Italian Referendum: Can it Fix the Country’s Issues?

After an unexpected vote that defeated Prime Minister Matteo Renzi’s referendum, he resigned. Renzi had sent a bill to Parliament proposing a change to the lawmaking process. The decision was then left to the citizens of the Republic of Italy.

Photo of Matteo Renzi

Matteo Renzi credit to: The Commentator

The Italian government is organized similarly to the United States government. The President is elected by the lawmakers and serves for seven years. The current President is Sergio Mattarella. The executive branch is headed by the Prime Minister and appointed by the President. The legislative branch is run by the two parties of Parliament, the Senate and the Chamber of Deputies, both elected every five years by the voters of the country. There are six hundred and thirty deputies and three hundred and fifteen senators. Of those senators, five are appointed by the President to be Senators for life. Finally, the judicial branch is headed by the Minister of Justice as well as the President.

The system works great, but there is one catch; the Members of Parliaments’ (MP)  salary is nearly five times more than the average worker, which is the biggest difference in salary in government in the world.

graph showing the ratio between a Member of Parliament salary versus an average salary by country

Member of Parliament salary vs Average Salary – credit goes to Quartz

The date was set. On December 4th, 2016 the Italian people were going to vote “yes” or they were going to vote “no.” The reform would remove power from the Senate, meaning that the new legislative branch would be left to one house of Parliament. Therefore, fewer people would have an opinion in lawmaking. The reason behind discontinuing the Senate was to help make the lawmaking process faster. It was believed that the process of lawmaking was slower with both the Senate and the Chamber of Deputies having to come to a conclusion together. This has been causing problems for many years and for the same reason, Renzi wanted to make a change and promoted his referendum.

However, it only became a referendum after Renzi’s bill did not receive a two-thirds vote from Parliament to change the Italian Constitution which was enacted in 1947. This change would have given more power to the Prime Minister, Matteo Renzi.

Mei, the student advisor from the Tuscania campus of the Lorenzo de’ Medici Italian International Institute believed that most of the people voted “no” to the referendum to “get rid of [Renzi].” Mei was one of the many citizens who saw this referendum as a vote on Renzi, whether or not to keep him as the Prime Minister rather than a vote to change the Constitution.

A vote to pass the referendum would cut down on the $58 million that goes into the Member of Parliaments’ salaries. However, if the referendum was passed Parliament would have been full of bureaucrats who were chosen to satisfy the leader’s needs rather than the needs of the people. A vote against the referendum would leave Italy without a Prime Minister; Renzi vowed to resign from his post if he did not win. Currently the Italian banks are having problems with large amounts of debt and bankers predicted that there would be a time of panic and financial instability for the Italian banks after the referendum.

Debt in Euros by country

Debt in Euros – credit goes to European Central Bank

The referendum has been compared to both the Brexit in the United Kingdom and the United States Presidential election of Donald Trump due to the shock it could have caused the country following the vote. While it would not be as severe as the Brexit to the UK, it would still unsettle the country’s banks. However, the country predicted a negative result for Renzi due to the opinion of two German banks: Berenberg and Deutsche Bank as well as J.P. Morgan in the United States. According to Financial Times, up to eight Italian banks could be in trouble if the referendum was voted against. The Foreign Affairs Minister at the time, Paolo Gentiloni believed that even if the referendum was voted against, there would be a small chance that the banking issues in Italy would contribute to more problems in other parts of Europe. As stated by Gentiloni, “In any case we will have a weaker and more unstable country, but not a threat for the European economy.” These banking issues started with a very serious recession which left behind $377 billion in loans. With a vote against Renzi’s referendum these issues would become heightened.

As many predicted, Italy overwhelmingly voted against Renzi and his referendum. He stayed true to his word and resigned and left others to deal with the aftermath. The Euro dropped to a 20-month low against the dollar and the European stocks were in the red Monday the 5th of December after the vote. The Italian banks moved towards having the biggest yearly fall since 2011. In fact, many of the banks were in danger of failing completely. It is possible that the Italian government will now have to spend public money to rescue some of its banks. However, many political leaders are happy about this turn out, including the head of Italy’s far right Northern League party, Matteo Salvini, who believes it means liberation from the Renzi government.

The trend of the Euro to US Dollar ratio before and after the referendum

Trend of Euro to US Dollar Ratio – credit goes to ForexSilverGold

President Mattarella decided to appoint a new Prime Minister after Renzi’s resignation. He chose the former Foreign Affairs Minister, Paolo Gentiloni, to take the office of the new Italian Prime Minister and start fixing the issues that were caused by the referendum. The President tasked Gentiloni with forming a new government that has a new electoral law. In a statement after he accepted the new position, he said, “I am conscious of the urgency to give to Italy a full-power government in order to reassure our citizens and be able to face, with the utmost commitment and determination, priorities that are international, economic and social, starting from the reconstruction of the areas hit by the earthquake.”

Gentiloni plans to help the country with the issues that were created in the last years and from the referendum. The Five Star Movement party called for elections early because the leader of the party, Beppe Grillo wanted to get back into the office. Foreign observers think that having him in office would be a bad decision for the country. Grillo has been known to want reforms that would take Italy off of the Euro as well as exiting the European Union, similar to what happened in the United Kingdom. This is why Gentiloni needs to make a new electoral law before the possible early elections. If the elections happen, they are expected to occur in June of 2017, almost a year earlier than originally intended. This uncertainty in the government is not helpful for the failing banks. However, nothing will be known until President Mattarella makes his decision about the early elections. According to Financial Times, he will take his time making this decision because he is very cautious.

Italy is in limbo waiting for the government to fix itself, and that does not help with the economic issues that the banks have been facing for years. Hopefully, the President and the Prime Minister will make their decisions soon, and the country will be back on track to being one of the most powerful in the Eurozone.

Works Cited

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Cunningham, Tara; Szu Ping Chan; Barney Henderson & Harry Yorke. “Italian banking shared poised for worst year since 2011 after referendum defeat.” The Telegraph, 05 December 2016, Accessed 31 March 2017.

Dewan, Angela; Livia Borghese & Milena Veselinovic. “Italy’s Foreign Minister Gentiloni appointed prime minister-designate.” CNN, 11 December 2016, Accessed 31 March 2017.

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King, Russell & John Foot. “Italy.” Encyclopedia Britannica,  14 December 2016, Accessed 31 March 2017.

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Merelli, Annalisa. “In Italy, members of parliament make five times more than the average worker.” Quartz Media, 04 March 2014, Accessed 31 March 2017.

Politi, James. “What are the consequences of Italy’s constitutional court ruling?”  Financial Times, 26 January 2017, Accessed 31 March 2017.

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