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Italia sì, Italia no: Why Matteo Renzi’s referendum is his riskiest gamble yet

The Italian referendum next Sunday could have major implications on financial markets and the EU. Paul Cocks tries understand how one country’s referendum could have far-reaching effects not just for Italy but for many others too, Malta included 

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Paul Cocks
30 November 2016, 8:00am
Italian Prime Minister Matteo Renzi made the vote personal by pledging to resign if the public votes against the reforms
Italian Prime Minister Matteo Renzi made the vote personal by pledging to resign if the public votes against the reforms
On Sunday, 4 December, Italians will have the opportunity to usher in greater political stability in a country that has seen 63 governments since World War II ended in 1945.

Italian Prime Minister Matteo Renzi is attempting to improve continuity with constitutional changes which would limit the power of the second chamber (the senate) and make it easier for the government to enact legislation. 

The reforms would also take the number of senators down from 315 to 100, and source them from regional government rather than through direct election.

But Renzi has – possibly unwisely – made the vote personal by pledging to resign if the public votes against the reforms. The referendum has thus been turned into a chance to rebel against the government.

If Renzi does stand down, a caretaker government would be appointed until a general election in 2017 or 2018, with the anti-establishment Five Star Movement – founded just seven years ago by comedian Beppe Grillo – standing a good chance of getting into power. 

In the past, Grillo has called for a referendum on whether Italy should keep the euro, and to reconsider the country’s role in the European Union. 

An ‘Italexit’ would likely have disastrous consequences domestically as the economy is only just getting back on its feet and its banking system is particularly fragile. 

Italy’s departure could also spark the end of the European Union entirely; the domino effect that started with the UK’s vote to leave could destroy the whole of the EU as populations in austerity-laden countries such as Greece decide that they also wish to be free of directives from Brussels.

An Italian journalist’s insight 

MaltaToday spoke to Lorenzo Bagnoli, a board member of the Investigative Reporting Project Italy (IRPI) – a centre for investigative journalism based in Italy – and a contributor to Il Fatto QItalia sì, Italia no: Why Matteo Renzi’s referendum is his riskiest gamble yetuotidiano, about the possible ramifications of the Italian vote on Europe in general, and Malta in particular.

Bagnoli said that the referendum result would affect all Europe, and therefore Malta too, particularly in light of the close relationship between the countries, which was further strengthened under Renzi.

He said the result could determine what role Italy assumes in the EU in the near future, with particular focus on the issue of immigration.

“One of the very few negotiating tools Italy possesses when dealing with the EU is its role in managing the influx of immigrants into the Europe,” he said.

“Renzi has been seen lately bringing up the issue of migration and Italy’s role in the burden-sharing programme when seeking flexibility from Brussels on his country’s balancing of public accounts.”

Beppe Grillo - he is not Trump
Beppe Grillo - he is not Trump
Bagnoli said that this position could change should Grillo’s Five-Star Movement obtain a majority to form a government, although they too could soon realise that Italy does not possess many more negotiating tools when dealing with Brussels.

He said that Europe was under threat on many fronts, not only in Italy, but to say that a ‘No’ result in the referendum signifies a vote in favour of populism would be a form of “psychological terrorism”.

“This is a global threat that we have also seen in the United States with Donald Trump,” he said. “And a new constitutional reform will not save Italy, far from it.”

Bagnoli said that those lobbying for a ‘No’ outcome were arguing that a parliament so ‘answerable’ to the prime minister – as proposed in the reforms – would be much more fragile and incapable of providing a serious counter-balance should a populist Trump-like leader like Matteo Salvini of the Lega Nord gain a majority of votes.

But Bagnoli says such a scenario was very improbable in any case.

“Grillo is not Trump, with all the defects the latter might have.”

Local perspective

Prof. Arnold Cassola, who holds dual Maltese and Italian citizenship and who was an Italian MP between 2006 and 2008 on the Green Party ticket, told MaltaToday that he would vote against the referendum because the proposed reforms would give more powers to the Prime Minister.

“The reforms would also see the senate members being nominated instead of being elected by the public, whereas the country should be seeking greater oversight and involvement by the parliament,” he said. 

Cassola said it was not clear what would happen if Renzi loses the referendum and a new government is elected.

“Officially nothing will change for Malta, but with Italy currently taking in all immigrants saved or intercepted in our region of the Mediterranean, we need to know if there is a formal agreement between our two countries to this effect,” he said.

Cassola noted there was no official agreement between the two countries which stipulated Italy would take in all the immigrants.

Arnold Cassola, who holds dual Maltese and Italian citizenship, said he would vote against the referendum
Arnold Cassola, who holds dual Maltese and Italian citizenship, said he would vote against the referendum
“If an agreement exists, it’s a secret one-to-one agreement between Renzi and (Maltese Prime Minister) Joseph Muscat, and the country needs to know if such an agreement exists and if Malta could be called to start taking in immigrants again.”

He said that, in the same context, the country needed to know if there was such a secret agreement with France as well, in view of the Maltese ministers’ ignorance of the presence of French secret service officials operating from Malta, revealed following the fatal crash of a Fairchild Metroliner in Luqa on 24 October.

Lawyer Joseph Ellis said that the 4 December vote was a constitutional referendum that had nothing to do with the EU, despite what certain commentators or politicians said.

“Whether the result is in favour or against the reforms proposed in the referendum, Italy will not leave the EU, especially in light of all the hassle the Brexit vote has caused the UK.”

He said the referendum was yet another lame attempt by an Italian government to introduce some constitutional reforms, as Berlusconi had also tried to do when prime minister.

The reforms proposed would only serve to remove a number of checks and balances currently in place to oversee the government, Ellis said.

“It is true that Italian bureaucracy is top-heavy, but these are the wrong reforms to put forward,” he said.

“The country would be better served deciding on what electoral system and legislation to adopt, before a party like the Five-Star Movement garner enough popularity and votes to get a majority of seats in parliament.”

What will happen to markets if Italy rejects the reforms?   

Markets hate uncertainty and the shadow of this referendum has been hanging over Italy for months. Unsurprisingly, the Italian stock market is down by about 20% this year to date, the most of any European index. If, as anticipated, the reforms are rejected, then this could be particularly bad news for Italy’s embattled banking sector, which has fallen by 50% so far this year.

Banca Monte dei Paschi di Siena (BMPS) the world’s oldest surviving bank, is currently undergoing drastic cost cutting measures and reportedly looking to raise €5 billion privately after encountering a host of problems including bad debts and low capitalisation.  

Milan-based UniCredit, meanwhile, is allegedly trying to raise billions of euros to build up its capital buffer. 

Will the referendum’s reforms be passed?

If bookmakers and polls are to believed, probably not. At present, Ladbrokes is giving the reforms just a 30 per cent chance of going through. By making the vote personal, Renzi has created the opportunity for a protest vote for the many Italians unhappy about unemployment, austerity and corruption.

What’s more, the momentum created by the unexpected outcomes of Britain’s EU referendum and US election could help the Italian public to envisage a similar rebellion happening in their own country. 

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Paul Cocks joined MaltaToday after having spent years working in newspapers with The Times...