Elections in the United Kingdom and United States have generated high emotions and big headlines in recent months, but there’s another vote taking place that also warrants our attention.
As you read this column, Italian voters are at the polls deciding the fate of a constitutional referendum proposed by Prime Minister Matteo Renzi. While the subject seems technical, the vote’s outcome carries big implications not only for Italy but also for Europe and countries beyond.
Like the UK’s vote on Brexit (British exit from the European Union), Italy’s referendum pits the ruling party against the country’s leading anti-establishment bloc and a number of mainstream parties whose leaders oppose the referendum and/or Renzi himself.
Complicated politics are nothing new for Italy’s famously splintered and often contentious political factions. But because the referendum has the potential to further shake up the status quo, all of Europe and many Americans are watching the situation carefully.
Italy has suffered lackluster growth and high unemployment for decades, a predicament made worse by the 2008/2009 global financial crisis and recession. Italy’s banks hold high levels of bad debt and are among the most vulnerable to collapse in Europe. Public debt, at 130 percent of GDP (or economy), is the world’s third-highest.
Renzi is Italy’s third successive non-elected prime minister. He views Italy’s sclerotic political system as a barrier to reforms he and other observers believe are needed to put Italy’s economy on a sounder path for future growth. His constitutional proposals would weaken the power of the Senate and regional governments and strengthen the ruling party’s hold on power.
But Renzi has made the referendum as much a confidence vote in his leadership as on the controversial constitutional overhaul he proposes. And polls – as much as they can be believed these days – suggest he may lose this vote.
If he loses, he has said he’ll resign and leave politics, although recent statements cast some doubt on his intentions. Even if Renzi stays, Italy’s already fractious politics will be in greater turmoil than ever, potentially putting its economy and financial system in an even more precarious state. And that prospect does not bode well for Italy, Europe, or the Euro currency.
Italy is the European Union’s fourth-largest economy and the Eurozone’s third-largest. Italy’s bank stocks have lost about half their value this year alone, and investors continued fleeing in the days before the vote – clear indicators of just how weak Italy’s banks are considered by outsiders. Bank failures could hurt the wider economy.
Strict Eurozone rules have so far blocked Renzi’s efforts to inject public funds into Italy’s banks, and post-election political turmoil will make it even harder to attract private funding to put the financial sector – and thus the economy – on stronger footing.
Moreover, increased political and financial instability in the event of a “no” vote would likely strengthen Italy’s euro-skeptic “Five Star Movement” and its leader, a former comedian. Just seven years old, the Five-Star Movement has become Italy’s largest opposition grouping (its leaders refuse to call it a party), and it now holds two important mayoral posts, in Rome and Turin.
Although the immediate repercussions of a “no” vote in Italy aren’t as great as the UK’s Brexit vote, the last thing Europe needs now is more uncertainty and instability. Anti-establishment, anti-immigrant sentiment is on the rise in Europe, as in America; and far-left and far-right parties have gained ever bigger voting shares in recent elections.
These previously fringe parties may be at opposite ends of the political spectrum, but they are united by a common antagonism toward the European Union and the Euro currency. The far-right National Party in France is pressing for a referendum on continued EU membership, as are parties in other countries.
And then there’s Russia. An increasingly activist and unpredictable Vladimir Putin has been working to divide the countries of Europe and NATO, which until now have been unified in supporting U.S.-led economic sanctions against Russia following its seizure of Crimea and incursion into Ukraine.
Putin’s actions (those that we know of) have included cyber-attacks on small Baltic States and support for anti-establishment parties throughout Europe. He would love nothing more than to drive a wedge between Europe and America and to weaken economic sanctions now in place.
National elections in 2017 are approaching in Austria, the Netherlands, France, and Germany, raising the prospect of additional gains by euro-skeptic, non-traditional parties. Any further weakening of Europe’s political center will pose challenges for European cohesion and the Western alliance.