Elections or new Prime Minister: what will happen to Italy after the resignation, Renzi

On Monday evening, Prime Minister of Italy Matteo Renzi was due to meet with President Sergio Mattarella to submit his resignation. The reason for dismissal is the youngest Prime Minister in the country’s history — the failure of the referendum. Citizens did not support the proposed reform of the system of power. According to the final data of the Ministry of interior of Italy, voted against 59.1 per cent of residents, Pro — 40,9% of the population. The turnout was 65.4%.

The system resisted

The plan Renzi could become the biggest constitutional reform in 70 years of the Republican regime in Italy, pointed the experts of the London school of Economics. The Prime Minister wanted to abolish the so-called ideal bicameral system: the Senate, the upper house of the Italian Parliament, its powers, functions, principle of election and the effect duplicates the chamber of deputies (the lower house of Parliament) with the only difference that senators in Italy less than half of deputies — 315 vs 630.

Renzi has proposed to reduce the Senate to a hundred members, to bind senators to certain regions and leave them with only Advisory functions. Now the senators have the right to Express a vote of no confidence in the government and correct the bills. Adjusted the bill according to the existing regulations must again go through the approval of the lower chamber and return to the Senate. “War edits” between chambers may delay the adoption of the law indefinitely.

Renzi also proposed to clarify areas of responsibility between the government and regional authorities in economic and social policy, to change the rules for filing petitions and to eliminate the national Council for economy and labour (CNEL). CNEL was established in 1957 as the expert Council under the government, he is now called by the Italians the “graveyard of the political elephants.” According to Renzi, he turned into a completely useless structure, the abolition of which would allow the budget to save €20 million a year.

A referendum on Renzi convened after the Parliament twice not have enough votes to pass his proposals.

Front against Renzi

Since the beginning of summer the vast majority of opinion polls predicted defeat Renzi in the referendum, but the gap is almost 20% was for many unexpected. Expert of the Centre for European reform (CER) Luigi Scazzieri explains defeat Renzi fact that he actually turned the vote into a vote of confidence to his government: the Prime Minister has repeatedly stated that in case of negative outcome will retire. The government headed by Renzi in February 2014, succeeding Enrico Letta.

Bright campaign against the referendum were populist and radical right parties — primarily the “five star Movement” of Beppe Grillo and “Northern League”. However, Scazzieri recalls that against the proposals, Renzi acted not only radicals, but also “mainstream politicians”: a number of former Prime Ministers, academics, former judges of the constitutional court and even of the Democratic party, whose leader is Rienzi. “The results were a reflection of the large number of “no” in the society no specific reforms, no political elites, no stagnation, no government”, adds The Independent.

According to the Open Europe analyst Vincenzo Scarpetta, to talk about the victory of the populists and the defeat of the EU would be too categorical. The results of the referendum are a continuation of Brexit and the victory of Donald trump at the election of the President of the United States — we are talking about is opened after the resignation of the government a period of political instability ties the hands of Rome, and carries danger for Brussels.

The consequences for Italy

By law, the President of Italy is not obliged to accept the resignation of the government, although most experts, including Scarpetta of Open Europe, believe the preservation of Rienzi at the post highly unlikely.

The General Director of the Russian international Affairs Council (RIAC) Andrei Kortunov suggests that the President of Italy, if all accept the resignation, Renzi, will try as soon as possible to find potential candidacy of a new Prime Minister. The most likely successor Renzi Kortunov and Scarpetta is called Finance Minister pier Carlo Padoan. Successor Renzi can work up to parliamentary elections in 2018, however, to exclude early elections impossible.

Any new government of Italy will definitely continue the line of the current in matters of the Euro area, budgetary policy, the fight against illegal migration and the reconstruction of Italy after the recent series of earthquakes, I am sure, Scazzieri. In its composition the Cabinet will continue to consist of members of the Democratic party, probably with the involvement of the opposition center-right “Forward, Italy” Silvio Berlusconi, he said.

The advent of the “five star Movement”, Scazzieri believes it is unlikely for a number of reasons. First, the moderate parties unable to unite to prevent early elections and, therefore, to await the decline of the populist euphoria. Secondly, the popularity of “five star Movement” may suffer in the Wake of scandals in Rome and Turin, where representatives of the party head the administration (for example, in Rome the policy of the mayor for a few months paralyzed the urban economy).

The voice of Italy weakened

Regret losing Renzi was expressed by French President Francois Hollande and German Chancellor Angela Merkel. Andrey Kortunov, called the vote “a headache” for Brussels. On the one hand, it will encourage skeptics to further the fight against European bureaucracy. On the other hand, the failure of the project, Renzi on the creation of Italy’s second center of power in the EU will exacerbate the structural crisis of the enterprises, weakening the already troubled South of Europe.

Rienzi was a supporter of constructive and active dialogue at the highest level between Russia and Italy, with dialogue not a Protocol, and informative, commented on the resignation of Mr Renzi, the press Secretary of the President of Russia Dmitry Peskov. Since February 2014, when Renzi became Prime Minister, he have met six times with President Vladimir Putin. Renzi opposed the automatic extension of sanctions against Russia and for expansion of economic ties with Russia. “Our position is that indeed the construction of bridges, not of walls has a strategic importance”, — he said at the St. Petersburg international economic forum (quoted by the Kremlin website).

Any Italian Prime Minister or acting because of objective conditions will not be a enthusiast of the sanctions regime and Italy’s position will continue, says Kortunov. However, the change of government would weaken the Italian position in the EU, the ability to influence the decisions of Brussels will be reduced somewhat, he said.

False alarm for the Euro

The market reaction to the defeat proved weaker than expected. In the morning session on 5 December, the Euro temporarily fell to a 20-month low against the dollar, but then played the position. “The results of the referendum were predictable, so no one wanted to play too actively against the Euro. On the currency markets will monitor the situation on the bond market and stocks, as well as the actions of rating agencies,” he told Reuters of the macro-strategist at Societe Generale Keith Jacques. “The vote has seriously raised the risks of a crisis, comparable to what was in 2011. But even these massive upheavals will not be a serious burden for the Euro”, — said the Agency chief currency strategist at Commerzbank Ulrich Lehmann. Statements about the stability of the Italian economy after the announcement of the results of the referendum were made by the relevant Commissioner, Pierre Moscovici.

According to Reuters, traders do not have notice of intervention by the European Central Bank in the debt market. Informed sources at the ECB told the news Agency that the Bank is prepared to temporarily increase the ransom of the Italian debt bonds, if investors arrange their sale. The cost of servicing Italian government bonds with a maturity of ten years immediately after the opening of the European markets increased by 13 b.p. however, then came down again. By 11:55 GMT bond yields hovered around 2%.

As noted by Deutsche Bank, the results of the referendum and the resignation, Renzi is not the most negative scenario for the Euro. In the event the consent of the Italians with constitutional changes that would give more power to the lower house of Parliament, and winning the “five star Movement”, the chances of exit from the Eurozone countries increased significantly.

Political instability in Italy directly threatens the stability of the banking system of the country. According to various estimates, Italian banks gained up to €360 billion in bad debts. The third largest credit institution of the Italian Monte dei Paschi required recapitalization of €5 billion, which in current circumstances may not take place. The largest Italian Bank UniCredit on 13 December to announce the plan of recapitalization of €13 billion. Analysts believe that he will be able to do it, however, a number of smaller banks may face difficulties in raising funds.