Today – 4th Dec 2016 – Italians go to the polls in a referendum that will determine the course of the EU. The citizens are to approve constitutional changes that have been touted as a necessity – a key element in the PM’s portfolio without which his economic reforms cannot take place.
This post summarises the socio-political aspects of this referendum, and implications of the most likely ‘No’ vote. (A second piece under ‘Money’ on the economic outfall that may eventuate – is in the works)
Italy was a founding member of the European Economic Community and common currency, the Euro – with France and Germany. The vision shared by all three governments is the path of ‘reformist and internationalist social democracy’. Meaning a Lower House with a left or center-left Parliament beholden to the usual lobby-groups including demented feminists.
The Italian Senate has representatives from various regions and “lifelong” appointees and stakeholders from various lobbies – which blocked many decisions made by the Parliament that Matteo Renzi needs to implement policies.
Italy has not yet recovered from the 2008 global crisis and is in a fiscal depression. Unemployment is higher than most of the EU, with youth at 40%. There is also a net migration of people and currency to areas of opportunity outside the country – losses Renzi cannot afford if he is to quickly grow the economy.
Mr. Renzi’s policies are reminiscent of UK’s Tony Blair’s New Labour or Germany’s Gerhard Schröder. He introduced job-market reforms to bring in younger workers and eased some of the protections enjoyed by older employees. He has raised the retirement age modestly.
As disillusion against reformist social democracy in Italy and elsewhere in the EU grows – public opinion has turned against Renzi. By large because he has so far failed to deliver economic growth. Renzi however, is operating in a much worse global economic context. Italy cannot build on an export-driven growth model like Germany under Mr. Schröder, and it is suffering under a heavy debt burden left by Silvio Berlusconi.
A very real problem of an EU state is its dependence on the ECB and its inability to print or devalue its own currency – the curse of a single currency system under which the EU operates.
This unrest may be a prelude to a general loss of confidence in the government – which has been shown to bring about economic flight of capital and a possible Euro debt problem without the new stimulus. The changes from a ‘Yes’ vote may improve the situation but it appears from exit polls that this may not happen.
Under threat of a ‘No’ vote, his only option is to concede and allow a new leader or even a new government to tackle this problem.
If he steps down, as he has vowed to do, the European Union would be badly damaged as well. Mr. Renzi is staunchly pro-European, while the alternative left-wing Five Star Movement of Beppe Grillo, and the right-wing Northern League rally against Brussels and the austerity policies of the Union.
Mr. Grillo has indicated that under a ‘No’ vote, he wants to hold a referendum on dropping the Euro as a currency. This will not be allowed by Germany, and a struggle to stay in the EU may eventuate.
The EU has also become increasingly unpopular because it abandoned Italy to manage the tide of refugees and migrants from North Africa (more than 170,000 people have arrived in Italy so far in 2016). Hence, even many of Mr. Renzi’s adherents feel abandoned by the European Union.
Brexit has set an example that a nation can vote against the advice offered by economic and political experts. Whichever party wins, Italy might become almost impossible to govern.
That will certainly frighten the financial markets. Even outside of Italy, European countries that surround it also face similar financial issues and could be easily set off by such an economic backlash.
If Italy, the fourth-largest economy of the European Union, rejects the euro, the common currency would be finished, and probably the Union as well. But having the choice between state bankruptcy and keeping the euro, any government might still opt for the common currency.
Jim Rickards rounds out his expectation for the vote stating, “When it came time for a showdown in June 2015, Greece chose to remain in the euro and accept austerity rather than go back to the Greek drachma. Italians will do the same, while suffering far less austerity than the Greeks.”
Keeping the Euro without sufficient investments is looking at the Greece problem in the face. Not keeping it may bankrupt Italy.
Whichever way Italy looks – a political, economic and social upheaval appears unavoidable.
References
What is the Italian Referendum and Why is it Important?
https://dailyreckoning.com/5-questions-answered-italy-referendum/
Here’s Why Italy’s Zombie Banks Should Be Terrified About a ‘No’ Vote In Renzi Referendum
Here’s Why Italy’s Zombie Banks Should Be Terrified About a ‘No’ Vote In Renzi Referendum
In Italy, a Sleeper Crisis for the E.U.
Joey Alfio 3 years, 1 month ago.
