Project: Italy’s referendum

Students: Coculescu Ioana

Faculty: Accounting and Management Information
Systems
Series: A
Group: 622.
Italy’s Referendum

The first paragraphis presenting the voting situation in Italy .A constitutional referendum was held in
Italy on Sunday,on the 4th of December, 2016.The Italian voters were asked in the poll if,quoted, “Do
you approve the text of the Constitutional Law concerning ‘Provisions for overcoming equal
bicameralism, reducing the number of Members of Parliament, limiting the operating costs of the
institutions, the suppression of the CNEL and the revision of Title V of Part II of the Constitution’
approved by Parliament and published in the Official Gazette no. 88 of 15 April 2016?”

The bill, put forward by the Prime-Minister, Matteo Renzi, and his centre-left Democratic Party, was
first introduced by the government in the Senate on the 8th of April, 2014. After several amendments
were made to the proposed law by both the Senate and the Chamber of Deputies, the bill received its
first approval at the Senate on the 13th of October ,2015 and on the 11th of January , 2016 at the
Chamber of Deputies , and, eventually, its second and final approval on the 20th of January, 2016
(Senate) and on the 12th of April ,2016 (Chamber of Deputies ).In accordance with Article 138 of the
Constitution, a referendum was called because the constitutional law had not been approved by a
qualified majority of two-thirds in each house of parliament in the second vote.
The results of the referendum were against the Prime-minister of Italy,with 59.11% of voters
(19,419,507 people ) voting against the constitutional reform, meaning it did not come into effect.

Even if reforms of many sorts were welcomed in Italy in order to regain the economic footing lost
since 2007,as IMF recently declared ,many Italians have based their votes not on the content of the
referendum question, but on how they felt about Matteo Renzi and a course of labour-market reforms
adopted last year. The Prime Minister had promised to quit if Italy voted down the reforms, which led
to the referendum becoming a plebiscite on his government.

Following the clear victory of the "No" vote, Renzi tendered his resignation as Prime Minister to
President Sergio Mattarella. Whether the referendum , authorising a constitutional reform to which
attempts to build up a weak legislative system, is the right medicine remains to be seen .

The second paragraph analyses the hypothetical effects of the referendum’s result. The changes in the
legislative system were meant to make it easier to hire and fire workers. They apply only to new hires,
however, and thus disproportionately target young people who now look set to vote “No” amongst a
rate of youth unemployment of 37%. It is more important to mention that they have been insufficiently
ambitious in their scope.

In the third paragraph we can observe the opinion of an Harvard University economist , Philippe
Aghion,regarding the effects of the referendum over Italy’s economy. He reckons that rich economies
(and Italy qualifies ) cannot grow in a rapid and sustained fashion if they do not innovate, in ways that
raise the economy’s economic potential. In his Schumpeterian view of the economy, long-term growth
is driven by frontier innovation and innovation is driven by entrepreneurs looking to profit. Ideally,
institutions allow creative destruction to displace old ways of doing things, while cushioning the blow
for people left behind. Reforms to make labour markets more flexible should be paired with
investments in jobless benefits designed to educate and retrain workers. “It’s redistribution linked to
human capital,” Mister Aghion says during an interview on the sidelines of the European
Commission’s annual SME Assembly in Bratislava in late November. Paring back redistribution and
other interventions at the same time, in contrast, is a recipe for trouble. “Those who are left out have
their revenge, like Brexit and Trump,” Mister Aghion says. In Italy, those same forces are mobilised by
Beppe Grillo’s Five Star Movement, Mister Renzi is leading antagonist in the run up to the
referendum.

The fourth paragraph shows the international economical productivity situation into the European
Union. Government policies that encourage imitation, like tax breaks with attract foreign direct
investments or subsidised electricity prices for big manufacturers, are not the same as ones that
encourage innovation. “Big firms tend to be barriers to the reforms that you need to generate
innovation,” says Mister Aghion. In Italy energy firms like ENI and ENEL, carmaker Fiat and Telecom
Italia are among the legacy companies that wield political power (through lobbying) to protect existing
business models (rent-seeking). Instead, advanced economies must invest in higher education,
liberalise labour markets and encourage a shift toward equity financing, he reckons. In the European
context, there is data to back his argument. In the Netherlands, such reforms took place in 1982.
Between 1977-1983, Dutch total factor productivity (TFP) growth averaged 0.5%, but from 1983 to
2002 it increased to 1.5%. In Sweden, the jump was even sharper. Relevant reforms came in the early
1990s, with an average total factor productivity (TFP) growth of 0.4% between 1976-1992 jumping to
1.9% between 1992-2008. Both country’s maintain robust well-being states.
The fifth paragraph talks about Italy’s economical productivity history and fluctuations trough the
years.Even with a low productivity growth of 2 %, Italy has managed an average annual growth rate of
just 0.6% since 1960. Faster, innovation growth has its drawbacks; innovations correlate with increased
patents, which also tend correlate with an increased share of income going to the top 1%. Yet it also
seems to increase social mobility.

The sixth paragraph is commenting about the consequences of Matteo Renzi’s reforms ,the reason of
referendum. Mister Renzi might have done more to limber up the Italian economy. His reforms did not
apply to the country’s 3.5m public-sector workers or to those already employed—an omission which
may actually discourage workers from moving jobs, keeping the labour market rigid. If Mr Renzi loses
his referendum it is not because of the boldness of his reforms but rather his failure to go far enough.
Europe might have done more to help, however.

Mister Phillipe Aghion contends that structural reforms should be matched with increased
macroeconomic flexibility—in the Italian case leeway to support debt-ridden banks and temporarily
running higher budget deficits: things that Brussels and Berlin has resisted.

The last paragraph ,which concludes the article presented, underlines Mister Phillipe Aghion’s words:
“You cannot let the reformer down, because otherwise tomorrow you have Beppe Grillo”,who is the
co-founder of the Italian Five Star Movement political party and a comedian .

A "no" vote, as championed by populist party Five Star Movement (5SM), is likely to block the
reforms to streamline Italy's public administration and would mean the extensive checks currently
required stay in place.In addition to that,it could conceivably cause financial instability and possibly
even panic among investors which would therefore be significantly detrimental to Italy's banking
sector.

Out of Europe’s largest economies, Italy’s was the hardest hit by the recession. In my opinion,this
country needs stability and reform. For too long, Italy has been too slow to confront its problems and
too hurried to change its governments. The most recent general election, in February 2013, was yet
another illustration of this problem: no one won, uncertainty dominated the political landscape and
populists began making more noise than ever.

Stability and reform have allowed Italy to regain its voice in Europe and to encourage the EU to focus
its economic strategy more on investment and growth. This strengthened Italy breathes new life into
the ideals of the European Union now that the UK has left the European Union and, even more
importantly, promotes a common policy on migration, Europe’s biggest political challenge.

As a conclusion, after the election of Donald Trump and the Brexit vote to leave the European Union,
Italy could become the stage for the latest populist uprising against the established political order.
While Sunday’s Italian referendum may not be as eye-catching as the two other headline-grabbing
examples, it could well have a sizable impact on not just Italy’s political future but the future of the
Eurozone and thus the global economy.