Tax Analysts Blog

Renzi's Reform Would Make Italy More Governable, Less Democratic

 
Posted on Aug 30, 2016

In the wake of the United Kingdom's vote to exit the European Union, another core member of Europe is facing an uncertain future because of proposed major constitutional reform.  Italian voters will go to the polls in late October or early November to decide the fate of Prime Minister Matteo Renzi's leftist government.  If Renzi's reform passes, it will make governing Italy much easier, but its main aim is to essentially disenfranchise a euroskeptic, populist movement similar to the U.K. Independence Party.  

Italy has one of Europe's strangest parliamentary systems.  Both the Chamber of Deputies and the Senate share the same electorate and the same terms of office (this is known as perfect symmetry and is practically unique).  In 2005 Italy made its system less democratic when it decided to award the winning coalition of parties 54 percent of the seats in the Chamber of Deputies regardless of its percentage of the vote.  However, this law did not apply to the Senate.  So when Renzi's coalition won in 2013 (it was then led by another Socialist politician), it received 340 of the 630 seats in the Chamber of Deputies despite only winning the vote by a 29.5 percent to 29.1 margin over Silvio Berlusconi's right-of-center group.  Five Star, the populist party that is causing much of the commotion, won a shocking 25.5 percent of the vote.

The Socialist coalition, however, didn't do so well in the Senate.  It won only 123 out of the 315 seats.  Five Star declined to cooperate with the government (and, in fact, its entire platform is based on not cooperating with the existing parties), and Renzi began his premiership by reopening the issue of constitutional reform.  Renzi's reform would dramatically alter the Senate.  It would end direct election of senators, reduce the number of senators to 100, and transform the body into a Senate of regions.  It would significantly strengthen the power of whatever coalition won a plurality of votes.  This has led some critics to call the measure authoritarian.  Renzi has said that if the No campaign wins, he will leave politics, evoking the fate of former U.K. Prime Minister David Cameron.

Italian Prime Minister Matteo Renzi (photo by Sailko)Although Renzi has repeatedly stressed that the referendum is not an Italian Brexit, the similarities are obvious.  The growing popularity of the Five Star movement is a challenge to Italy's traditional fiscal and European policies.  Much like Cameron wanted to take the   steam out of UKIP by holding a referendum that would result in Brexit's defeat, Renzi is trying to neuter Five Star by effectively making its percentage of the vote meaningless, unless it is able to place first.  It's a dangerous gamble (one that Cameron obviously lost).

From a tax and fiscal policy perspective, Renzi's reform seems helpful.  The instability in the Italian government has led to slow and cumbersome responses to the recession and Italy's deteriorating financial position (the country's debt-to-GDP ratio is a staggering 133 percent).  The Italian tax system is plagued by leakages (particularly VAT fraud), and reform is long overdue.  Former Prime Minister Mario Monti, a technocrat, was able to paper over some of the worst problems during his brief government, but Renzi would like to do much more.  

However, blocking the will of large voting blocs is unwise over the long term.  Renzi might win a tactical victory over the Five Star movement by reducing its influence over legislation if his reform passes, but he will almost certainly lead to the populist party's followers becoming even more disaffected over the state of Italian politics.  If Renzi is successful, he might succeed only in damaging the popular legitimacy of his and future governments, which could make Five Star more powerful and dangerous in the end (much like the National Front in France).

Read Comments (1)

Edmund DantesAug 30, 2016

Democracy is a bad form of government. However, all the others are far worse.

Brexit, the defeat of Italian socialists, then Trump. 2017 is going to be very interesting.

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