Brexit Vote Parallels Send Warning to Renzi on Upset Risk

  • Renzi and Cameron took risks, made mistakes, misjudged voters
  • Italian premier has promised to quit if he loses December vote

Italian Premier Matteo Renzi.

Photographer: Simona Granati/Corbis via Getty Images

Matteo Renzi is trying to shake off the ghost of Brexit.

The trouble is the ghost won’t leave him be. Although the Italian prime minister called his Dec. 4 referendum to approve constitutional reform and the U.K. vote was about membership of the European Union, the parallels between the two campaigns are stacking up.

Cameron and Renzi

Photographer: Dylan Martinez - Pool/Getty Images

Here are five points where Renzi has followed the path of the U.K.’s then prime minister, David Cameron.

Did they really have to take the risk?

Renzi believed Italians were massively behind his reforms after his Democratic Party registered the biggest vote since the 1950s in the European elections of May 2014. So he doubled down on the referendum, framing it as a vote on his program for government and told voters he’d have to resign if he lost.

Cameron was riding high after winning a surprise majority in the May 2015 elections when he called the referendum. He insisted he wouldn’t step down if he lost the Brexit vote, though few people believed him and he was gone within hours of the result.

“Renzi has pretty much nailed himself to the cross on this one,” Megan Greene, chief economist at Manulife Asset Management, said in a phone interview.

Blue-Chip Adviser

Jim Messina, Barack Obama’s former election manager, advised the Remain camp in the U.K. and has been “thoroughly consulted” by Renzi’s camp, said Filippo Taddei, the economics chief for Renzi’s Democratic Party.

Discontent Underestimated

Since unveiling his reform agenda shortly after taking office in early 2014, Renzi has seen the Five-Star movement tap in to Italians’ frustrations after more than a decade of economic stagnation. That mirrors the Brexit campaign’s success channeling the discontent that had built up in Britain’s smaller towns and cities, out of view of the elites in the capital. The anti-EU Northern League and a dissident faction within Renzi’s Democratic Party are also opposing his proposals.

“The economy and migration played directly into the Brexit referendum, and they’ll be present in the Italian vote,” said Greene.

Tactical Mistakes

Cameron spent years bashing the EU and failed to win major concessions before he started campaigning to stay with the bloc. By tying his fate to the outcome, Renzi made the Italian referendum a vote on him rather than his reforms and Messina has been trying to help him walk that back. The premier has backtracked somewhat on his pledge to resign in a bid to shift the focus. “I made a real mess of it at the start,” Renzi told a referendum rally in Florence on Thursday night, adding however that he “still believed” what he had said.

Investors’ Anxieties

As the polls tighten, investors have tuned in to the financial risks in both cases.

The extra yield that bond managers demanded to hold Italy’s 10-year debt instead of similarly dated Spanish paper reached 31 basis points on Sept. 27, the most in almost two years, on concern about further stagnation. Implied volatility on the pound jumped to a record before the Brexit vote.

“If ‘No’ wins, the likely caretaker government will mean slow progress on reforms,” said Loredana Federico, lead Italy economist at UniCredit Bank in Milan. “A confidence shock will negatively affect firms’ and households’ behavior and, thus, the pace of recovery in domestic demand.” But Federico doesn’t expect this uncertainty to last as long as the U.K.’s -- a year or so for Italy, given elections are due by early 2018.

So What’s Next?

We know how this story ended for Cameron. Renzi plans some 200 events over the next two months as he crisscrosses Italy to fight for a happier outcome.

— With assistance by Mark Deen, Simon Kennedy, Gregory Viscusi, Giovanni Salzano, and Kevin Costelloe

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