Another referendum bites the dust

December 7, 2016 at 10:00

CFG’s Celeste Giuffrida, an Italian citizen living in London, reflects on what her countrymen’s vote could mean for the EU and for the charity sector. 

14372125267_5ccca91e43_kItaly said NO.

On Sunday 4th December, Italian Prime Minister Matteo Renzi was heavily defeated in the constitutional referendum and has since announced his resignation as Prime Minister.

It is the start of another government crisis for Italy. Now, as provided by the constitution, the president of the Italian Republic’s Sergio Mattarella has three options to choice from:

  1.  Ask Renzi to remain in power and appear in front of the Italian Parliament and request a vote of confidence.
  2.  Accept Renzi’s resignation and start a consultation to appoint a new government.
  3. Decide to dissolve the Parliament and start new elections.

The first option appears to be really unlikely, as Renzi has been quite resolute in asserting his resignation.

If President Matarella will accept Renzi’s resignation he will need to take the decision to: either find a political majority to lead the country to a snap election, appoint a technical government, or opt for a caretaker government with a limited mandate to oversee the drafting of a new electoral law and pass the 2017 budget. Since Silvio Berlusconi resigned in 2011, Italy has experienced already three “unelected” governments and this appears at the moment to be most predictable decision that the President will take, since the electoral reform has not yet been refined.

What happens now and how could it impact on charities?

The Italian referendum may be considered as another source of uncertainty, to which financial markets reacted immediately, as the Euro fell sharply in value against the Dollar. Italy’s economy is 12% smaller than when the financial crisis began in 2008. The banks remain weak and the country’s debt is second only to Greece’s.

There is a risk that the failure of a major bank could set off a wider crisis. If the world’s oldest and Italy’s third-largest, Banca Monte Dei Paschi di Siena fail it could lead to a broader loss of market confidence in Italy’s banking system and to a series of bank failures. This could lead to further difficulties for all European banks, including British banks, increasing costs and putting pressure on banks to focus on the more profitable accounts.

CFG has been working hard to support charities keeping access to their bank accounts, but the increased costs of borrowing for banks has led to many exiting the charity market or reducing their exposure. Instability in Italy could lead to another wave of strategic reviews within banks and this could impact on charities. Charities need to watch carefully.

A new financial crisis may also make it harder for Britain to get the rest of the EU to focus on the Brexit divorce proceedings. Though, the result of the Italian referendum might have a positive impact on the UK’s economy as uncertainty in the eurozone saw the euro drop against the pound on Monday. If this uncertainty continues in the eurozone the pound could strengthen.

There are concerns that the “No” vote could boost the prospects of opposition groups who are against keeping Italy in the eurozone.

The European Commission has already taken a ‘tough line’ on Brexit, with the appointment of Michel Barnier  – a former French European Commissioner – who has stated publicly that he will not allow Britain to have a “pick and mix” approach to the EU. The Italian Referendum result is likely to stiffen this resolve in order to put off any attempts for a referendum on the eurozone there.*  This could make the whole negotiation harder for Britain, create more instability and lead to a tougher financial position for Britain. This would in-turn have a significant impact on the charity sector, which will need to see a strong economy (and strong growth in fundraising income) to offset continued cuts in the public sector.

What Mr. Grillo has recently declared after Brexit is that “Italy is one of the EU’s founding countries, but there are many things of Europe that do not work and the only way to change this ‘union’ is the constant institutional commitment, for this is the M5S. It is fighting to transform the EU from the inside “. Even if the eurosceptic Five Star Movement were to win the election in 2018, it would take some time for them to be able to leave the single currency.

This means that change is not going to happen overnight, and charities need to be aware that European instability (with more elections in France and Germany to come in 2017) will have a slow but continuous impact on the British economy.

The repercussions of this seemingly esoteric referendum in Italy could be significant. Only time will tell how significant for Britain and the charity sector.

*although the fact that the Italian Constitution does not provide for a referendum to amend an international treaty should keep Italy away from a similar Brexit referendum.