28 November 2016

Italy’s referendum is a choice between stagnation and catastrophe

By Serena Sileoni

This Sunday, Italians will be called to approve or reject the constitutional reforms passed by parliament in April. These are intended to alter two basic aspects of the current Italian constitution.

First, they do away with the system of so-called “perfect bicameralism”, in which the Senate and the lower House share the same functions and powers, transforming the Senate into a chamber to represent the regions. Second, they eliminate the provinces, a level of local government between regions and municipalities.

But while that may be what the referendum is about, it is not what the referendum is actually about. The real issue is not a constitutional question, but a political one – namely, whether voters approve of or reject Matteo Renzi’s government.

And that political question, in turn, hinges largely on a question of economics. A cursory look at any Italian newspaper is enough to understand that, in our country, it is the vagaries of economic policy that reward or punish governments, rather than other policy issues.

And it is equally obvious to everyone that the Italian economy is struggling. Despite – or perhaps because of – the many reform efforts that have attempted to address the structural weaknesses of the economy and the apocalyptic state of the public finances, Italian GDP rates are barely limping along. Occasionally, there is a brief spurt of growth, but it soon splutters out.

The reason for this awkward situation is that successive governments have never dared to grasp the nettle of excessive public spending.

A country with a debt burden of 2.2 trillion euros and an overall tax burden close to half of GDP cannot hope to restart growth without addressing public spending, which in turn leads to the high levels of debt and taxation.

The last few years witnessed repeated attempt at completing a spending review – but it only yielded real cuts of a few billion euros.

Italy needs not just a spending review, but a thorough and relentless review of the tasks assigned to the government – and thus a drastic shrinking of the very scope of the Italian state. Until this Herculean effort is undertaken, attempts to reform the legal system, tax system, civil service and constitution are fated to be pain relief for a chronically ill patient.

And in this respect, Renzi – despite his qualities as a leader and his reputation of a dismantler of the old order – seems to have settled for the more conventional path.

Instead of genuine reform, he has fallen back on an old-fashioned economic policy based on offering bonuses and scraps to any and every pressure group, in the hope of gaining consensus.
The result has been the abandonment of any attempt at effective spending cuts and reaching a balanced budget – perpetuating the eternal flaws of Italian politics.

The problem for Italy is that, despite Renzi’s flawed record, he is considered, especially in the international and financial context, very much the least worst option – which makes the referendum all the more important.

A constitutional referendum does not need a minimum number of voters to be valid. So a simple majority in favour of “No” will be enough to reject the reform – which polls seem to show as possible.

From an institutional perspective, this would open a veritable can of worms.

The first problem is that if Renzi resigns and an election is called, the voting system in place is seriously flawed.

In 2013, the Italian constitutional court ruled that the electoral rules approved in 2005 contravened the constitution. The voting system then reverted to strict proportional representation.

This was superseded in 2015 by a new electoral law, sponsored by the Renzi government, which brought in an electoral threshold for a party to be represented in Parliament, and a majority bonus for the winner to make the life of a government less precarious.

But this law only regulates the voting rules for the House – since the Senate was meant to be effectively abolished under the constitutional reform being voted on in the referendum.

If the referendum results in a No victory, the political legitimacy of this government—already shaky, since it did not emerge from a regular election, but was formed after political manoeuvring in Parliament—will be compromised.

But at the same time, an election under the current law would likely mean a stalemate: with two different electoral systems in place (proportional for the Senate, as a result of the constitutional court’s ruling, and the new law for the House), the outcome of the elections would be contradictory between the two chambers.

The Five Star Movement, the most vocal populist party, would be advantaged by such a situation – but the likelihood of it being able to contribute to form a stable parliamentary coalition is vanishingly small.

The most probable outcome, of course, is that Italians will be not asked to vote. If Renzi resigns his post – as he would almost certainly have to after a referendum defeat – the Italian president would appoint a so-called “technical” government without dismissing the Parliament.

This would be charged with devising yet another a new electoral law and having it approved by the current Parliament – something which itself cannot taken for granted.

This is why the referendum is so much more important than its subject matter suggests. The results on Sunday, and the impact they will have on the two competing sides, may have an outsize effect on Italy’s precarious economic and financial predicament.

If the constitutional reform is passed, the economic policy of our country will not change. But the result of the referendum will either shore up or shake Italy’s current political framework. Either would have consequences for its economy, its deficit – and its precarious banking system.

Which is precisely why the European Union, and so many others, are watching Sunday’s results so carefully.

Serena Sileoni is deputy director of the Istituto Bruno Leoni.