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Opinion: a referendum puts Italy's government to the test

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News video: Opinion: a referendum puts Italy's government to the test

Forecast If Italian voters reject a raft of proposed constitutional reforms on December 4, the government will likely resign.

Should that happen, Parliament could avoid triggering early elections by appointing a caretaker government instead.

The prospect of a victory by political parties that are critical of the eurozone will continue to create uncertainty in Italy and the rest of the currency area.

Analysis At a time when Europe is still processing the results of the Brexit referendum and the US election, Italy has become yet another source of uncertainty for the Continent.

On December 4, the country will hold a referendum on several constitutional reforms.

The goal of the proposals, introduced in 2015 by Prime Minister Matteo Renzi’s government, is to ensure that future Italian governments are made more stable by reducing the powers and size of the Senate, granting the Chamber of Deputies more authority, and transferring prerogatives from regional administrations to the central government in Rome.

The idea behind those changes is to sever the link between political instability and financial fragility in Italy.

Ironically, though, the reforms meant to reduce uncertainty in the country are raising questions about its future.

Renzi has promised to step down if the Italian people vote against the reforms.

This has allowed opposition parties — and even some members of Renzi’s centre-left Democratic Party — to cast the referendum as a chance to force the prime minister’s resignation.

Several parties, including the anti-establishment Five Star Movement and the anti-immigration Northern League, have been campaigning against the reforms as a means of getting rid of Renzi.

And in the eyes of many voters, the plebiscite is no longer a referendum on constitutional reforms, but on the prime minister’s government.

Most opinion polls show that Renzi is likely to lose the vote.

But lately, polls have been unreliable bellwethers of election results, and many factors will influence the vote’s outcome.

For one, the polls show that more than a quarter of Italian voters have not made up their minds.

For another, some polls suggest that opposition to the reforms is particularly strong in southern Italy, where voter turnout is generally weak (there is no electoral threshold needed to make the referendum valid).

Finally, polls show that a significant number of Italians do not feel well-informed about the reforms, a factor that could also affect their decisions and overall turnout.

Should the reforms be rejected, Renzi’s political power would be greatly weakened, and he would probably resign.

The fall of his government would hurt investor confidence in the Italian economy, potentially leading to higher interest rates on the Italian government’s debt.

Italy’s fragile banking sector could also face a more challenging environment and move closer to needing help from the state.

Mistrust in the Italian economy may depress the value of the eur.

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