IT WAS, said a hoarse, red-eyed Matteo Renzi, an “extraordinarily clear” result. His plan to reform Italy’s constitution was not rejected on December 4th by a margin of five or even ten percentage points, as the polls had suggested: the gap between No and Yes was a mortifying 20 points in Italy proper.
Official figures showed the rejectionist front winning by 60% to 40% in metropolitan Italy (and by 59% to 41% counting ballots cast by Italians abroad). And that was with a high turnout, which Mr Renzi’s advisers had believed would favour his cause. The humiliation came at the end of a 66-day campaign into which Mr Renzi threw himself with frenetic energy. He had little choice but to resign in the face of such an unexpectedly decisive outcome.
Mr Renzi had argued that that the reform was essential to make Italy more governable, and so more amenable to structural reforms. Anti-EU populists spearheaded the No campaign, though they were joined by establishment figures such as Mario Monti, a former prime minister, worried about the accretion of executive power sought by Mr Renzi through the combination of the constitutional reform (which would have emasculated the powerful Senate) with a lop-sided electoral law (which engineers a guaranteed majority for the largest party, even one with a small plurality, in the Chamber of Deputies, the lower house).
Much of what was written before the referendum has been rendered irrelevant by the size of Mr Renzi’s defeat. The resulting political instability may be containable in the short term. The financial consequences, particularly the alarm over Italy’s weak banks, and the knock-on effect they may have on the stability of the euro zone, may be more difficult to control. On foreign exchange markets, the euro fell 1.5% to a 20-month low of $1.0503 before recovering slightly. Shares in Italian banks fell at the opening of trading on Monday, but most quickly recovered the lost ground.
Mr Renzi was due to call on Italy’s president, Sergio Mattarella, on December 5th formally to tender his resignation. He will stay on pending the formation of a new government. Mr Mattarella, whose job is to minimise political uncertainty, had hoped that, in the event of a defeat, the prime minister himself might have been persuaded to form a fresh government with a limited mandate: to reform Italy’s electoral law and hold new elections. As matters stands, there is one law for the lower house, the Chamber of Deputies, and another for the Senate.
But after recognising his defeat, Mr Renzi reportedly dismissed that idea in an after-midnight telephone conversation with the president. Instead, Mr Mattarella is expected to speak with representatives of Italy’s political parties to float the idea of a caretaker government. This might be headed either by a member of the outgoing cabinet, such as the finance minister, Pier Carlo Padoan, or the arts and heritage minister, Dario Franceschini, or some widely respected institutional figure. The name most often voiced is that of Piero Grasso, a former anti-mafia prosecutor and speaker of the Senate. But nowadays, terms such as “widely respected” and “institutional” have a different ring than they did before the Brexit vote and Donald Trump’s victory in America.
“Democracy has won,” declared Beppe Grillo, the comedian who leads Italy’s second-biggest party, the maverick Five Star Movement (M5S). He called for an immediate general election under the current rules, which are likely greatly to benefit his party. Matteo Salvini, the leader of the right-wing populist Northern League, did the same. They have a persuasive case. Polls showed that an overwhelming majority regarded the referendum as a chance to render a verdict on the Renzi government’s performance and, in particular, its economic record.
Much will depend on the reaction of the third of Italy’s opposition leaders, its disgraced former prime minister, Silvio Berlusconi. He will be uneasily aware that his Forza Italia party is much weaker than in 2013, when the last election was held.
Many observers had expected a No vote, if a narrower one, and markets have already priced in some of the risk. But the defeat worsens the problems of Italy’s banking system, and particularly of its shakiest bank, Monte dei Paschi di Siena (MPS), the country’s third-largest. The government has solicited institutional investors to recapitalise MPS, but many had made investment conditional on a Yes vote. Some will see the result as proof that Italy is incapable of reform, and may pull back.
Italy could soon face an agonising choice between three options. One would be to nationalise MPS. The second would be to rescue it under new European Union rules that would heap losses on to investors, among them retail investors who hold most of MPS’s subordinated debt. Or, faced with the prospect of having to impoverish these voters, the government might simply decide to break the rules, whatever the cost to the credibility of the single currency and its nascent banking union.
