Italian referendum: a very risky journey

Transcription

1 Italian referendum: a very risky journey Angel Talavera (Chair) Nicola Nobile Follow us @atalaveraecon Questions to: events@oxfordeconomics.com

2 What is the referendum about? A new Senate: The Senate will have fewer members, down from 315 to 100. Its members, currently elected, will be designated by local legislative bodies (mainly the regions) but indicated by citizens. Only the lower house will be able to participate in confidence votes on the government. Currently, both chambers participate in government confidence votes. The Senate will have reduced legislative powers (only in areas such as constitutional reform and international aspects it will vote). The Senate will still be able to propose legislative changes but in a limited period of time and the final say will be with the lower house. Currently, all legislation has to be passed by both chambers. 2 Questions to: events@oxfordeconomics.com

3 What is the referendum about? The constitutional reform will mark an end to perfect bicameralism (both chambers currently having the same powers, although their members are elected through two different systems), with the aim to speed up the legislative process. Out of the 28 EU Parliaments: 15 only with one house 13 with two houses 4 with the second house elected directly 9 with the second house not elected directly 3 Questions to: events@oxfordeconomics.com

4 Linked to the Electoral system The Senate reform is linked to the new electoral system which will probably be amended. The new electoral law was needed following the Constitutional Court s decision, which judged the previous electoral law partly unconstitutional. The new system (called Italicum) applies only to the Chamber of Deputies. The new electoral law is a two-round system (with a 40% majority threshold) corrected by a majority bonus and a 3% party-list threshold. However, in case the referendum does not pass, the Senate will still be an elective body. The Italicum applies only to the lower house, while the Senate will be voted with a pure proportional system (on a regional basis and with some party and coalition threshold). 4 Questions to: events@oxfordeconomics.com

5 Country-specific issue why is it relevant? Even though the issue is very domestic (and kind of complicated) the fact that Prime Minister Matteo Renzi is staking his future on the referendum has put the international spotlight on Italy again. After the shock of the U.S. election and the Brexit vote, it is valid (but perhaps too simplistic) to see the Italian referendum on 4th December as another opportunity for populist parties to take more powers. 5 Questions to: events@oxfordeconomics.com

6 Voting intentions: no camp ahead Italian referendum Date Polling firm Yes No Don't know 17-Nov Cise Nov Demopolis Nov EMG Acqua Nov IPR Marketing ** 14-Nov Instituto Tecne ** 12-Nov Winpoll ** 11-Nov Osservatorio Lorien Nov IXE Nov Eumetra-Monterosa Nov Index Research Nov Euromedia ** Source: Thomsom Reuters 6 Questions to: events@oxfordeconomics.com

7 So yes should win? ;-) As for Brexit and Trump -> voting intentions not predictable In this case there might be some truth : We believe that the outcome is going to be more balanced (50/50) than the opinion polls currently suggest. Up to 35% of voters (depending on which poll you believe) said they are still undecided a and we believe the outcome is still too close to call. On average there is a quite high degree of consensus on some aspects of the reform, so those undecided could decide to opt for the yes at the end. Moreover, most opinion polls do not take into account the importance of votes by Italian citizens abroad, who are more likely to vote yes. Also, there is a strong likelihood that many young people, who are on average more against the reform, are not going to vote on the day. 7 Questions to: events@oxfordeconomics.com

8 Scenario three analysis Stage 1: Referendum in Autumn Stage 2 Stage 3: Ultimate type of government in 2017 M5S government 38% Centre - left government 34% Early elections in 2017 Probability 10% Centre - right government 28% Yes Probability 50% Renzi government 100% Renzi's government until elections in 2018 Probability 90% Renzi government 100% No Renzi does not resign Probability 20% Minority government 25% Probability 50% PD government 5% Early elections in 2017 Probability 35% M5S government 5% Centre - right government 5% Letta type (PD+Centre - right, excl Northern 60% League) Renzi resigns Probability 80% Renzi government 50% President tries to find a PM Probability 65% Letta type (PD+Centre - right, excl Northern League) 50% 8 Questions to: events@oxfordeconomics.com

9 Scenario 1: what if yes wins? Stage 1: Referendum Stage 2 Stage 3: Ultimate type of government in 2017 M5S government 38% Centre - left government 34% Early elections in 2017 Probability 10% Centre - right government 28% Yes Probability 50% Renzi government 100% Renzi's government until elections in 2018 Probability 90% 9 Questions to: events@oxfordeconomics.com

10 Scenario 2: what if no wins? No 1 Renzi does not resign Probability 20% Renzi government 100% Minority government 25% Probability 50% PD government 5% Early elections in 2017 Probability 35% M5S government 5% Centre - right government 5% Letta type (PD+Centre - right, excl Northern 60% League) Renzi resigns Probability 80% Renzi government 50% President tries to find a PM Probability 65% Letta type (PD+Centre - right, excl Northern League) 50% 10 Questions to: events@oxfordeconomics.com

11 Scenario 2: what if no wins? Renzi government 100% No Renzi does not resign Probability 20% Minority government 25% Probability 50% PD government 5% Early elections in 2017 Probability 35% M5S government 5% Centre - right government 5% Letta type (PD+Centre - right, excl Northern 60% League) Renzi resigns Probability 80% Renzi government 50% 2 President tries to find a PM Probability 65% Letta type (PD+Centre - right, excl Northern League) 50% 11 Questions to: events@oxfordeconomics.com

12 Scenario 2: what if no wins? Renzi government 100% No Renzi does not resign Probability 20% Minority government 25% Probability 50% PD government 5% 3 Early elections in 2017 Probability 35% M5S government 5% Centre - right government 5% Letta type (PD+Centre - right, excl Northern 60% League) Renzi resigns Probability 80% Renzi government 50% President tries to find a PM Probability 65% Letta type (PD+Centre - right, excl Northern League) 50% 12 Questions to: events@oxfordeconomics.com

13 Economic consequences if no wins We can model three main assumptions with our GEM: Financial markets reaction similar to what happened in the 2013 election when it took two months to create a government. Temporary and negative shock for around 2-3 quarters on equity and government bond. Investment reaction calibrated to what happened in Investment negatively affected by uncertainty and by a drop in confidence. Contagion spreads to the Italian banking sector. As a consequence of that credit conditions tighten. 13

14 Economic consequences if the no wins Main Results: Italian growth recovers less strongly in 2017, from 0.9% in the baseline to 0.4% in the scenario. The component of domestic demand that suffers the most is investment, which will drop over the year in Private consumption is set to remain more resilient, although lower than in the baseline. As a consequence of lower growth and higher bond yields, fiscal metrics worsen as well with a government debt/gdp ratio that remains above 132% for the fourth consecutive year in Monte dei Paschi rescue plan at risk? 14

15 Euro exit or Five Star Government in the short term? 15 We do not believe that a victory of the `No side will accelerate the process of Italy leaving the Euro, and we think that concerns in the markets are somehow misplaced for now. Enough backstops in place to prevent this worst case scenario from materialising, at least in the short-medium term: Even though the Five Star Movement is mulling a referendum on Italy s euro membership, the likelihood that it will form a government and have a say is very small. Article 75 of the Italian constitution does not allow referendums on international treaties. Even if such a referendum is held, it would not be legally binding. And if this referendum would be legally binding, presumably after some ruling by the Constitutional Court, a euro exit is by no means guaranteed. Other Eurozone countries and the European Central Bank will spring into action to prevent an Italian euro exit.

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