EU suf­fers Ital­ian blow, big­ger tests loom

Kuwait Times - - ANALYSIS -

The re­sound­ing “no” from Ital­ian vot­ers to Prime Min­is­ter Mat­teo Renzi’s ref­er­en­dum on con­sti­tu­tional re­form was not a re­jec­tion of the Euro­pean Union and its sin­gle cur­rency, as ju­bi­lant pop­ulists from across the bloc claimed yes­ter­day. But the vote, which pushes Renzi out of of­fice, does rep­re­sent a sig­nif­i­cant set­back for Europe at a time when its lead­ers are scram­bling to mount a cred­i­ble re­sponse to Brexit, the elec­tion of Don­ald Trump in the United States and their stub­born eco­nomic woes at home.

In one fell swoop, it adds an­other coun­try to the list of EU mem­bers that are likely to be pre-oc­cu­pied by do­mes­tic pol­i­tics in 2017, a year in which the Dutch, French, Ger­mans, and pos­si­bly the Bri­tish, will go to the polls. And it sends a warn­ing to other Euro­pean re­form­ers like Fran­cois Fil­lon, the con­ser­va­tive fron­trun­ner for the French pres­i­dency, who has promised no less than five ref­er­en­dums to push through his do­mes­tic agenda if he is elected next spring.

More im­me­di­ately, de­spite the rel­a­tively calm re­ac­tion of fi­nan­cial mar­kets yes­ter­day, the vote will deepen con­cerns about Italy’s un­der-funded bank­ing sec­tor and the eco­nomic prospects of the euro zone’s third big­gest mem­ber state. That, in turn, could com­pli­cate the cal­cu­lus for the Euro­pean Cen­tral Bank, which meets on Thurs­day to de­cide on the fu­ture of its con­tro­ver­sial bond pur­chase pro­gram. “This won’t push Italy back into cri­sis for now,” said Mar­cel Fratzscher, head of the DIW eco­nomic in­sti­tute in Ber­lin and a for­mer top of­fi­cial at the Euro­pean Cen­tral Bank. “But it means lost time for a coun­try that faces huge prob­lems with its banks, its enor­mous pub­lic debt levels and high un­em­ploy­ment. There is a sig­nif­i­cant dan­ger that the re­form course will now slow.”

Renzi, seen by his Euro­pean part­ners as an an­chor of sta­bil­ity in a coun­try where po­lit­i­cal up­heaval has been the norm for decades, won just over 40 per­cent of the vote in the ref­er­en­dum, a far worse re­sult than polls had pre­dicted. His de­feat comes only days af­ter deeply un­pop­u­lar French Pres­i­dent Fran­cois Hol­lande, also a left­ist, bowed to po­lit­i­cal re­al­i­ties and an­nounced he would not seek a sec­ond term.

Renzi’s de­par­ture could lead to early elec­tions in Italy next year. It in­creases the risks of the anti-euro 5-Star Move­ment gain­ing power, al­though the prospect of that re­mains slim. Af­ter the Brexit vote went bad for David Cameron in June, it is the sec­ond time in half a year that the leader of a ma­jor EU mem­ber state tied his fu­ture to a ref­er­en­dum and lost, a de­vel­op­ment that was seized upon by the region’s anti-EU fire­brands. “The Ital­ians re­jected Renzi and the EU,” Marine Le Pen of France’s far-right Na­tional Front said on Twit­ter. “This vote looks to me to be more about the euro than con­sti­tu­tional change,” added Nigel Farage of the UK In­de­pen­dence Party (UKIP).

But un­like Bri­tain, polls show that a solid ma­jor­ity of Ital­ian vot­ers are in favour of both the EU and the euro. They were en­cour­aged to vote “no” by all of the ma­jor par­ties in Italy out­side of Renzi’s Par­tito Demo­cratico (PD). His de­feat there­fore, which came on the same day that Aus­trian vot­ers sent a far-right can­di­date to de­feat in a pres­i­den­tial run-off, looks less like a re­jec­tion of Europe and the po­lit­i­cal es­tab­lish­ment, and more like a se­ri­ous mis­cal­cu­la­tion on the part of Renzi.

“When a prime min­is­ter who will al­ways be re­mem­bered for tak­ing of­fice through an old-style party coup calls a na­tional ref­er­en­dum in a coun­try that’s still strug­gling to emerge from a triple-dip re­ces­sion, he can ex­pect an un­fa­vor­able re­sult,” said Ni­cholas Spiro of Lau­ressa Ad­vi­sory.

That won’t cush­ion the im­pact for Europe, whose lead­ers have promised to un­veil their post-Brexit vi­sion for the EU in the Ital­ian cap­i­tal next March, the 60th an­niver­sary of the bloc’s found­ing Rome treaty. Who will host that sum­mit is now an open ques­tion. The same month, Dutch vot­ers will go to the polls and Bri­tish Prime Min­is­ter Theresa May is ex­pected to in­voke Ar­ti­cle 50 of the EU treaty, trig­ger­ing a tight twoyear count­down to Brexit - a time­line made all the more chal­leng­ing by Europe’s heavy elec­tion calendar.

Only a month later, the first round of the French elec­tion will take place. Polls sug­gest that will pro­duce a show­down be­tween Le Pen and Fil­lon, the hard­line con­ser­va­tive who is ad­vo­cat­ing a rad­i­cal over­haul of the French econ­omy through deep cuts in pub­lic sec­tor jobs and the scrap­ping of the 35hour work­week. Fil­lon has pro­posed a to­tal of five ref­er­en­dums: one to en­shrine a bal­anced bud­get law in the con­sti­tu­tion, a sec­ond to over­haul French ter­ri­to­rial au­thor­i­ties, a third to un­wind France’s gen­er­ous pen­sion regimes, a fourth on im­mi­gra­tion quo­tas and a fifth - in an echo of Renzi’s own ref­er­en­dum - to reduce the num­ber of par­lia­men­tar­i­ans.

Far more than the Ital­ian ref­er­en­dum, the French vote is shap­ing up as a make-or-break mo­ment for Europe and its po­lit­i­cal main­stream. Fil­lon, no doubt, will be watch­ing what is now un­fold­ing in France’s south­ern neigh­bor as he girds for bat­tle. “The French elec­tion will be the cru­cial test for Europe,” said Do­minique Moisi of the In­sti­tut Mon­taigne. “To counter Le Pen, Fil­lon may have to move to the cen­ter. He will have to put quite a bit of wa­ter in his tra­di­tion­al­ist wine.” — Reuters

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