Tax Analysts Blog

Renzi's Loss a Blow to EU but a Victory for Democracy, Populism

Posted on Dec 5, 2016

Italian Prime Minister Matteo Renzi bet his political future on a somewhat convoluted constitutional referendum that was designed to make it much easier for his center-left coalition to govern without majority support from voters.  He bet big, and he lost big, because Italians rejected the constitutional changes proposed by the prime minister, who promptly announced his resignation.  The outcome is both a major victory for democracy and a sharp setback for the EU and possibly the eurozone.

Renzi wanted to essentially do away with the Italian Senate, cutting its seats from 315 to 100 and changing how it is selected (at the moment it is voted in by the same electorate that determines the lower house).  This would have made it much easier for a party with a lower chamber majority to govern.  And since Italian rules already award a majority of lower house seats to whichever party wins at least a plurality of votes, it would have paved the way for a minority party government to essentially rule as though it were a majority.  (Renzi's coalition won only 29.5 percent of the vote in 2013, just 0.4 percent more than the center-right parties, but was awarded 345 of the 630 seats.) If the referendum had passed it would have made Italy the most undemocratic Western European country outside of, perhaps, Germany.  The EU, of course, was in favor of Renzi's change and hoping that he might triumph.

And polls suggested that things would be close.  The polls, like in the United States, Britain (twice), Israel, Colombia, and a host of other places recently, were completely wrong.  The referendum failed by nearly 60 percent to 40 percent.  Renzi promptly announced that he would resign on December 5 and would not lead a caretaker government.  The Italian financial industry seemed to be sliding into chaos. 

Although the referendum was opposed by a hodgepodge alliance of center-right, populist, and even left-wing parties, it was Beppe Grillo's Five Star Movement that claimed victory.  Grillo immediately pushed for new elections, something which is a possibility but not a certainty (Renzi's party could still be asked by the president to form a government, and elections aren't actually due until 2018).  Grillo's group is eurosceptic, anti-globalist, and anti-establishment.  It originally gained support pushing for anti-corruption laws, but as Europe's popularity has plunged, Five Star has essentially become an Italian analogue to France's National Front or UKIP in the United Kingdom.  (Somewhat ironically, fear of new elections has led the center-right and center-left parties to talk about undoing the law that awards a majority of seats to a party with a plurality of votes.  If the establishment in Europe can't win under their own rules, it seems that they just change them.)

The true winners of the Italian referendum are voters.  Renzi's reform was blatantly undemocratic and disenfranchising.  It was a boldfaced attempt to transform Italy from a parliamentary democracy to an executive, technocratic state that need pay only scant attention to a portion of the electorate.  Italy is very hard to govern, but the solution probably isn't a move to establishment authoritarianism.  The fall of Renzi's government will paralyze Italian tax and financial policy, but the prime minister wasn't doing such a good job of reforming the banking industry, updating Italy's archaic revenue laws, or stimulating the economy anyway.

The big losers of this election, as they have been in every recent electoral test outside of Austria, are the power brokers in Brussels, or in capitals that still support the EU.  Renzi's fall is another blow to globalism and supranational governments. It's a clear sign that the EU needs to reform itself.  But it's also very likely that this is yet another signal that the EU will ignore.  Anyone hoping for true European reforms will probably have to wait for electoral earthquakes in Germany (unlikely) or France (possible) for any true change to happen.

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