Italy’s constitutional referendum, in which the country will vote on a series of changes to the way Italy’s institutional frameworks are structured, is one of the biggest political events in Europe in 2016.
In the eyes of most commentators, the result is unlikely to be as seismic a shock to the continent as the UK’s Brexit vote or Donald Trump’s presidential victory, but it is a nonetheless significant event.
Polls opened in Italy earlier on Sunday morning, but even as voting begins, some people are still getting lots wrong about the implications of the result.
Writing to clients on Friday, November 25, Fabio Balboni, European Economist at HSBC, identified three things people misunderstand about the referendum and its outcome:
1. If Italy votes “yes” to Prime Minister Matteo Renzi’s reforms, it is not going instantly usher in a new era of political change.
Balboni notes (emphasis ours):
“A “yes” vote would not mark the beginning of a new era of reforms and political stability, at least not before the upcoming election. Even if “yes” wins, Italy will have a general election at the latest by May 2018. With increasing opposition to Mr Renzi (including by members of his own party), it’s unlikely there will be major reforms next year, or indeed a significant narrowing of the fiscal deficit in line with the government’s recent commitments.”
2. There will not be a snap general election if Renzi’s reforms fail, and “no” wins.
As Balboni notes, Italy’s constitution means that the power to call an election resides with the President, not the prime minister. That means Sergio Mattarella, not Renzi has the ability. It is unlikely he will do that.
“In our view, even if Mr Renzi resigns, the president would refrain from dissolving parliament in the absence of an electoral law for the upper house. After a “no”, the upper house would still be in place (and subject to an old, fully proportional, law, which would make it very difficult to form a government),” Balboni writes.
The earliest an election could realistically be held is the second half of next year, less than a year before an election must be held under Italian law.
3. “No” will not lead to a new wave of populism in the country, and further the rise of the Five Star Movement.
Five Star, the populist movement that claims not to fit into the traditional right-left paradigm, has gained significant support over the past year, with the party winning the mayoralty of the capital Rome. With populism sweeping Europe, some have argued that a rejection of the reforms could be seen as another vote against the establishment and spark a new surge in populist support in Italy.
HSBC disagrees, with Balboni arguing:
“If anything, the 5SM might stand a better chance if the “yes” vote wins and the new electoral law for the lower house (“Italicum”) is confirmed.2 Instead, with a “no” vote, parliament would have to approve an electoral law (at least) for the upper house, which is likely to be closer to a proportional law, given how divided parliament is on the issue.”
Some have also suggested that if Five Star gains power (highly unlikely) it could lead to a vote on Italy’s EU membership and possible “Italexit.” That won’t, and pretty much can’t happen, thanks to Article 75 of Italy’s written constitution, which enshrines the fact that Italy cannot hold a referendum on anything related to international treaties.
This was discussed at length by Daniele Antonucci and Phanikiran Naraparaju at Morgan Stanley in November.
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