The fear among many analysts is that the resignation of Italian Prime Minister Matteo Renzi might lead to instability that would spread to other key nations of the EU, including both France and Germany.

Italian outgoing Prime Minister Matteo Renzi waits for new Premier Paolo Gentiloni prior to the handover ceremony at Chigi Palace Premier's office, in Rome. Photo: AP

Italian Prime Minister Matteo Renzi decided to resign on Dec. 4 after it became clear that Italians had soundly rejected his referendum on constitutional reform by a vote of 59 to 41 percent.

The referendum that Renzi had called on this delicate issue ended up polarizing Italian society. The changes to the constitution were opposed by all the main opposition parties, including the Movement Five Stars (M5S), the Northern League, former Prime Minister Berlusconi’s foes (not aligned with Renzi) and by a sizeable minority in the Prime Minister’s own part, Partito Democratico (PD).

The reform, which suggested the indirect election of senators, the drastic redesigning of their powers, the centralization of some regional prerogatives, and the suppression of the National Council for Economics and Labor, was mainly intended to accelerate and smooth the legislative process. The reform was also intended to give Italy stable governance as the country has had 63 executives and 27 prime ministers since it emerged from fascist rule and became a republic in 1946 after the results of a popular referendum.

Renzi, however, “personalized” the referendum, transforming it into a sort of political legitimization of his conduct. After all, Renzi replaced, without being elected, Prime Minister Enrico Letta after the coalition backing him felt apart in November 2013 with the withdrawal of Forza Italia.

Although many voted to avoid the adoption of a constitutional reform they disliked, the result of the referendum signals Italian citizens’ growing dissatisfaction with Renzi and his center-left government. The “No” vote prevailed in the troubled Southern regions and among the so-called millennials, heavily hit by unemployment. 

The country’s economic picture is still gloomy: GDP per capita is stuck at the level of the 1990s, despite a reform of labor laws recently introduced, unemployment is around 11.7 percent (hitting a level of 37 percent among young workers), while the state records the second-highest debt load in the EU at 133 percent of GDP.

Italian banks are jammed with non-performing loans, with the risk of sparking a crisis in the Eurozone. That eventuality is worrying some of the EU member states and, in particular, Germany. It is clear that political instability is a dangerous option for both Italy and the EU.

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The President of the Republic, Sergio Mattarella, a notably risk-averse politician, decided to appoint a new President of the Council of Ministers, opening the possibility for a caretaker government to install with a limited mandate to establish a new electoral law covering both houses of parliament.

The dissolution of the Parliament, an option for the President, would have been, however, very hazardous due to the absence of a consistent electoral law for both the Chamber of Deputies and the Senate. The first one would be elected with a mixed proportional and majority law assuring the party that wins the relative majority of the vote gain extra seats to make smoother the formation of a new government that would therefore rely on a stable majority.

The Senate would be instead elected with a proportional law that does not reward a party with a relative majority, making it difficult for any government to gain a strong majority. This mix of electoral law ends up favoring political instability, which is recognized as a strong weakness of the Italian polity and something that the reformed Constitution was exactly meant to overcome.

President Mattarella, after rapid consultation, decided to appoint Paolo Gentiloni, former Minister of Foreign Affairs, as new prime minister. The new prime minister has won the support of both chambers of parliament. Most of the Renzi-headed government ministries were reconfirmed so that the opposition describes the new executive as Renzi’s “photocopy.”

Gentiloni’s decision to keep almost all of Renzi’s key cabinet members and political allies in the government, including the former Minister of Constitutional Reforms, Maria Elena Boschi, the author of the failed constitutional reform, has made the opposition very suspicious that the government is still being controlled by Renzi. The former prime minister is certainly a powerful stakeholder of the new cabinet. Nevertheless, Gentiloni could succeed in gaining a certain amount of autonomy.

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The mandate of the new government is limited but burdensome: it should find a solution for some of the Italian banks (recapitalization plans for two major banks – Monte dei Paschi di Siena and UniCredit – are on hold as potential foreign investors were waiting for the referendum outcome before committing their money) and approve a new electoral law and design the budget law for 2018.

A failure in the recapitalization of Monte dei Paschi di Siena would put at risk the financial stability of the Eurozone. Italy’s instability might easily infect other EU’s member states during a delicate period when important countries are about to hold elections, such as France and Germany. This is why what happens in Italy interests so much of the EU as well.

The referendum was, however, a purely domestic affair, not questioning at all the membership of the country in the EU. What is viewed as worrisome for many is that future political elections might be won by M5S, which is calling for a national referendum on whether to keep the euro. In June 2016 administrative elections, M5S swept to power in both Rome and Turin.

It is, however, worth underlying that Italians, while being critical of the EU’s austerity economic policies, are not willing to leave the EU, which is still perceived as a great opportunity for the country. So far, it seems that Italy’s foreign policy will stick to the previous government’ orientations until at least the new elections. The newly appointed Foreign Minister, Angelino Alfano, was previously Minister of Interior and he will probably focus on the illegal immigrants problem, while not altering the basics of the Italian foreign policy line.

Implications for Russia

As for the relations with Russia, no major changes are expected either. Italy has historically very good relations with Russia no matter which government was in power. The Italian press, however, has underlined in recent days that the Kremlin regrets Renzi has left power, as it considered him a reliable and very pragmatic leader able to find concrete solutions.

Notably, Renzi has refused to support a new round of sanctions against Russia for its alleged bombing of civilians in Syria’s besieged city of Aleppo. Some EU countries had proposed such sanctions during the October European Council meeting.

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Furthermore, Renzi has tried to convince the other EU partners to remove sanctions imposed on Russia for its annexation of Crimea. Nevertheless, this nostalgia for the Renzi-headed government comes a bit as a surprise because there were rumors about the Kremlin viewing positively the win of the “No” vote in the referendum. This would be another setback for the EU, following shortly after Brexit.

The Northern League and M5S have also pledged the removal of sanctions against Russia because they damage small and medium entrepreneurs who tend to vote for those two parties. It seems, however, that Russia would have preferred Renzi remain in power rather than dealing with unknown and inexperienced leaders, such as those coming from Northern League and M5S. Anyway, so far it seems that elections won’t be held at least until spring. So nothing will be really different for Russia until then.

The opinion of the author may not necessarily reflect the position of Russia Direct or its staff.