Matteo Renzi: What Happens Now After His Referendum Defeat?

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Italy’s president is expected to put together a new government but Five Star Movement wants snap election

Matteo Renzi has been defeated – by an extraordinary margin – in Sunday’s referendum on constitutional reform. The populist Five Star Movement led by Beppe Grillo and the far-right anti-immigrant Northern League are calling it a major victory. Now what?

The prime minister said at an emotional press conference after the vote that he would submit his resignation to Italy’s president, Sergio Mattarella, on Monday afternoon.

We can expect that the president will either accept his resignation or ask Renzi to stay, but the prime minister’s overwhelming loss, with about 60% of Italians rejecting the proposed changes, mean he is most likely leaving Palazzo Chigi. For now.

With Renzi gone – more on that later – it will fall to Mattarella to cobble together a new government. He will call in all the leading parties to see if they can reach an agreement on a new government. The major players will be Renzi, who is still the leader, for now, of the ruling Democratic party (PD); Silvio Berlusconi, representing Forza Italia; Beppe Grillo or one of his emissaries – young guns Luigi Di Maio or Alessandro Di Battista; and Matteo Salvini of the Northern League.

That’s what the Five Star Movement (M5S) and the Northern League want. They will put considerable pressure on Mattarella to dissolve parliament and set a date for a snap vote.

If they appear to be in a hurry on this front, that’s because they are, and for good reason. One of the major reforms that the Renzi government passed before Sunday’s rout was an elaborate change to the country’s electoral laws. The change was designed for the winner of the next election, which everyone thought would take place in 2018, to automatically take a majority of seats in parliament. At the time the so-called Italicum law passed, it was fiercely opposed by the M5S, which compared it to a fascist power grab.

The changes in election rules were meant to work alongside the changes to the constitution that have now been rejected by Italian voters. The PD has made it clear that it now wants to, and must, change the electoral law back to a proportional system.

Not surprisingly, the M5S sees a big opportunity for the party to win if elections are held right now, under the new electoral laws, and before they are changed back to a proportional system. Mattarella will have the final say.

Stay tuned. Most analysts do not think it is a real possibility, but there are a lot of moving parts at the moment. If the main centrist and traditional political parties – the PD and Forza Italia – can stay aligned, because both have an interest in changing the electoral law back to the way it was, they can likely stave off calls for a snap election.

Some names have been floating around for weeks, given that Renzi was behind in the polls for a while and Sunday’s defeat was not unexpected. The leading contender at the moment seems to be Pier Carlo Padoan, who serves as finance minister.

It’s a choice that might calm investor concerns, given that Padoan has long been seen as the lead figure in dealing with the aftermath of the economic crisis and continuing problems with Italy’s banking system. Dario Franceschini, the culture minister, is another name that has been in the mix, as well as the economic development minister, Carlo Calenda, who was at the centre of a row over prosecco with Boris Johnson.

Federico Santi, an Italy analyst at Eurasia Group in London, said it was most likely that Renzi’s replacement would be a member of the PD, and one who would be deemed acceptable to critical factions within the party as well as centrist coalition partners such as Angelo Alfano, the centre-right interior minister.

But Renzi will also want to pick someone who does not necessarily harbour grand political ambitions themselves who might ultimately challenge him in the likely case that he wants to return in the future.

No one thinks Berlusconi is going to become prime minister again. But he will have an important role, potentially as a junior coalition partner in a new PD-led government. He was part of the opposition against the reform, but now that Renzi has resigned, he will be part of the coalition that want to avoid snap elections (which would likely make him totally irrelevant) and change the electoral law.

Analysts predict that a caretaker government could be in place within a few weeks and that Renzi could remain at the helm until a new government is secured with the backing of parliament and one other piece of business – passage of the 2017 budget – is completed.

But, beyond this, the future for Renzi looks dismal. After submitting his resignation, he faces a meeting of the PD on Tuesday. It is not clear whether he can hang on to his position as head of the party or whether he will be booted out.

This will be the first time the president, who was elected in 2015, has been at the centre of such a big moment for the country. He has been tight-lipped so far and is supposed to be an independent actor, making decisions in the best interests of Italy.

The Five Star Movement sees itself as the winner of this referendum and has for years said Italy ought to call a vote on the single currency, which it blames for many of the country’s economic hardships. But it is far from clear that Italians would endorse such a radical step. Santi, of the Eurasia Group, said the risk of populist Eurosceptic parties reaching power or of a euro exit remained low.

It should also be noted that even on Friday, days before the vote, Di Maio was playing down the idea of a referendum on the euro, saying it would only be a last resort.

It would be really difficult to do, and the M5S is well aware of the obstacles. Under the Italian constitution, the country is not allowed to wriggle its way out of international treaties willy-nilly.

An exit from the euro – and keep in mind no one is really seriously talking about an exit from the EU – would therefore require a constitutional amendment, which (as we have seen) can be very difficult to pass. To do it, the anti-euro forces would need to win a two-thirds majority in both houses of parliament, and would probably have to win a referendum on top of that. Even if they managed to secure all those votes, the issue could ultimately fall in the constitutional court.

The debt-laden banks, including Banca Monte dei Paschi of Siena, represent the biggest threat to Italy’s slow economic recovery. And Renzi’s loss makes it highly unlikely that the government can tackle big new reforms in which the government would essentially take some of the banks non-performing loans off their books. One of the biggest risks now, according to analyst Wolfang Piccoli, of Teneo Intelligence, is that continued low growth and worries about the banking sector will feed Eurosceptic sentiment further. Source

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