What's Next After Italy's Referendum?

  • If premier loses referendum, president may focus on stability
  • ‘Yes’ campaign trailed in final opinion polls before ban

Why the Italian Referendum Really Matters

If Matteo Renzi loses Sunday’s referendum on constitutional reform, he’ll most likely be making his way up Rome’s Quirinale hill the next morning to work out what to do next in talks with President Sergio Mattarella.

Renzi, 41, has promised to resign if he loses a vote he’s made the centerpiece of his efforts to render Italy and its economy fit for purpose in the 21st century. But the prime minister’s instincts may not necessarily square with the president’s wishes if Italian voters deliver another blow to the western establishment. Mattarella’s underlying concern is to maintain stability, with the populist Five Star movement seeking to exploit a Renzi defeat to force an early election and then attempt to take Italy out of the euro.

When he sits down with Renzi in the palace where popes once spent their summers, these are the issues their conversation might have to address:

Stability First

If Renzi does offer his resignation, Mattarella will ask him to delay long enough to allow talks with the speakers of both houses of parliament and the leaders of political parties, according to a senior state official familiar with the likely procedure.

Read more: Why referendum defeat won’t mean a fast-track to euro exit

Those consultations, aimed at gauging support for Renzi or possibly a successor, could last several days, said the official, who asked not to be named discussing confidential plans. Finance Minister Pier Carlo Padoan, Senate Speaker Pietro Grasso or Culture Minister Dario Franceschini are among those who might be asked to hold the fort if Renzi goes.

Market Pressure

Time may be a luxury in short supply on Monday if traders take the result badly.

QuickTake Q&A: What Will Italy’s Referendum Mean for the Euro?

Volatility in the euro against the dollar has been climbing and reached its highest since the Brexit vote this week. The spread between Italy’s 10-year bonds and similarly dated German bunds touched 187 basis points last week, the most in 2 1/2 years. The country’s vulnerable bank stocks -- down almost 50 percent since Jan. 1 -- could also be in focus.

How Bad a Defeat

The strength of Renzi’s position will depend to a large extent on how close the result is.

If at least 48 percent of voters back his reforms, he could stay on in power, the state official said. His position would become untenable if he tried to cling on after a heavier defeat, the official said.

“Renzi’s influence depends on how his parliamentary troops react to a ‘No’ win,” said Giovanni Orsina, a professor of government at Rome’s Luiss-Guido Carli University. “He leads the Democratic Party, it has a parliamentary majority, but would lawmakers stay loyal to him or would they dump him?”

Electoral Reform

Whether Renzi is in charge, or a successor endorsed by Mattarella, the government’s priority after a referendum defeat will be electoral reform. The current system gives the biggest party in the lower house an automatic majority and mainstream parties fear it could help Five Star into power.

Renzi was forced into Sunday’s referendum after he failed to win a two-thirds majority in parliament for his plans to strip back the Senate’s powers. But former premier Silvio Berlusconi has signaled that his party, Forza Italia, might help pass a reform of the lower house, potentially by supporting a short-term caretaker government. Berlusconi said Wednesday night he’s open to a pact with Renzi so long as conditions are clear.

“Such a government could be given clearly defined tasks, namely to stay the course on fiscal policy, reform the election law for the lower house of parliament and -- possibly -- devise a new constitutional reform,” Holger Schmieding, chief economist at Berenberg in London, said in a note on Tuesday.

Potential Comeback

Even if Renzi does resign, he may immediately start plotting his return.

His supporters insist he’ll stay on as head of the Democratic Party, the biggest group in parliament. And that offers him a route back to power in time.

“He’ll take a step back, support a premier with a weak political base like Padoan or Grasso who can’t be a big challenge to him, and likely pull the plug early next year to stage a comeback,” Orsina said.

Shock Win

Of course, Renzi could still snatch victory after a furious dash for votes in the final days of the campaign.

The last surveys published before a polling ban came into force on Nov. 19 showed the “Yes” campaign trailing by 4 percentage points, the narrowest deficit in two weeks.

If he can turn that around he could become one of western Europe’s strongest leaders overnight, enabling him to push ahead with structural reforms, and adopt a more combative approach in Europe over immigration and what he sees as German-imposed economic austerity.

In a hint of how he might use his renewed power, he threatened to veto the EU’s multi-year budget at a summit December “because some eastern European countries understand only the language of money,” in an interview with La Repubblica published Wednesday.

That’s the scenario the prime minister wanted to talk about in the final week of campaigning. At a press conference on Monday he was asked whether defeat would see him step down, head a new government, or support Padoan to succeed him.

“Every so often,” he joked, “ask me a question about what would happen if ‘Yes’ wins!”

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