Italians delivered a resounding “No”—60 percent against with most ballots counted—to a referendum on Prime Minister Matteo Renzi’s package of reforms yesterday. Renzi resigned immediately, and the word on the Italian street is that Economy Minister Pier Carlo Padoan will likely be asked to form a caretaker government until elections are called.
Despite claims from the likes of Lega Nord and Beppe Grillo’s Five Star Movement that the referendum would be a proxy vote for abandoning the Eurozone, markets appear to have concluded that this was not the case: At time of writing, the euro had completely recovered from the news of the vote, and was in fact trading higher than in recent days.
But while the Eurozone may have gotten a reprieve, the vote nevertheless gives us an insight into how cockeyed many people are viewing this news. Both pundits and pols were cheering Renzi on, thrilled that a “serious” man willing to enact “tough” reforms had emerged in Italy. These very same people appear to have once again been blind to both the reality of Italian society and the demands of democratic politics.
The reform package, which called for a centralization of power and promised to remove several checks on the governing party, would have strengthened Renzi’s hand in the immediate term. But it also would have probably hastened the ascent of a proper euroskeptic governing coalition in Italy. “Tough” reforms always create opportunities for populists, and while Renzi might have clung on for a bit, his government was already being overtaken by Beppe Grillo’s party in the polls without many of the most unpopular reforms in place. The Five Stars and Lega Nord would have found themselves in the catbird seat sooner or later, governing Italy with all of Renzi’s newly acquired powers. (The mainstream parties in Italy clearly see the threat; one of the priorities for the caretaker government is said to be rolling back a law that Renzi managed to pass last year that gives extra seats to any party crossing the 40 percent threshold in elections.)
One of the great hopes for the European Union, many have said, was that it would lead to economic “convergence” among its member states. Left unsaid, however, was exactly what that was supposed to mean: that, over time, the member countries would naturally adapt market-friendly reforms and become more fiscally responsible—more or less following the example of Germany.
No country more fervently believed in this myth than Germany itself. The Greek crisis, and the ensuing battle over forcing the Greeks to accept painful reforms, rattled some Berliners, but the consensus for the way forward remained largely unchanged. And there is still a lot of denial in Germany about anything being wrong, in part because the euro is still working incredibly well for the German economy. Inflation is low and so are interest rates, and the weakness of other Eurozone economies and uncertainty about the future keep the euro low enough to support German exports. On top of that, many Germans still see the status quo as both supremely ethical and robustly practical.
But that may soon have to change. President-elect Donald Trump, for one, appears clearly uninterested in getting too deeply involved in the vagaries of European politics. His close adviser, Steve Bannon, has expressed nothing but sympathy for the various nationalist euroskeptic movements across the continent and probably instinctively supports Poland and Hungary in openly resisting Berlin’s vision. And though prospects for both the Front National and the Five Stars may have dimmed slightly of late, there’s no question that both the French and the Italians are increasingly restless.
The immediate task facing Italy’s next government will be to negotiate some kind of bailout for its troubled banks. The degree to which Berlin digs in its heels will tell us a lot about how far along the Germans are to recognizing the new European realities. The big question for Europe is increasingly shifting away from whether the German dream can be defended to how it must be modified or replaced.