DÉJÀ VU ON THE APENNINES

Perhaps the decision announced by Matteo Renzi earlier this year to hold a referendum on amending the Constitution was a desperate and reckless step. The changes are very similar to those that his predecessor, Silvio Berlusconi, had tried to amend through a referendum.

Of course, both of them initially have tried to reform the constitution through the parliament. But they failed and requested assistance from the people. The only difference is that Renzi, unlike Berlusconi, had promised to resign in case of a failure.

The people, however, did not heed the persuasion of the prime minister and voted against the amendments (60%) on December 4. The same way as it did in 2006 under the Berlusconi government. The Italian President, Sergio Mattarella, announced and accepted the resignation. Foreign Minister, Paolo Gentiloni, to form the new government in effect until the 2018 parliamentary elections.

This will be the 64^th cabinet in the last 70 years. Under current circumstances, early elections do not bode well for the future of Italy.

Against Renzi

The survey published two weeks before the voting by Il Sole 24 Ore showed that the Italians generally supported the reforms that Renzi has promised to implement in case of the victory. In particular, 57% of respondents agree with the weakening of the role of the Senate in favour of the Chamber of Deputies, 83% support the introduction of a time limit for parliamentary discussions on certain issues. At the same time, 60% of respondents are hardly familiar with the details of proposals, while 61% said they were dissatisfied with government actions.

In February 2014, Matteo Renzi formed the government and promised to fight against mindless spending and corruption of officials, and to take the country out of a prolonged economic stagnation. He assured that the situation in the country would radically change with the help of “shock therapy” as early as July 1. The government prepared a plan to implement s single reform each month: civil service reform in April, fiscal system reform in May, and the reform of the judicial authorities in June. In March, the government announced the auction sales of 151 cars (including Maseratis, Alfa Romeos, Jaguars, Audis, etc.) as part of the program to reduce government spending in three ministries, namely the ministries of justice, defense and internal affairs.

But, according to many of his colleagues from the Democratic Party, Matteo Renzi has mistakenly used his reformist zeal. For example, he has succeeded in abolishing one of the articles of the Labour Code, which protected employees against unlawful dismissal; tried to reform the public secondary education, which sparked strikes and protests of teachers across the country.

48 of 139

In total, 48 of 139 articles of the Constitution were subject to amendments in the referendum. The main articles were the reduction in the number and powers of the members of the upper house in the Senate, the change of the mechanism of presidential elections and the structure of the Constitutional Court, reducing the powers of regions in addressing issues such as energy policy, strategic infrastructure and civil defense. It was also assumed to abolish the provinces - administrative units of the second level. To speed up the process of parliamentary debates on priority draft laws, the deputies had to be limited to 70-days decision-making period.

During his tenure as the head of the Cabinet, Matteo Renzi has complained about the equal powers of deputies both at the Senate and the Chamber of Deputies, which was a serious obstacle to the advancement of his reforms. The reduction of the deputies in the upper house of the Parliament from 315 to 100 would reduce government spending to €500 million a year.

However, the statistics show the opposite. Since March 2013, the current composition of the Parliament had more than two hearings (i.e. extended the period of review) on 50 (19.84%) of 252 adopted bills only. Experience shows that if a political consensus is reached on any issue, the Parliament quickly adopts even the controversial laws. For example, this happened with the pension reform and the Labor Law adopted in just 16 days.

Bank Crisis

According to the Italian Central Bank, Italy's public debt reached a historic high level in excess of €2,248 trillion, which is about 133% of GDP, which has decreased by 12% over the last 8 years. This is the worst indicator in the EU after Greece.

Without exaggeration, the results of referendum will have a short-term negative impact on the attempts of the banking sector to get out of the protracted crisis.

The Italian banks are extremely weak. The total amount of non-performing loans equals to $360 billion, which is about 20% of the total loan portfolio.

Last year, the Italian Government was going to find €45 billion to support systemic banks to avoid a full-scale financial crisis. However, this is at odds with the EU laws adopted two years ago, which prohibit the national governments spending taxpayers' money until the shareholders of the banks incur losses.

It seems to be a logical approach given that the main owners of banks are large businesses, financial institutions, which should expect certain risks in their activities, according to international practice.

However, 45% of shareholders in Italy are ordinary people, who believed that they have placed their modest savings advantageously. The Government failed to assist four troubled banks last year, and many people were left without money. There have been cases of suicide due to this fact.

Angela Merkel and other European politicians refused to listen to Renzi’s requests to allow the Italian Government an exception to help the banking sector. This was motivated by the assumption that otherwise no one would seriously accept the legislative initiatives of the EU.

In this situation, the third largest bank of the country, Monte dei Paschi di Siena, whose capitalization has decreased by 85% since the beginning of the year, decided to sell part of the shares (the first installment was $5 billion). Other banks also incline to the same decision. However, after the referendum, it may not be easy to find investors.

The Swiss banking sector provides interesting statistics. A month before the referendum, wealthy Italians began taking out Euros from Italy, buying gold and depositing it in Switzerland.

This means not only the lack of faith in the swift recovery of economic situation in Italy, but also a fear that the Italian government will soon be headed by politicians skeptical to the European Union and the single currency.

Opponents of Constitutional Reforms

The northern and southern parts of Italy are very different in terms of economic development. Per capita income in the northern regions equals up to 130% of the EU average, while in the south this equals 60% only.

If the referendum approved the constitutional amendments, all Italian regions would have lost their authority and control over own budgets. The Northern League, advocating for greater regional autonomy including sovereignty, was not happy with this perspective.

According to the November polls, 12-13% of the voters support this party. The conservative movement Forza Italia led by Silvio Berlusconi, who also did not support the proposed changes, has the same proportion of voters.

However, the main critic of Renzi’s initiatives is the Five Start Movement rapidly gaining popularity. It is currently rated the second political power in Italy with 27.3% support, behind the Democratic Party (32%).

According to polls, if elections are held now, these three parties will be the main rivals of the Democratic Party in parliamentary elections. Three small parties – the Christian Democrats, Italian Left and Brothers of Italy, also have small chances to win, and they also do not support the ruling Democrats.

Under the new election law, passed last year and aimed at preventing the endless re-election, a party with 40% of votes receives the majority of seats in the lower house of the parliament. If the winner is not known in the first round of elections, only two parties go for the second round. In this case, the populist Five Stars Movement has all chances to win, because other competitors support it. It is for this reason that the Democrats in power will try to avoid early elections hoping that by 2018 they will be able to turn the tide in their favor.

In addition, the Constitutional Court has concerns about the new elections bill. If it is canceled, then the Five Stars Movement will have extremely low chances to form a majority.

Shock for Europe

The overthrow of the Italian Prime Minister Matteo Renzi is the third serious shock for Europe for the last six months after Brexit and the presidential elections in the US, says the German newspaper Die Welt.

The British Financial Times also confirms this statement: “And yet Brexit and the Renzi resignation do form part of the same story. The European project is under unprecedented strain. Britain’s decision to leave is the most striking evidence of this. But, in the long run, the unfolding crisis in Italy could pose a more severe threat to the survival of the EU.”

Brussels had uneasy relations with the supporter of European integration, Matteo Renzi, who has sharply criticized the EU’s policy on refugees and argued in matters relating to budget spending. Now, however, Europe is in nervous anticipation of the swing of the political pendulum in Italy after the victory of populist powers in the national referendum.