As the shock and surprise of Donald Trump’s victory is absorbed across the capitals of Europe, attention is turning to two events that could prove pivotal for the continent: the Italian referendum on a slew of political reforms proposed by Prime Minister Matteo Renzi, and Austria’s run-off/re-do election—both slated to take place on the same day, December 4.Renzi’s reform package promises to profoundly reshape the sclerotic and quarrelsome Italian political landscape. It includes measures for restructuring the upper chamber of Italy’s parliament (the Senate), shrinking its size and replacing directly elected Senators with representatives from Italy’s regions. The reforms would centralize power in Rome, rebalancing authority away from the regions, where local governments currently have say in matters as varied as energy, foreign commerce, and the environment. Taken alongside a slew of reforms Renzi managed to pass last year—switching the electoral system from proportional to first-past-the-post—this package could pave the way for any party winning future elections to govern with much less friction.Renzi has staked his political future on the reforms, saying he would quit if the referendum failed. His colleagues in Brussels see the vote as a test of whether Italians have the collective will to undertake the kinds of far-reaching labor and market reforms necessary to make Italy a competitive member of the EU. Opponents of the reforms, on the other hand, argue that disempowering the Senate removes a critical check on executive power. And as Lionel Barber noted in a recent Financial Times column, it’s not clear that Italian political dysfunction comes from legislative gridlock: Italy passes “more laws year by year than those in France, Germany, the UK and the U.S.,” Barber points out.Thus far, the vote is close, with “no” slightly ahead in polls. Up to a quarter of the respondents, however, remain undecided. The consequences of a “no”, however, stand to reverberate beyond Italy’s borders. The Wall Street Journal:
The worst-case scenario goes something like this: A defeat for Mr. Renzi would lead to a period of political instability. Mr. Renzi could follow through on a pledge to resign or be forced into a new coalition until elections are held in 2018. Either way, markets would interpret his defeat as proof that Rome is incapable of reform, raising doubts about Italy’s ability ever to deliver the kind of growth needed to put its debt burden of 135% of gross domestic product on a sustainable footing.That in turn would make investors even more reluctant to put capital into the Italian banking system, forcing banks to impose losses on bondholders, many of whom are ordinary savers. That would create a spectacular political backlash that could bring the deeply euroskeptic, antiestablishment 5 Star Movement to power in 2018, putting Italy’s euro membership in doubt.
There are plenty of ways for Brussels to continue muddling through even if the referendum gets voted down. A compromise to recapitalize Italy’s banking system, a contentious topic between Renzi and his fellow eurocrats, could miraculously materialize in time to soothe antsy investors, for example. Still, a defeat here creates yet one more slow-moving crisis for European leaders to contend with—an unwelcome burden, no doubt.The significance of the Austrian run-off is more symbolic than the drama in Italy. Like most European parliamentary democracies, Austria’s Presidency is a largely ceremonial role endowed with little executive power. But Freedom Party candidate Nerbert Hofer has aligned himself with several positions that fly in the face of the establishment consensus, and his election will be seen as an explicit vote against it. On migrants, for example, he supports turning back boats to “safety areas” beyond Europe’s borders. On Russia, he is for repealing sanctions. And on Trump, he is buoyant:
“Wherever the elites distance themselves from voters, those elites will be voted out of office,” the Freedom Party’s presidential hopeful said in an interview with Reuters.Like the U.S. president-elect, 45-year-old Hofer sees himself as a nationalist who recognizes the concerns of ordinary people who have been ignored by a political establishment.“One comparison could be that Trump also had strong (political) headwinds in the U.S. and he won the election anyway,” Hofer said.
Hofer has backed away from calling for Austria to abandon the EU, but that may have just been a tactical move, and his stance could shift with time. There are murmurs in Vienna that Hofer’s win could lead to early parliamentary elections. The Freedom Party is currently commanding up to 35 percent of the vote, far outpacing its centrist rivals.These two votes do not represent a potential knockout blow for the EU, even if the fact that both are occurring on the same day will magnify their significance. Still, it would take a particular kind of insularity—a kind of bien pensant-ism profoundly concentrated in Brussels these days, we might add—to fail to sense that the ground is shifting across the Western world. Indeed, even a narrow win for Renzi or a narrow defeat for Hofer should not give European elites much comfort. Business as usual is no longer an option.