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Will Italy be the Next EU Member-Nation to Exit? Will Italy be the Next EU Member-Nation to Exit?
by Dr. Emanuel Paparella
2016-09-12 10:10:57
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Distracted and entertained as we are from the latest  circus-show by Donald Trump on behalf of the US presidential election, we may have lost sight of another reality-show being prepared in Italy and whose protagonists, when staged, will be Matteo Renzi, the country’s PM, and Beppe Grillo the founder of the Five Stars populist party. The stage is in fact almost set for an upcoming referendum in October this fall. It may well have a major impact on the EU’s and the global economy. The European Monetary Union does not work very well, if at all, without Italy. A “no” vote would be the death knell of the euro.

Italy is the wider eurozone in microcosm. In the EU as a whole, progress towards creating the political and economic institutions that could ensure the success of the single currency project have been comprehensively obstructed by narrow — but deeply entrenched — national interests. There is little appetite for economic solidarity or even for mere federalism. This failure to advance, and the economic hardships and sense of disempowerment that have resulted, has fueled the rise of populist xenophobic political parties from Greece to Finland — parties that are challenging an increasingly distrusted political elite and questioning not just the status quo, but the whole European project. All this is not too dissimilar from what is going on the US among the discounted labor class who have been back-tracking economically for the last thirty years or so, while the rich have tripled and quadrupled their wealth.

Here is a brief summation of the events in Italy, as they unfold: the current Prime Minister, Matteo Renzi, has basically bet his career on this referendum, which would allow him to enact much-needed reforms. If the “no” vote wins, Renzi has promised to resign. This would throw Italy into a political crisis. Then there would be a real potential to elect parties that would call for a vote on whether to stay in the European Union. What Italians will decide at that point, remains to be seen.

The fact is that Renzi, has pursued structural reform more energetically than any of his predecessors. Now, in a bid to secure a popular mandate for his restructuring program, Renzi has bet his premiership on a referendum over badly-needed constitutional reforms. It may back-fire, but that too remains to be seen.

If Renzi wins the vote, his proposed measures will streamline Italy’s legislative process, breaking the parliamentary gridlock which has crippled successive governments, and opening the way to far-reaching economic reforms. On the other hand, if he loses, Renzi has promised to step down — a pledge that has turned the referendum into a popular vote of confidence in the unelected prime minister, his Europhile policies, and — by extension — Italy’s membership of the eurozone itself. As a result, a “no” vote in October will not just precipitate the fall of Renzi’s government; it could throw Italy’s long-term membership of the eurozone into doubt, plunging the single currency area once again into crisis.

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Matteo Renzi, current Prime Minister of Italy and leader of the PD party

Renzi is convinced, and rightly so, that Italy needs to enact wholesale structural reforms to enhance its competitiveness relative to its eurozone neighbors. It also needs to overhaul a judicial system so sclerotic that bankruptcy proceedings can last ten years or more. It also needs to restructure its dysfunctional banking system. The prime minister is seeking popular approval for constitutional reforms that promise to cut the size of the upper house from 315 to 100 senators. Under his proposals, senators will no longer be directly elected, but will instead be chosen by regional councils, nominated by the mayors of big cities, or—in the case of five—be appointed by the Italian president. The reform will cut the costs of the notoriously bloated and wasteful upper house, where senators have traditionally enjoyed lavish expenses and generous pensions. Most importantly, it will downgrade the political power of the Senate so that it will no longer be able to obstruct government legislation entirely, but only to propose amendments that will be adopted at the discretion of the lower house, although the Senate will retain a say on constitutional matters, including the ratification of European Union Treaties.

The objective is to increase the executive power of the government, and to tackle entrenched interests with additional measures that allow for new laws to facilitate popular referendums and to promote citizen participation in the political process. However, powerful forces are arrayed against Renzi, and a “Yes” vote is far from assured. His own popularity is presently at 30% approval at a par with the 5-Star movement which argues the 50% simple majority needed to win the referendum is too low for constitutional changes that promise a concentration of political power unprecedented since the formation of the Italian republic in 1946. It has suggested 60%. Increasingly disgruntled, these voters who follow populist parties, are sick of the corruption and self-interest of politicians, and fed up with painfully austere policies that they believe to be dictated from Brussels and Berlin, and which they hold responsible for Italy’s poor economic performance. As a result, the referendum, at this point in time remains too close to call.

If Renzi loses the referendum, not only will Italy remain in policy limbo, but it is highly likely his subsequent resignation will trigger a parliamentary election. Under new election laws passed last year, if a party fails to win 40 percent in the first round of voting, the top two parties go through to a second round. The latest opinion polls put Renzi’s governing PD party on 31% and the 5-Star Movement on 29%, with the next two largest parties — Silvio Berlusconi’s Forza Italia and the anti-establishment Northern League — level pegging on around 13%.

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Matteo Salvini, leader of the populist xenophobic party Lega Nord

At the moment, an election victory for the 5-Star Movement, which identifies as neither left nor right, appears at least as probable as a second round win for the PD. The Movement has already scored significant victories in mayoral elections in Rome and Turin and enjoys increasing support across the country. Its broad stance is anti-establishment and in favor of direct participatory democracy rather than representative democracy, which it regards—with some justification in Italy—as an invitation to corruption. Beyond that, however, its platform is so vague that it is hard to pinpoint any concrete policies, except its call for a referendum on Italy’s membership of Europe’s single currency.

All this means that the possibility of a “No” vote in Italy’s constitutional referendum come October is the biggest clear and present danger to the euro’s survival. Both 5-Star and the Northern League are promising a plebiscite on euro membership should they come to power in a post-referendum election.

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Beppe Grillo, founder of the Five Stars populist party, a major actor of the referendum

That does not mean a vote on Italy’s eurozone membership would lead directly to its exit—many likely “No” voters in this year’s constitutional referendum favor continued euro membership. However, a “No” vote come October would effectively be a vote against the structural reforms needed to ensure Italy’s economic growth and prosperity within the eurozone.

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Silvio Berlusconi, ex leader and head-clown of the populist party Forza Italia. Ready to re-enter the circus?

Whether inside or outside the single currency, Italy still needs structural reforms to ensure future growth. It is currently the third biggest economy in the monetary union and one of its core members. Its departure would surely hasten the break-up of the whole euro project.

If Renzi fails, Italy fails — and very likely the eurozone, not to speak of the EU and the global economy, fail too. Stay tuned. The reality-show is about to become much more interesting and entertaining. In fact, there will be one on each side of the Atlantic Ocean.

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Check Dr Emanuel Paparella's EBOOKS
Aesthetic Theories of Great Western Philosophers
& Europe Beyond the Euro
You can download them for FREE HERE!
 
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