C&B Notes

Italy Decides

Italy remains a potentially fatal threat to the eurozone’s survival thanks to the sheer size and scope of the country and its problems – poor GDP growth, soft labor markets, too much sovereign debt, zombie-ish banks, etc. Italians will be going to the polls on Sunday to decide a historical referendum on constitutional reforms that could materially change the country’s post-WWII form of government, removing a series of checks-and-balances in the process.  The stakes are even higher because the sponsor of the proposed changes, Prime Minister Matteo Renzi, has promised to resign if they are defeated.

That is why so much hope has rested with Matteo Renzi, the young prime minister. He thinks Italy’s biggest underlying problem is institutional paralysis, and has called a referendum for December 4th on constitutional changes that would take back powers from the regions and make the Senate subordinate to parliament’s lower house, the Chamber of Deputies.  This, together with a new electoral law that seeks to guarantee the biggest party a majority, will give him the power to pass the reforms Italy desperately needs, or so he claims.  If the referendum fails, Mr. Renzi says he will step down. Investors, and many European governments, fear a No vote will turn Italy into the “third domino” in a toppling international order, after Brexit and the election of Donald Trump.

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The peculiar Italian system of “perfect bicameralism”, in which both houses of parliament have the exact same powers, is a recipe for gridlock.  Laws can bounce back and forth between the two for decades.  The reforms would shrink the Senate, and reduce it to an advisory role on most laws, like upper houses in Germany, Spain and Britain.  In itself, that sounds sensible.  However, the details of Mr. Renzi’s design offend against democratic principles.  To begin with, the Senate would not be elected.  Instead, most of its members would be picked from regional lawmakers and mayors by regional assemblies.  Regions and municipalities are the most corrupt layers of government, and senators would enjoy immunity from prosecution.  That could make the Senate a magnet for Italy’s seediest politicians.  At the same time, Mr. Renzi has passed an electoral law for the Chamber that gives immense power to whichever party wins a plurality in the lower house.  Using various electoral gimmicks, it guarantees that the largest party will command 54% of the seats.  The next prime minister would therefore have an almost guaranteed mandate for five years.

That might make sense, except for the fact that the struggle to pass laws is not Italy’s biggest problem.  Important measures, such as the electoral reform, for example, can be voted through today.  Indeed, Italy’s legislature passes laws as much as those of other European countries do.  If executive power were the answer, France would be thriving: it has a powerful presidential system, yet it, like Italy, is perennially resistant to reform.

The risk of Mr. Renzi’s scheme is that the main beneficiary will be Beppe Grillo, a former comedian and leader of the Five Star Movement (M5S), a discombobulated coalition that calls for a referendum on leaving the euro.  It is running just a few points behind Mr. Renzi’s Democrats in the polls and recently won control of Rome and Turin. The spectre of Mr. Grillo as prime minister, elected by a minority and cemented into office by Mr. Renzi’s reforms, is one many Italians — and much of Europe — will find troubling.

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