Matteo Renzi resigns in constitutional referendum aftermath

Matteo Renzi, Italy’s now former Prime Minister, resigned in the aftermath of the referendum which had been commissioned to ask people of Italy if they wished to change the Italian constitution.  The decision to reject the reforms has created a catastrophic loss for the government and a major victory for the anti-establishment and right-wing parties, such as Northern League and M5S.

The not entirely unexpected defeat, was marked by an astonishing 59.1% of Italians voting against the reforms Matteo Renzi had proposed. The unexpectedly high turnout and decisive rejection of the reforms was later described as a “feast of democracy”.

Minutes after Mr Renzi had tendered his resignation, the single currency hit $1.0505, amounting to its lowest level against USD since March 2015. However, Euro bounced back to $1.0634, which amounts to a mere 0.3% fall.

Similarly, shares in Italian banks recovered ground after opening into the red. Monte dei Paschi di Siena, the oldest but yet the most troubled lender in Italy, rebounded into positive territory after going down by 5%. Shares in Unicredit and Intesa also recovered after a steep fall. Ultimately, the cost of borrowing money rose significantly after the Prime Ministers resignation.

According to experts, this could be due to the fact that the market might have taken measures to prepare to cope with the resignation  opf the Italian Prime Minister before the referendum was held.  This convinced investors to be cautious but to not fall prey to panic.

Even though the aftermath of the referendum does not appear quite as catastrophic as it had been predicted, Italy is still a rather vulnerable country, in political and economic terms. Now that Mr Renzi has resigned, the alternatives look rather unconvincing and the President is attempting to persuade Mr. Renzi to re-consider. In the event of an election, the M5S, the xenophobic Northern League and the former Prime Minister, Silvio Berlusconi, are believed to be the most likely win the most votes. 

However, the resignation of the Prime Minister will not lead immediately to a general election. It is up to the President, Sergio Mattarella, to consult party leaders to obtain a general consensus as to whom they would support as the new Prime Minister.  It is wholly possible that they might agree to the return of Mr Renzi.  More likely, mainstream parties would agree on electing a caretaker administrator, who would be confronted with the daunting task of drafting a new electoral law.

The real risk awaiting the future of the country is immobility rather than instability; it could take months or even years to implement the reforms Italy desperately needs.

If you wish to know more about how the recent Italian constitutional referendum could affect business and economy, contact us at clientservices@giambronelaw.com