As he promised, Italian Prime Minister Matteo Renzi will step down following the defeat of his constitution reform plan. On Sunday, Italian voters rejected the constitutional referendum, opening the door to Italy’s future. The question is: now what? Analysts have been having a field day trying to figure out an answer for the last two weeks or so. As the referendum drew closer, the question was asked more frequently. With the vote now complete and the results tallied, Italy has to take a long hard look at itself and choose the path that will bring it political stability and economic growth, something that has eluded the nation for quite some time.
Short term, there will likely be a period of domestic political instability. With Renzi resigning, a new government needs to be formed. It will be up to Italian president Sergio Mattarella to piece together that government and determine the best way to do so. The leading political parties in Italy will be brought together to try and reach an agreement on a new government. It will be in the best interests of the major parties to do this without having to rely on elections. The 5 Star Movement (M5S) and Northern League will likely push for them because of the effects which will come from the Italicum law, a major change to Italy’s electoral laws engineered by Renzi when he came to power. The change stipulates that the winner of the next election will automatically take a majority of seats in parliament. With M5S and the Northern League riding high after the referendum vote, it’s apparent why both parties prefer to put the decision in the hands of voters. With that in mind, the populist M5S will likely not assume control of the government now or anytime soon.
Economically, the referendum results do not change the myriad of problems facing Italy’s banking system. Worries about the banks, as well as low economic growth could potentially fuel the Eurosceptic mood that is growing in the nation and across Europe. There has also been concern that the referendum results will potentially place Italy on a path to leave the euro. M5S has blamed many of the nation’s economic woes on the single currency system.
Speaking of the euro, there is the reaction of the EU establishment to consider. So far, there has been a mixture of brave faces, unenthusiastic declarations, and heads buried in the sand. Wolfgang Schaeuble, Germany’s finance minister called for calm, stating emphatically that there is ‘no reason to talk of a euro crisis.’ He fails to mention or acknowledge the truth that there is already euro crisis in full swing. This weekend’s referendum results are a clear indicator of it. The EU is either unable or unwilling to face the fact that Brexit, anti-immigration sentiment and the populist-fueled political movements are indicators that a growing number of European voters are dissatisfied with the European Union and politicians closely aligned with EU doctrine and policies.