Renzi’s referendum gamble could be double or pits

August 15, 2016

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.

Italy’s constitutional referendum could cost Prime Minister Matteo Renzi his job – even if he wins. Of the four possible outcomes from the vote, which could happen some time in November, only one would create the stable government that Renzi wants.

Unlike the UK’s vote to leave the European Union in June, Italy’s referendum, on reducing the power of the country’s upper house, doesn’t really have a status-quo option. Many Italians support the proposal, but others see it as anti-democratic, and Renzi’s failure to chivvy up the economy since taking power in 2014 has weakened his authority.

One possibility is that the referendum fails. Renzi would have to resign, or so he says, and the upper house would endure. Worse, its current complex voting system is due to switch into a proportional system that could make it even less clear who is on top. Elections could ensue, and the upper and lower houses could end up in the grip of opposing parties. Nothing would get done.

Alternatively, Renzi could brook failure by forming an emergency coalition between his Democratic Party and the right-wing Forza Italia, to buy time and sort out the voting system before an election in 2018. The snag is that this government would probably neglect the economy. Support for the 5-Star Movement, which wants a referendum on Italy’s membership of the euro zone, could grow.

Now let’s say Renzi wins. He might use his freedom from an obstructive senate to implement reforms he has shied away from, making courts more effective, bad debts easier to resolve, the public sector more efficient, and boosting investment. He may stand up to Europe’s fiscal policy.

But there’s a bad outcome from a referendum victory too. Italy’s lower house operates with a double-ballot system, designed to hand power to the largest party. If Renzi is unable to turn the economy round, the 5-Star Movement might get elected in 2018 – and be unhampered by a now-neutered senate – unless the law can be changed yet again. No wonder 5-Star isn’t campaigning too actively for the referendum to fail.

Renzi has one way of making a referendum win more likely: pump the economy up with a big fiscal stimulus. The European Commission wouldn’t like it, but voters would, which means it’s probably worth doing. Even that doesn’t guarantee a happy ending, but it makes one more likely.

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