Inside Renzi’s Referendum: What’s at Stake In Italy?

Matteo Renzi press conference, Rome
Matteo Renzi (pictured), the current centre-left Prime Minister of Italy, has gambled his political viability on a landmark referendum designed to reform and streamline the country’s political process.

On 4 December 2016, Italian voters will be asked the following question:

Do you approve a constitutional law that concerns abolishing the bicameral system (of parliament), reducing the number of MPs, containing the operating costs of public institutions, abolishing the National Council on Economy and Labor (CNEL), and amending Title V of the Constitution, Part II?

While this question seems rather technical and perhaps a bit insignificant, the political ramifications are drastic. Matteo Renzi, the centre-left Prime Minister of Italy, has stated that the referendum is so important that he would resign if the voters did not answer “yes”. That pledge has led many to in the country to view the question as a referendum on Renzi’s governance. At this moment, the polls signify a toss-up, with both “Yes” and “No” garnering 50% of the projected vote.

The referendum aims to bring stability to a rather tumultuous democracy that has had 63 premierships in the last seven decades. Both the Chamber of Deputies and the Senate, the two houses in Italy’s bicameral legislature, have an equal amount of power in government. This often to leads to a deleterious amount of gridlock, as both chambers must approve each bill in an identical form.

The proposed referendum would reduce the number of Senate members from 315 to 100 and give the institution far less power than the Chamber of Deputies. It also seeks to eliminate Italy’s 110 provinces—regions that typically have overlapping duties and whose governments serve as yet another layer of bureaucracy. The National Council for Economics and Labour, a group of 64 councillors who advise the government, would also be abolished under the proposal.

These reforms would greatly streamline the Italian political process and most citizens would be foolish to oppose them ceteris paribus. They are slated to save the Italian government €500 million. With Renzi’s injudicious decision to personalise the referendum, however, many view it as a conduit to oppose the current government that has failed to deliver economic growth. The country’s national debt has reached 132.7% of GDP and the entire banking sector is facing heightened risk due to debt accumulated during anaemic economic growth.

Renzi is now even facing dissent within his own party; Ignazio Marino, the former mayor of Rome, and Gianni Cupelo, the President of the Democratic Party, are now campaigning against the referendum. In another section of the political spectrum, Beppe Grillo’s syncretic populist Five Star Movement seeks to mount a significant political victory if the referendum fails, and is has now reached parity with the Democrats in the polls.

If “the referendum is about the future of the country, not about mine,” as Renzi told Radiotelevisione italiana last Friday, then he should seek to make the referendum focus on ameliorating the pressing issues in the Italian political system, not his electoral viability.

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Tsipras, Varoufakis, and the Schäublegang: Pension Crisis Edition

Varoufakis and Schäuble met on 27 February to negotiate a bailout extension for Greece, a nation that already has 360 billion Euros in debt.
Yanis Varoufakis and Wolfgang Schäuble, the finance ministers of Greece and Germany, respectively, met on 27 February to negotiate a bailout extension for Greece, which already has 240 billion euros in debt.

Another day, another chapter in the ongoing Greek debt crisis. While Greece’s T-bill action earlier today was a success, the yield on Greek treasury securities reached an 11-month high of 2.97%, compared to 2.75% on the last auction in February. Another issue of contention is that 262.5 million euros were non-competitive bids, mostly comprised of funds from Greek Social Security accounts.

Concerns over a Greek exit from the Eurozone (so-called “Grexit”) peaked in late February during the Troika-Greek debt negotiation showdown. Yanis Varoufakis, the finance minister of Greece, eventually struck a deal with the Eurogroup. Many in the Bundestag were hesitant to pass the bailout extension, while many in Greece were angry at the SYRIZA Party for reneging on pre-election promises. Despite the opposition in Germany to the extension, German finance minister Wolfgang Schäuble pleaded that “we Germans should do everything possible to keep Europe together as much as we can.” Greece’s exit for the euro could cause major problems for other Eurozone members by undermining the credibility of the euro.

In the past month, many issues have rose from changes in bailout programs between the Troika and Greek government. Since 2010, the European Central Bank has accepted Greek junk bonds and related securities as collateral from banks to assist refinancing operations as long as the Greek government continues fiscal reform and austerity measures. This program ended on 4 February 2015, causing disarray and worry within the Greek banking system. To quell concerns, the ECB extended to scope of its Emergency Liquidity Assistance program to Greek banks to 65 billion euros. The last tranche of bailout from the ECB of 7.2 billion euros requires that Greece meet new budgetary requirements before the assistance is paid out.

The current crisis in Greece originates from poor government policy over the past several decades. A stringent regulatory structure discourages business formation and investment. While this is a major problem across the Western world, it contributes massive weight to Greek economic malaise. Inefficient state-owned enterprises produce poor services whilst adding to budgetary deficits. Conflicting laws in the country’s legal system discourages business production through ill-conceived prosecutions. High taxes on the wealthy have encouraged capital flight and tax evasion, reducing Greek tax receipts.

In order to expiate the debt crisis situation, Greece needs to adopt a hands-off approach to economic management through privatization, deregulation, and a streamlined tax and legal system. Tsipras and Parliament cannot pay off the 240 billion euros in government debt through tax hikes or penalties. The Greek economy needs a period of economic prosperity in order to extend Treasury reserves. While this goal seems impossible at the moment, many nations, such as Vietnam and India, have utilized successful economic reform to their advantage.