The Impact of Italy's Constitutional Referendum

On December 4, Italian Prime Minister Matteo Renzi mandated a referendum for a major constitutional reform. The goal was remove certain powers from the Senate—the upper house of the national legislature—so as to establish sole approval power in the lower house and expedite the legislative process. A powerful movement against the referendum was led by populist coalition Five Star Movement, reflective of a global trend of increased populism in national governments over the world. The results mirrored this: 60% of referendum voters chose to reject the measure, causing Renzi to meet with Italian President Sergio Mattarella the following day and offer his resignation. However, the referendum results have not just shaken Renzi's political career; Italy's entire future now lays in the balance, with several potential crises at hand.  Questions have risen over probable political changes, the future of Italy's place in the European Union, and the effects on the banking system.

Renzi's resignation will become effective by the end of the week, making this Italy's sixth PM switch since 2006. With this victory in their pocket, anti-establishment and populist parties could continue to rise in popularity, causing further overhauls in the political system. Some worry this could easily lead to an EU referendum in future years, similar to the one that resulted in Brexit. Political figures consider this outcome unlikely, although there is a wide consensus on the growth of opposition parties and ideologies. A split from the EU could be especially problematic considering Italy is the third largest country in the Eurozone. The euro has remained stagnant ever since Italy joined the zone in 1999, but the currency, already volatile in foreign markets, could suffer a huge shakeup should Italy withdraw.

Not to mention that Italy is suffering enough problems as it is with their debt—the country has one of the worst debt-to-GDP ratios on a global scale. Plus, their banking system is much too feeble to effectively fix the problem. Many worry that Italy's central bank may fail to catch up with the debt, ending up in a desperate situation where it either sinks or needs to be bailed out. With the referendum struck down, proposed legislation to regulate the central bank could suffer just as well. This problem can spread to Italy's other big banks, many of which are already agonizing over heaps of bad loans and securities. The sheer amounts of unpaid debt prevent banks from additional lending, negating a practice that could help boost the national economy.

The results of the Italian referendum may potentially affect Italy for years to come. The world will closely watch Italy as it decides both its economic fate and its place in the international sphere.