Monday, 5 December 2016

ITALY: Renzi's Resignation

The resignation of Italian Prime Minister Matteo Renzi after his heavy defeat in a referendum over constitutional reform is a concern for Europe as it adds to the instability that the continent is currently facing.

''No'' won an overwhelming 59 percent of the vote. About 33 million Italians cast ballots following months of bitter campaigning that pitted Renzi against all major opposition parties. The ''No'' campaigners had divergent reasons for their objection to the constitutional  reform referendum. But they were united in their verdict that the new constitution, promoted as the key to slimming down the state, would damage Italy's democratic foundation..

Under the reforms, Italy's upper house of parliament would be trimmed from its current 315 members to 100. Furthermore, they would no longer be directly elected and their rights would be limited. But the constitutional reform, in combination with the planned new election law, would have granted the country's strongest party and its prime minister an unknown amount of power.

The resignation of Renzi 41, who took office in 2014 promising to shake up hidebound Italy and presenting himself as an anti-establishment demolition man determined to crash through a smothering bureaucracy and reshape creaking institutions, paves the way for elections in early 2017, a year ahead of schedule, for a new prime minister, who will have to draw up a new electoral law and the possibility of the opposition 5 Star gaining power in the heart of the single currency area.

Renzi's resignation opens a period of uncertainty that would hit highly indebted Italy, a core EU member state at a sensitive time. Italy's gross domestic product (GDP) remains at 8 percent below its pre-crisis level. Bank are struggling to survive, with a total of 360 billion euros of bad loans on their balance sheets. Even though the country's national debt is 40 percent greater than it was 10 years ago, Italy now pays one third less interests, thanks to ECB purchases of 240 billion euros worth of Italian government bonds.

Renzi's resignation could also open the way for a referendum on whether Italy should remain a member of the common currency. If Italy, the third largest economy in the currency union, were to leave, it would mean doom not only for the euro. It could put the entire European Union at risk. The Italian central bank in Rome has already registered s strong increase in uncertainty on financial markets.

Italy's economic output is nine time greater than of Greece, Due to its sheer size, the European Stability Mechanism, the euro backstop, would be unable to bail out. The country is too big to fail and systemically relevant. If Italy fails, so too will the euro. And if the euro fails, then Europe will fail, too.

Sunday's referendum was over government plans to reduce the powers of the upper house senate and regional authorities but was viewed by many people as a chance to register dissatisfaction with Renzi, who has struggled to revive economic growth, and mainstream politics.

Sunday's referendum could have been Matteo Renzi's crowning achievement. However his economic policies have made little impact, and the ''5 Star Movement'' has claimed the anti-establishment banner, tapping into a populist mood that has seen Britons vote to leave the European Union and Americans elect Donald Trump president.

By Guylain Gustave Moke
International Affairs Expert
Political Analyst/Author

Photo Credit: AFP photo of Italian Prime Minister, Matteo Renzi