By Kanishka Aggarwal
2016 has been a year of surprises; Brexit, Cubs winning, unexpected win for Trump and the demonetization bomb in India dropped by PM Modi. So to continue this tradition, Italy demanded a referendum. Prime Minister Matteo Renzi, following the footsteps of Former Prime Minister of the UK David Cameron, decided to resign as the Prime Minister if the votes aren’t in the favour of the reform.
Italian Referendum, held on 4th December 2016, proposes diluting the power and size of the senate and replacing elected senators with representatives from their regions. It would then comprise around 100 people, either mayors or members of regional councils.
The other agenda is to rebalance the power of the regions, bringing more areas under the control of central government and removing any form of duplication to take place. The referendum was introduced back in July 2016. It observed lower parliament to move towards a first-past electoral system. The current system helps smaller proportional representation, helping smaller political parties and sees Italian government dominated by multi-party coalitions. The referendum intended to put an end to this system which is accompanied with instability (Italy is currently on its 64th government since 1945). If a party now would get over 40% of the vote, it automatically gets a majority; if not, the two parties would have a ‘vote-off’ with the winner netting the majority. If the referendum would be passed, it might have helped save money by cutting the number of politicians and unnecessary bodies like the National Council of Economy and Labour and would have helped speed up the process of executing laws and reducing inefficiency.
Needless to say, Renzi believed firmly in the Referendum proposed. So to take it up a notch, he offered to resign if the referendum doesn’t follow through. He offered his resignation on 5th December 2016 and submitted it to Mr Mattarella on Monday evening at the Quirinale Palace, the president’s official residence. At that moment the president asked of Mr.Renzi to defer his resignation to see through the approval of his government’s budget.
A breakdown shows that only three regions backed the changes; the leftist areas of Tuscany and Emilia-Romagna in Central Italy, and Trentino-Alto Adige in the far north. The economically struggling Sicily and Sardinia voted against the changes, divide amounting to 44% points. The similar pattern was observed in areas with higher unemployment rates and social problems. On a turnout of 65.47%, 59.11% of voters chose no; and the 40.89% chose for yes. Voters overseas voted overwhelmingly (64.7%) for yes.
The Banking Sector took a certain hit for it. Shares in the world’s oldest bank- Banca Monte Dei Paschi di Siena- fell sharply for which the concerns were raised during the stress test by the European Banking Authority back in July when the banks were ranked as the weakest of the 51 European institutions subjected to annual assessment. With the economy on a low and banking sector facing the heat, Italy has to spend public money to rescue some banks, according to European Central Bank governing council member Ewald Nowotny. “The difference between Italy and other states such as Germany and Austria is that until now, in Italy, there has been no significant state aid or state takeovers (of banks).” he said.
Italian banks have about 356 billion Euros on their books and not enough capital. In simpler terms, the banks have to go out and raise capital to cover their non-performing loans which, in the current scenario is pretty difficult. Investors have already dumped Italian banks, sending Banca Monte Dei Paschi di Siena down about 4.5%. The bank’s shares have plunged more than 86% over the past 12 months to find a workable way to deal with bad loans. US banks meanwhile, rallied, with the KBW Nasdaq Bank Index rising about 1.3%. The index is up more than 22 percent year to date, owing significantly to a post-election surge on the belief that President-elect Donald Trump’s policies will generate greater growth, a lot higher interest rates and a lower regulatory environment than has been in place over the post-financial crisis years.
The picture would be a lot clearer if we had a quick look at the Italy’s tumultuous past. Italy’s unemployment rate was 11.4% in August and has the debt of 132.7% of GDP, second-highest in Europe after Greece. Italian banks are in massive debt and might need to fork up funds. The IMF has released a statement saying the economy will not return to levels seen before the crash in 2008 for at least another decade and that Mr Renzi’s departure would pitch the country back into political chaos and spark a wider crisis in the EU economy.
Finance Ministers from 19 countries that still use Euro were relatively relieved that the economic reaction expected to the Italian Referendum was silenced. It threatened to embolden opponents of single currency, which would grossly destabilize the Italian Economy and cause turmoil in the banking sector.
“Now the reality is the risk of a return to the swamps and to instability,” Mario Calabresi, editor in chief of La Republica, wrote in a front-page editorial, “A scenario that Italy really doesn’t need.”
On a more serious note, the action of giving a voice to the people regarding important political and economic decision important but with the advent of the 2016 and its actions even regarding Brexit, and keeping in mind the Italy’s past, all of these stance seemed nonsense and poorly executed. The 2015 Greek Referendum on two unreadable documents from Greece’s creditors, Brexit set up by Cameron for a brighter political future which then forced him out of the house, and the Prime Minister Viktor Orban’s referendum in Hungary to block out a common EU refugee policy could all be used as examples of sheer miscarriage of democracy. Yet some referendums are in fact important. The way to distinguish between a good referendum and a bad referendum is that the Government shouldn’t try to bypass the Parliament.
The 2015 U.K. Election created an anti-Brexit majority in the parliament – Which was the will of the voters. Putting up the question again the following year made very little sense from a democratic point of view. Similarly, Renzi failed to get his reform to pass because he lacked. His approach of forcing the voters instead of putting the changes aside till the Italians decide is what led to his ultimate demise. With the way the execution of the Italian Referendum was planned, it’s a no-brainer why of Italians did not go with it and the reason why this referendum isn’t being treated as seriously as it to be.