Italy facing crucial referendum

Capital flight from Italy is a worrying indicator of the mood among investors, US economist Carmen Reinhart comments in Jornal de Negócios:

“The problem of bank insolvency, endemic in Greece, where nonperforming loans account for more than one-third of bank assets, is not as generalized in Italy. ... For all the talk of a looming banking crisis, the balance-of-payments crisis already underway in Italy since the first half of 2016 is the main factor driving the real-time poll of investors. Prior to the adoption of the euro, an unsustainable balance-of-payments position in Italy (as in other countries with their own currencies) would typically spur the central bank to raise interest rates, thereby making domestic financial assets more attractive to investors and stemming capital flight. With the European Central Bank setting monetary policy for the eurozone as a whole, this is no longer an option for Banca d’Italia.”

If Italian Prime Minister Renzi's constitutional reform fails, it can be put down to his arrogance, Italian sociologist Salvatore Palidda writes in his blog with Mediapart:

“If you look back on the history of this reform it seems clear that it can only be explained by Renzi's pride (similar to that of former British Prime Minister Cameron). ... However, Renzi's popularity has plummeted primarily because he has neither stopped the country's economic decline - over 40 percent of young Italians are out of work, rising to 60 percent in the south - nor the rampant corruption. ... The No front in the referendum is certainly an embarrassment. But Renzi created this new monster himself.”

According to the Financial Times a victory for the No vote in the referendum would leave eight Italian banks facing collapse. The conservative daily Il Giornale accuses the paper of election propaganda:

“Just a few days ago the Financial Times, Europe's must prestigious business paper, claimed as if it were fact that if the No camp wins Italy will end up leaving the EU. On Tuesday it upped the stakes saying that eight Italian banks may fail if the Yes vote doesn't win out. The Financial Times is behaving more like an election campaign aid than a platform for serious debate. … Since there is no scientific evidence whatsoever that Italian banks are facing collapse and since we don't believe in fortune-tellers we are more inclined to believe that an accomplice of the 'yes-to-Prime-Minister-Renzi' gang is behind these articles. A gang of irresponsible individuals who will stop at nothing to achieve their goals.”

All will not be lost if the Italians reject the constitutional referendum on the weekend, the Neue Zürcher Zeitung is convinced:

“Despite all the uncertainty that a No would entail, we must not forget that even an endorsement of the constitutional reform would hardly solve the country's economic woes. Even without the targeted easing of the legislation process the Italian parliament passes more than enough laws. ... All things considered, a Yes on December 4 would be the slightly better alternative, because it is associated with less uncertainty and thus with less risk. But it would be naive to believe that after that nothing would stand in the way of recovery. And even a No wouldn't be catastrophic. The Italians have survived 63 governments since the end of the war. They've learned to live with instability.”

Those who keep warning of the consequences of Sunday's referendum should stop exaggerating, Corriere del Ticino comments:

“Too much meaning is being read into the referendum. … What exactly have the Italians been called to vote on? A constitutional reform that affects a number of paragraphs but basically hinges on three key points: a) a reform of the Senate; b) a redistribution of powers between the state and the regions; c) a revision of the rules for referendums. And that's it. Why Italy's future is supposed to depend on this mini-reform that is poorly conceived and even more poorly formulated remains a mystery. … December 4 cannot be compared with Brexit or the US presidential election, either on paper or in terms of its factual impact. If it does happen to have the same kind of political repercussions, we need to start thinking seriously about how solid the country's entire political system is.”

According to the latest polls a narrow majority will vote against the constitutional reform, but the number of those who still haven't decided how to vote remains large. This uncertainty must not lead people to abstain from voting, Michele Ainis, an expert on constitutional law, urges in La Repubblica:

“Depending on the type of consultation the impact of abstention can vary widely. In parliamentary or local elections abstention amounts to a fundamental and radical rejection of all the parties' programmes. When it comes to an abrogative referendum abstention can signify a lack of interest in the subject of the consultation and may result in the quorum not being reached. In the case of the constitutional referendum, those who don't vote are expressing their indifference towards the constitution, the basic rules that govern our coexistence. This is not exactly a show of public engagement and it is a problem, because a constitution without a people is like a church without churchgoers. Moreover, decisions made by minorities generally tend to be bad ones.”

The Italian referendum could have extremely risky consequences for Europe, Kauppalehti fears:

“Renzi is playing a similar game of Russian roulette with the referendum as former British prime minister David Cameron played with Brexit. The problem with referendums is that the vote is often about something entirely different than the question at hand. In Italy too, the voters will use the opportunity to express their dissatisfaction with the government - rather than with the constitution. Although the Italian referendum does not pose a direct threat to the economy or political stability of the EU, it could have fatal consequences. Italy's ailing bank sector and national debt have kept the euro partners in suspense since the start of the financial crisis. If the populists take over [in fresh elections], uncertainty about Italy's ability to push through reforms and its ties with the Eurozone will only increase.”

Europe's mistakes could come back to haunt it after the Italian referendum, The Independent concurs:

“As in previous eurozone crises, the contagion from Italy could easily affect the other banks on Europe and around the world. ... Resolving the Italian banks, and Rome’s finances, is really the unfinished business of past eurozone crises, when long-term tough choices about making the single currency system function through closer fiscal and political arrangements (in effect a permanent subsidy from Germany to its southern neighbours) were ducked. The consequences of that failure of economic understanding and political courage can hardly be overstated.”

The Economist recommends voting against the constitutional reform:

“Mr Renzi’s constitutional amendment fails to deal with the main problem, which is Italy’s unwillingness to reform. And any secondary benefits are outweighed by drawbacks - above all the risk that, in seeking to halt the instability that has given Italy 65 governments since 1945, it creates an elected strongman. This in the country that produced Benito Mussolini and Silvio Berlusconi and is worryingly vulnerable to populism. … 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.”

Corriere della Sera notes approvingly that unlike most other international media outlets The Economist is not spreading an atmosphere of doom and gloom:

“The fact that the bible of the international world of finance doesn't seem all too concerned about the outcome of the Italian referendum serves not just as an indication of the economic but also the political state of affairs. It shows that beyond national borders people are starting to take an objective view of the potential consequences. … What is surprising is the critical stance toward Renzi. To say that the parliament's proposed reform violates democratic principles, that the prime minister is wasting time with useless reforms, and that a victory for the yes camp could paradoxically lead to a government led by Beppe Grillo's protest movement is a brutal assessment. … So The Economist isn't disputing the seriousness of the situation. But curiously it has arrived at the conclusion that Renzi himself has caused the concerns about the country's future - and all for the sake of a referendum that is perceived as 'wrong'.”

Italy's withdrawal from the Eurozone is a distinct possibility in Diena's view too:

“The referendum proves once more that the existing political order in the West is in urgent need of reform. One potential scenario is even new elections [in Italy]. If Movimento 5 Stelle won, a referendum on Italy's continued membership in the Eurozone and the EU would be very likely. We can only hope that this is just a passing government crisis, nothing very unusual for this country. Should that not be the case it could be that Italy's economic problems won't ever be solved. Hopefully the referendum will restore trust in the current political system. Or at least make it clear that not all decisions made by Italian politicians are futile.”

The Italians can't act as if the referendum affects only Italy and not the entire EU, writes La Stampa:

“One gets the impression that in the current debate about the consultation on December 4 the positions of the advocates and opponents [of the constitutional reform] are being discussed in an isolated and abstract manner, as if this were a purely academic exercise. The 'side effects' of the decision seem to have been forgotten. But the latter include the financial consequences. The voters must realise this - even if the alarmist Münchau is hopefully wrong about the 'yes' as well as the 'no' not being neutral as regards the continued (and hopefully accelerating) economic recovery of Italy and as regards Europe's behaviour towards us. The referendum is about voting for or against this, and once we're in the polling booth these things must be taken into account.”

A rejection of the constitutional reform would ultimately spell the end for the entire Eurozone - this is the view being spread by several media outlets. They don't want to run the risk of being accused once more of not having seen the danger coming, Avvenire comments mockingly:

“The visions of impending doom in the Wall Street Journal and Financial Times in reference to the Italian bank risk elicit polite but indispensable scepticism from our paper. … With these newspapers that never guessed at the major loss of votes for Hillary Clinton or that the British would vote for Brexit we find it more likely that their predictions are inspired by the appeals for moderation from investment funds, investor groups and other power structures than by the disinterested mission to explain and inform. … Only to be forced to concede, as was the case the day after the Brexit referendum and after Trump's election, that the markets adjust and in the end always win. The newspapers are not the Oracle of Delphi. But clearly not everyone has quite grasped that.”

If the Italians reject the constitutional reform on November 4 it could lead to the country leaving the Eurozone and ultimately the latter's collapse, warns the Financial Times:

“Italy has three opposition parties, all of which favour exiting the euro. The largest and most important is the Five Star Movement ... In democratic countries, it is common that opposition parties eventually come to power. Expect that to happen in Italy too. The referendum matters as it could accelerate the path towards euro exit. If Mr Renzi loses, he has said he would resign, leading to political chaos. Investors might conclude the game is up. On December 5, Europe could wake up to an immediate threat of disintegration.”

Expresso also senses an impending crisis:

“Renzi has announced that he will resign if the constitutional reform is rejected. His threat hasn't helped the polls but it's music in the ears of populists, starting with the clown [and head of the Movimento Cinque Stelle] Beppe Grillo, who dreams of seeing Rome burn by decree. ... The next crisis of Western democracy will follow in just under two weeks: strangely, Austria will vote on the same day - and choose either a Green or a right-wing populist as its president. ... December 4 is clearly a dress rehearsal for the election year that will follow in all of Europe. ... The markets can make Trump more moderate, the world can act as if nothing had happened, the Italians can live without a government and the Austrians can wave a right-wing populist into office. But the sum of all these factors will cement the state we find ourselves in: the barbarians have broken through the gates and are already making merry.”