referendum increasingly resembles a national election in large part because Renzi said he would step down if it fails.
 

For disgruntled Italians,

the referendum is turning into a way

to air their general discontent

with Renzi's left-right coalition.

Although he recently tried to dial that down, by promising to resign, Renzi has made this a referendum on himself rather than on the merits of the reforms.

In a politically divided country, where social unrest is flaring, the vote has become an opportunity for opposition parties to gain momentum as alternatives to the establishment.

Meanwhile, for disgruntled Italians, the referendum is turning into a way to air their general discontent with Renzi's left-right coalition and its failure to deliver on its governing pledges.

Besides uniting all the opposition against him, Renzi's tactical error also falls within a broader trend across Europe of burgeoning distrust toward European Union policies, in which critics typecast EU advocates as enemies to defeat at all costs.

The "yes" camp still has many supporters - including prominent ones abroad, like outgoing U.S. President Barack Obama - who insist that the ambitious reforms Renzi is pursuing are important to move beyond the austerity measures that have contributed to slowing growth in Europe.

But critics and opposition parties keep saying the amendments are badly written and will make the government too powerful.

In April, a group of legal scholars even cautioned about a potential authoritarian drift. They argued that the reforms, paired with a recently approved electoral law, would give the next prime minister too much power, since the head of government would have five years in office with a guaranteed parliamentary majority, free of even the threat of a rebellion in his own ranks.

The fact that Renzi has a reputation for running government as a one-man show doesn't help him at all.

"People need to understand what voting 'no' here means - we learnt that in the U.K.," Renzi told CNBC in August, acknowledging the risks Italy faces.

If the referendum passes, he will have survived a close call, ultimately vindicated by the vote.

If Renzi loses his gamble, the reality of Italian politics is that, not unlike Donald Trump's surprise U.S. presidential election victory this week, no one is quite sure what would happen next.

But there could be vast consequences for Italy and the rest of Europe.

Politically, a victory of the "no" camp could pave the way to a new national election that would likely see the anti-establishment Five Star Movement push the Democratic Party out of power. That prospect even spooks many of the referendum's opponents, including two former prime ministers, economist Mario Monti and media tycoon Silvio Berlusconi.

Although they both declared their support for the "no" camp, Monti and Berlusconi are reluctant to hurt Renzi ahead of the referendum since they fear that a government run by the Five Star Movement could permanently oust them from Italy's political life.

A "no" vote could also give more power to Euroskeptic parties and potentially disrupt Italy's EU membership...

A scenario in which Renzi stayed in government even if the referendum failed is plausible, and he has taken to saying that he will remain in office whatever the outcome.

But he could be left so weakened that his government would likely be incapable of governing effectively, let alone delivering reforms.

Then there is the economy...

Italy's inability to bring down its public debt, which is the highest in the Eurozone after Greece, still provokes concern. Investors are afraid an early departure by Renzi could plunge the country back into political disarray and spark a wider economic crisis across the EU, since Italy is one of the union's weakest links.

Despite Renzi's applauded reform of employment laws, economic growth continues to be sluggish, and the number of jobs added by employers was down by a third in the first seven months of 2016.

But investors' biggest concern remains the Five Star Movement, particularly whether Italy's biggest opposition group and the most obvious beneficiary of a failed referendum could actually run a national economy.

The answer is far from clear...