Italy’s Referendum Could Spell Disaster for the EU

David Cameron was certain the Brexit referendum would result in a ‘stay’ vote. In fact, he was so sure that he vowed to quit if the vote went the other way.

The Brexit referendum took place on June 23. It asked Brits to vote to stay or leave the EU. As I’m sure you are aware, the ‘leave’ vote won.

True to his word, Cameron announced his resignation the next day. He had gambled big, and lost spectacularly. The results of the referendum sent shocks around the world.

You’ve probably heard the saying ‘history repeats itself’. Well, we may see Cameron’s story repeat itself…and sooner than expected.

Italian Prime Minister Matteo Renzi wants to hold his own referendum. Like Cameron, he has promised to resign if the vote doesn’t go his way.

But there is a small difference. You see, Italy’s referendum will not decide whether Italy should leave the EU. It will decide whether Italy should limit the powers of the upper house senate.

Renzi wants to abolish the upper house senate as an elected chamber, and restrict its ability to veto legislation. If the vote goes through, the senate will no longer be able to pass votes of confidence on the government.

In the current system, both houses have the same power. Renzi’s argument is that this equal power is the reason why Italy has had 64 governments in the last 70 years. Yes, that’s not a typo! 64 governments since the Second World War.

The average government in Italy lasts a little over a year. The only government to serve its full term was Silvio Berlusconi’s, between 2001 and 2006.

Renzi wants to change this by taking away some of the senate’s power.

The fact is that Italian politics are unstable. Italy is a divided place, which makes it hard to form a government and pass bills. And it has become even more divided in the last few years. During the 2013 election, many new movements and parties formed. There was a total of 169 parties to choose from.

But opponents to the referendum argue that limiting the power of the senate would strip away the checks and balances in the current system, and would give the prime minister — Renzi — too much power.

All the main opposing parties are getting ready to vote ‘no’ to Renzi’s referendum.

And if Renzi quits, the Movimento 5 Stelle (Five Star Movement) may get a boost. The movement was founded in 2010 by comedian and blogger Beppe Grillo. In 2013, the movement ran for office and won 25% of the Chamber of Deputies, making it the largest party in the chamber.

During his career as a comedian, Grillo’s jokes offended so many politicians that he was banned from TV. Now those politicians have no choice but to listen to him.

And can you guess what Beppe Grillo wants to do? He wants to have a referendum on whether Italy should stay or leave the EU.

The fact is, Italy is not doing well economically.

It has been affected by a nationwide banking crisis and Europe’s refugee crisis. Its debt to GDP has climbed to a whopping 131.8%, the second largest in the EU after Greece. Unemployment is at 12.4%, and youth unemployment is at a whopping 39.2%.

Polls on the referendum earlier this year were in Renzi’s favour. But the latest September poll saw the ‘no’ vote win by a close 51%. Just like the Brexit, the vote is too close to call.

Italy’s future is riding on this referendum. And if Renzi loses, it will be difficult for him to stay as prime minister.


Selva Freigedo,
For Markets and Money

Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.

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