What Now Italy?

renziA few weeks ago, FTI Consulting tried to assess what was really at stake with the approaching Italian referendum, acknowledging that according to the polls, it did not appear likely the reform measures would be approved. Yesterday’s vote confirmed such expectations, with 59.1% of the record 33 million voters rejecting the proposed constitutional change. The time to try and assess the impact of this important vote on the Italian political and economic landscape has now begun.

In line with what he announced before, Prime Minister Renzi presented his resignation to President Mattarella. President Mattarella will now have to decide whether to mandate Renzi to try to form a new government or look to establish a new government whose main goal will be to approve a new electoral law, before new elections in 2018. The second option seems more likely and the names of the Senate President, Pietro Grasso, Finance Minister, Pier Carlo Padoan, and Minister of Cultural Heritage and Tourism, Dario Franceschini, have already been mentioned as potential successors to Renzi. All these options would require Renzi’s Democratic Party, who currently hold the majority of seats in both chambers, to lead a broader coalition with other centre and centre-right parties.

In this context, however, there is great pressure from the 5 Star Movement and the Northern League for Mattarella to call on new election as early as possible in 2017. At the moment, the election option seems to be last resort, considering the number of parties that recently asked to once again review the existing electoral law for the Chamber of Deputies and draft a new one for the Senate. In case of new elections, it is worth stressing that Renzi’s leadership and support in the country remain strong. Indeed, it should be noted that former PM Renzi was the sole national party leader supporting the constitutional reform, and despite having a considerable part of its own party against him, he mobilised around 13 million votes. We shouldn’t be surprised if Renzi will use this occasion to reinforce his leadership within the party, positioning himself for new elections.

In terms of financial implications, yesterday’s vote has triggered financial market disorder at a time when Italy’s economy is already struggling within an ongoing banking crisis. This referendum could reduce the possibility of advancing the structural reform agenda asked by the EU, resulting in weaker growth from an economic perspective.  The euro-dollar rate has fallen to the lowest levels seen over the last 2 years and the Milan stock exchange opened with a drop of 2% before later recovering. Further uncertainty is to be expected as the political situation unfolds.

Andrea Corazza is Director and Nicola Scocchi is Consultant at FTI Consulting in Brussels.

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