Alberto Mingardi  

The Italian referendum

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Tomorrow, Italians will go to the ballot, for a referendum on a constitutional reform promoted by the government led by Mr Renzi. The referendum is widely supposed to be likely--were the anti-Renzi side to win--to trigger financial turbulence. A "no" vote is read by many as an event comparable to the British people going for Brexit. This is a bit curious: what is considered potentially devastating, this time, is a vote that would in fact secure the status quo.

To be fair, fear-mongers do have a point. Italy is widely (and rightly) perceived as a country that needs extensive reforms. If Italians vote for the status quo, the impression that the country is indeed irreformable--that is, that in Italy there is such an intricate nexus of corporate interests that it is impossible to disentangle it--may consolidate, ultimately driving investments away.

In actual fact, the constitutional reform we're going to vote on implies by no means a drastic change in our political governance. It changes the role and the composition of the Italian Senate, without sweeping it away; it re-centralizes powers from regional governments; it fine tunes the legislative process to fit the new context. It doesn't increase the powers of the prime minister, or give him the power to dissolve parliament. Mr Renzi claims the new reform will allow for faster and thus more productive law making, but it's hard to argue that Italy has a shortage of laws. 

The astonishing fact is that for reforms of the kind that only law scholars could feel passion about, one way or the other, Italians have engaged in basically five months of hectic electoral campaigning. 

This is because the referendum has by now little to do with the essence of the constitutional modifications approved by Parliament and now put to the voters: Italians will be voting for or against the Renzi government.

Mr Renzi became prime minister in 2014, after winning the leadership of his own party in an in-party contest open to all voters. Although he did not win an election running for head of government, after his appointment, his party scored an impressive 40% in the European election of May 2014, which gave him legitimacy. But the very fact that Mr Renzi wasn't anointed by a popular election may explain his eagerness to personalise the referendum vote, making it a "take-it-or-leave-it" vote on his government. This strategy also made sense in view of the nature of a constitutional reform: a foggy and obscure matter that voters find of little interest, whereas a referendum on Mr Renzi himself offers a much more exciting electoral battle.

Pools predict a victory for the "no" side, but you never know these days.

What I personally find more problematic is the sort of political equilibrium that would emerge after the referendum's result. Mr Renzi has approved, during his tenure, a new electoral law with a majority bonus system. However, this electoral law applies only to the House of Deputies, on the assumption that the Senate was changed by the constitutional reform into an indirectly elected organ, representing local governments.

If the "no" side wins the referendum, then Italy will have two very different electoral laws, an old one for the Senate and a new one for the House. Both the chambers are supposed to give the government a confidence vote. This is why, if the no wins, there would be no immediate elections before a new electoral law, applicable to both the chambers, is enacted.

If the no side wins, moreover, this will be widely considered a triumph of the populist Five Stars Movement, a heterogeneous political force that brings together an emphasis on transparency and the fight against corruption with a strong anti-business and anti-capitalism attitude.

Even Renzi's enemies will freak out at the perspective of the Five Stars Movement winning the next election. This is why it is very likely that the new electoral law that "establishment" parties are more likely to agree on is a pure proportional representation system.  Is that a brilliant idea? As the likelihood of any party winning a clear majority of the votes is astonishingly small, this would make Italy a country run by a permanent grand coalition between the right and the left, with the sole purpose of keeping the Five Stars at bay. In such a context, however, everybody tries to avoid the negatives for their own constituency, instead of forgoing vetoes and negotiating reforms. This would decrease and not increase the likelihood of reforms being approved, with perhaps the unintended consequence of strengthening the Five Stars Movement even further.

This said, I think the Economist nails it, when it writes that "Mr Renzi has already wasted nearly two years on constitutional tinkering" and argues for the no side. Writes the British newspaper:

the fact that the struggle to pass laws is not Italy's biggest problem. Important measures, such as the electoral reform, for example, can be voted through today. Indeed, Italy's legislature passes laws as much as those of other European countries do. If executive power were the answer, France would be thriving: it has a powerful presidential system, yet it, like Italy, is perennially resistant to reform.

Mr Renzi's economic reform record is not exciting so far, if you maintain that what Italy needs is supply side reforms to ease wealth creation.
The Wall Street Journal has been likewise critical of Mr Renzi, arguing that European partners should be afraid not so much of the referendum reform but of the fact that "after years of stagnation, the eurozone's third-largest economy can claim as its most promising reformer a politician whose main project is a constitutional reform of debatable value". The Financial Times ran an op-ed by Francesco Giavazzi of Bocconi University, one of Italy's most distinguished economist. Giavazzi takes Renzi's side ("Were Mr Renzi to resign, the dream of a generational change among Italian politicians would vanish. And with it, I fear, the chances of Italy remaining in the euro").

Comments and Sharing

CATEGORIES: Eurozone crisis

COMMENTS (3 to date)
Thaomas writes:

It is doubtful that any structural, supply side reforms can work in the context of the ECB continuing to keep money tight. ECB need a higher price level trend target and it is not even meeting the lower on that it has.

John Alcorn writes:

The proposal for constitutional reform is poorly designed and wrongheaded. It would weaken checks & balances, by greatly reducing the power of the upper house in parliament to block legislation by the lower house.

"Bonus seats" are doubly wrong, because they weaken checks & balances and violate fair representation. Italy has a particularly ugly history in this regard; witness the Acerbo Law of 1923, which then allocated a supermajority in parliament to the Fascist party in 1924.

Politicians who wish 'to get things done' should be allowed to do only what enjoys broad support and passes a full system of checks & balances.

It is unwise to base decisions about the rules of the game with an eye to conjectures about short-term winners & losers.

Many who support the reform delude themselves that is better to vote for bad rules if that will keep Mr. Renzi in power, or the Five Star party out. Mr. Renzi should not have made this play.

The Economist got it right. Italy needs constitutional reform, but not this one.

EB writes:

As several other EU countries, Italy is not a nation but a collection of territories that differ in some important dimensions. Today the post-WWII effect has disappeared, and they are still together by the uncertainty of ending the nation-state miscalled Italy and leaving a creepy Union run by hypocrites (the Euro is not the problem despite the nonsense that so many economists have written about it). As much as those hypocrites have failed to explain why the EU could have made sense, since at least the 1990 World Cup Italian politicians have shown why Italy is a failed nation-state. Renzi appears to be the new clown ready to risk everything to become the next Saviour but none can save Italy as a nation-state. The road to a world with a new Italy and without an EU will be long but not violent because old people don't fight. In the meantime I bet for a big devaluation (or depreciation) of the euro relative to the US dollar --yes, the Eurozone will finally acknowledge that all their politicians reject the ideas that their states need supply side reforms to ease wealth creation and their governments can finance their huge deficits by issuing debt. Good luck.

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