Italy referendum: the next stop on the runaway populist train?

Darren Loucaides reports on Italy’s referendum on constitutional reform and its consequences for the country, Europe and populism.

Beppe Grillo, leader of the Five Star Movement (M5S), addresses a crowd. The M5S is presently tied with centre-left PD leading the electoral polls . © Giovanni Favia

First there was Brexit. Then came Trump. Now it's Italy's turn to reckon with the advance of populism in the west.

On Sunday 4 December, Italians will vote in a referendum on constitutional reform that threatens to have serious consequences for both the country and the European Union. If it goes against Prime Minister Matteo Renzi, whose governing centre-left Democratic Party (PD) back a ‘yes’ vote, it could make the government fall. And according to Forbes , it might even end up in an exit from the Euro, or from the EU – already dubbed ‘ItaLeave’.

Donald Trump's victory in the US Presidential Election last month only increased pressure on Renzi, who was one of the few world leaders to publicly endorse Hillary Clinton before the election. Francesco Boccia from the Silvio Berlusconi-led centre-right party Forza Italia said Renzi was ‘politically finished’ after Trump won.

As for Beppe Grillo, the former comedian and founder of the Five Star Movement (M5S) greeted Trump's victory as the ‘burning down of an era’ and likened Trumpism to his own populist movement, which counts vaffanculo (‘fuck off’) as one of its slogans.

Renzi's departure in the wake of a ‘no’ vote on 5 December would leave the door open to Grillo's anti-establishment movement, which is tied with PD leading national opinion polls. Alongside a wide variety of proposals such as a universal basic income, M5S are proponents of a referendum on leaving the euro.

On the surface, the proposed reform of parliament's upper house, which would reduce the size of the senate by two thirds and make it largely appointed, would seem unlikely to harness populist anger. The present bicameral parliament means that both houses are equal in size and power, while supporters of the reform claim that a slimmer upper house would streamline Italy's legislative process.

Parliament approved the reforms earlier this year. All that remained was for the public to rubber stamp the change to the constitution.

But over the last month, the ‘no’ vote has moved decisively ahead in opinion polls. ‘Renzi completely misjudged how important this vote would be,’ says Gianluca Sgueo, a policy analyst in the EU parliament and professor in media, activism and democracy at New York University in Florence. ’The economic news is bad and the mood in Italy is that we are not getting out of the crisis. It's food for populism.’ Many voters remain undecided.

From the outset Matteo Renzi said that he would not only resign, but leave politics if he lost the referendum. By making the referendum all about him, Renzi armed his opponents in arguing that voting ‘no’ was a way of getting rid of the Prime Minister and government. Renzi has tried to row back, avoiding the question of whether he would actually resign.

Given that Grillo’s M5S want to transform the ‘old political system’, why do they oppose a major reform of parliament? Francesco Berti, an activist for M5S, who like other supporters has used the movement's online ‘direct democracy’ platform to amend law proposals, says that the reform will ‘reduce democratic space’. Berti argues that the reforms will remove two ballots from Italian citizens: both the vote for senators, who would be appointed, and regional assemblies.

But also, notably, Grillo and his party see the referendum as an opportunity to deal a deathblow to Renzi's government. And they are pulling no punches.

‘I haven't seen any concrete arguments against the reform from Five Star Movement,’ says Sgueo. ‘They are not helping people to understand it.’ In the past, Sgueo has helped a Five Star Movement MEP draft a law proposal on transparency in lobbying and knows the movement well. However, he believes M5S are happy for the referendum to be seen as a plebiscite on the Renzi government.

More informed critics of the reform warn of the dangers of rolling back the historic checks and balances put in place after the Second World War, which is is why parliament's two houses have equal power. Currently, Italian governments can use decreto-legge, or decree-law, to force through legislation. What worries Sgueo and others is that there is nothing in the new reform to limit the use of such decrees. This combined with a weaker senate might be handing too much power to the executive.

So what happens if, as the polls suggest, Italians vote ‘no’ on Sunday? One scenario has it that Renzi will offer his resignation to the President, but could be reappointed as Prime Minister and be tasked with forming a new government until the next scheduled national election, which is due in 2018.

Some of the deputies who once supported Renzi's government in parliament support ‘no’ in the referendum, so some reshuffling would be necessary, but Renzi would still have a majority in parliament.

However, if Renzi loses big, the president may be forced to call early elections. In this scenario, a government led by Five Star Movement would become a real possibility. ‘If we vote in the next six months, there's a good chance they'll be the biggest party in Italy,’ says Sgueo. He adds that M5S know this very well, which is why they are pushing so hard over the referendum.

The political uncertainty partly explains why the markets are so jittery over Italy, with banking stocks down 20 per cent since June. The bad shape of the banking sector is epitomized by Banca Monte dei Paschi di Siena, the world's oldest bank and Italy's third biggest: with a €5 billion bailout needed by the end of the year, the bank's plight would only become more complicated if market turmoil follows a ‘no’ vote on Sunday.

In contrast to Renzi, whose reforms and approach are liked by the markets, M5S has pledged to wage war against the establishment – the bankers, traditional politicians and Italian elites – if it takes charge. And if they do hold a referendum on the euro, and Italians vote to ditch the single currency, it would be the biggest threat yet to the eurozone and the EU as a whole.

With much at stake, the once pro-EU Renzi has changed track in the last two weeks, arguing that a ‘yes’ vote will empower him to stand up for Italy against Brussels. Renzi recently attacked EU fiscal policy, incurring the wrath of EU executive president Jean-Claude Juncker, and in the past has often blamed the EU for not doing enough to help Italy with the number of refugees and migrants arriving on its shores every day, an emotive issue for Italians.

Meanwhile, in Renzi's weekly live chat 'Matteo Risponde' – in which the Prime Minister takes questions from ordinary citizens – the EU flag that usually hangs behind him alongside the Italian flag was notably absent prompting the hashtag #whereistheflag to trend on Twitter.

Whether attacking the EU will be enough for Renzi to win against the odds in Sunday's referendum remains to be seen. But even if he does win, big structural problems with Italy's economic and financial systems will remain – and the challenge of M5S is unlikely to diminish.