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Five knock-on effects of Renzi's referendum defeat

Italy is today searching for a new prime minister after the resignation of Matteo Renzi, who quit after losing Sunday’s referendum on constitutional reforms.

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Five knock-on effects of Renzi's referendum defeat

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Italy is today searching for a new prime minister after the resignation of Matteo Renzi, who quit after losing Sunday’s referendum on constitutional reforms. What will yet another change in power mean for Italy and the rest of Europe?

Fresh elections?

Renzi, who has been true to his promise to quit if he lost the referendum, is expected to formally hand his resignation to Italian president Sergio Mattarella on Monday.

Mattarella will then have to embark on talks with party leaders before likely naming a new prime minister to head a caretaker government.

The next election is not due in Italy until 2018, however it is possible Renzi’s opponents will try and capitalise on the referendum result and push for a snap poll.

But Italy is no stranger to this kind of crisis – it has had more than 60 governments since World War II, nearly one a year.

Ironically, it was the reforms that Renzi failed to get support for in the referendum that may have given Italy more stable governments.

A referendum on the Euro?

Regardless of whether snap elections are called in the coming months or Italy holds out until 2018, there is the possibility of the Eurosceptic party Five Star Movement (M5S) winning power.

The party, led by Beppe Grillo, is neck-and-neck with Renzi’s Democratic Party in the polls and has made no secret of the fact it wants to hold a referendum on Italy’s future relationship with the Euro.

But James Newell, professor in politics at the University of Salford, has argued this is unlikely, especially if Italy revisits an electoral law that would have given the country a better chance of having majority governments.

“The profile of M5S activists and supporters casts doubt on whether it would be able to govern effectively,” he added. “A vote for the M5S is a straightforward protest vote.

“Otherwise its activists and supporters are divided across the whole range of issues separating left and right. It is doubtful that such a party can remain cohesive when faced with the pressures of governing.”

A fresh banking crisis?

Some, however, have poured cold water on the prospect of Italy holding a referendum on membership of the Euro, arguing worries about its banking sector would take precedence.

Italy’s banks are battling a burden of bad debt – loans that are unlikely to be repaid.

On top of that, government debt, as a percentage of GDP, is the second highest in the Eurozone after Greece.

Renzi’s resignation saw the Euro fall to a 20-month low against the dollar with markets worried that instability in the Eurozone’s third largest economy could reignite a dormant financial crisis and deal a hammer blow to Italy’s fragile banking sector.

Long live coalitions?

Italy’s new electoral law – which made majority governments, rather than coalitions, more likely – could now be revised in light of the referendum result, argues Professor Newell.

“The electoral law might not survive in its current form,” he wrote. “If Renzi loses, then the electoral law will have to be revised and the prospect of an M5S majority government will retreat accordingly. For the law’s operability depends on the constitutional reforms being passed and it is opposed by powerful groups from across the political spectrum.”

Italy’s new prime minister – its fifth in as many years – will be tasked with drawing up a new electoral law, opening up the possibility of coalitions dominating Italian politics in the future.

A shot in the arm for Eurosceptics?

Whether it’s Brexit, the election of Donald Trump or Renzi’s referendum defeat, one thing is almost certain in the hours after a defeat for the ‘establishment’: France far-right leader Marine Le Pen will send a congratulatory note on Twitter.

But while the result in Italy has been seized upon by Eurosceptics, it came on the same day a far-right candidate failed to win the presidency in Austria.

Regardless, the loss of Renzi is likely to be felt in Brussels, according to Pierpaolo Barbieri, writing in the Wall Street Journal.

“Europe also needs Renzi,” he wrote. “At the most recent elections to the European Parliament, he led his party to a larger share of the vote than Angela Merkel, giving him a legitimacy to stand up to Germany that France’s François Hollande has never had and Hollande’s predecessor, Nicolas Sarkozy, never used.

“Renzi is a constructive pro-European who can criticise Germany for its resistance to the deeper federalisation that the continent needs for the monetary union to be sustainable.”