In the referendum campaign the opposition parties, which have all called for a no vote, have done their best to exploit this widespread anti-establishment mood and, no doubt, a large part of those who will vote against the reform will do that to express their discontent about the Renzi government’s policies.
The December 4 referendum was a watershed political event, which will have far-reaching implications for Italy’s domestic scene. Prime Minister Renzi presented the constitutional reform that Italian voters were called to approve or reject in the referendum as a crucial element of his ambitious agenda aimed at making state structures more efficient and at streamlining decision-making procedures. He hoped that the boost he would receive if the “yes” prevailed could enable him to relaunch his reform plans, whose implementation has, in fact, substantially slowed down in the last few months.
However, the government’s approval rating has been falling and so has Renzi’s popularity mostly due to Italy’s poor economic performance (economic growth continues to be anemic and GDP per capita is still lower than its pre-crisis level) and the persistently high unemployment rate. In the referendum campaign the opposition parties, which have all called for a “no” vote, have done their best to exploit this widespread anti-establishment mood and, no doubt, a large part of those who voted against the reform have done that to express their discontent about the Renzi government’s policies. On the other hand, another large part of the electorate does not see a credible alternative to Mr. Renzi’s reform plans and fears that his defeat in the referendum will trigger a prolonged period of political instability not least because the opposition is weak and highly fragmented.
Now that voters have rejected the constitutional reform, Mr. Renzi has announced he will resign. Renzi’s Democratic party will remain the most powerful player as it is by far the largest group in parliament, but a technocratic government or a grand coalition supported by one part of the current center-right opposition would become a real prospect (the main task of the new government would be that of approving a new electoral law). The likelihood of fresh elections also grows exponentially (the current legislature would otherwise end in 2018).
Renzi’s fall deals an indirect blow to those leaders in Europe, including the German chancellor Angela Merkel, who have pinned their best hopes on his reform agenda. Moreover, despite Renzi’s frequent outbursts against the austerity policy advocated by the EU institutions, he and his allies in the government coalition hold a much more pro-European stance than most of the opposition parties. In particular, the strongest opposition group, the anti-establishment Five-Star movement, which is also the one that is expected to benefit the most from the rejection of Renzi’s constitutional reform, advocates holding of a referendum on leaving the euro.
In case of a political stalemate following the referendum failure, Italy, which continues to be widely perceived as one of the weakest links in the eurozone because of its huge public debt and the fragility of its banking system, could again become a target of financial speculation, as in 2011. This is indeed the most feared scenario in Brussels since a financial crisis in Italy has the potential of sending huge shockwaves across the eurozone and beyond.