Italian prime minister resigns after referendum defeat

Italian prime minister resigns after referendum defeat
 
Following his defeat in the Italian constitutional referendum, prime minister Matteo Renzi has resigned. How will this affect the country and the EU?
 
The Italian prime minister has resigned following his campaign’s defeat in the country’s constitutional referendum. Matteo Renzi had said prior to the vote that he would do so if his proposals to remove power from the Senate were rejected.
 
His announcement, along with the referendum result, caused a fall in the euro’s value. The currency had been subdued due to political uncertainty within the European Union (EU) prior to the announcement.
 
Experts are saying it could lead to turmoil in the country’s political situation, which could then spill out into the EU.
 

Referendum

The referendum had been suggested by Mr Renzi in order to boost governmental powers, by taking authority away from the Senate, the country’s upper house of parliament.
 
Italy’s political system is fragmented into various regional governments, some of which have more power than others. In an attempt to give the country’s central government more strength, Mr Renzi had suggested allowing it to make decisions on proposed legislation without needing the Senate’s approval.
 
Mr Renzi had been nicknamed ‘the Scrapper’, reflecting his desire to remove the political establishment and implement change within the government. However, his plan for achieving it has come to an abrupt halt, as has his political career. Announcing his resignation, he said: “My experience in government ends here.”
 
There were many critics of his plan to take power away from the Senate, with right-wing parties saying it would give the prime minister too much power. There were even some members of Mr Renzi’s own Democratic Party who shared this view.
 
It turned out that the voters felt the same way.
 

Euro
 
After the result of the referendum became clear, the euro suffered a significant fall, losing as much as 1.4% of its value in early trading on Monday (5 December). It hit a 20-month low against the dollar, while the pound reached a high against the euro last seen in July.
 
However, the euro has since managed to recover almost all of the ground it had lost when its value plunged, putting on a stronger performance against rival currencies.
 
There is concern that if the process of appointing a new prime minister is extended, the euro will lose more value. Some analysts have suggested that if a replacement for Mr Renzi is appointed soon, without a snap general election being held, it could help keep the euro from falling much further.
 

Impact
 
Some analysts have said that the referendum result risks a political crisis in Italy, which could then expand further into the EU.
 
Political experts are also saying that the government’s defeat can be seen as a victory for anti-establishment political parties, which were campaigning for a refusal of Mr Renzi’s proposals. With these parties being given legitimacy through votes like the referendum, there is concern that they could now rise in popularity.
 
Populist parties and views are seeing a boost across the EU and the wider world, with the anti-establishment Donald Trump being elected president in the US and the UK voting to leave the EU. There is concern among political circles that the traditional parties and opinions are no longer appropriate for voters.
 
Elections are due in the first half of next year across a number of EU member states, including France, and there is concern among political circles that these could see the election of anti-EU parties.
 
With the euro having recovered most of its losses, the main concern for Italy now is its banking system. When the referendum result and Mr Renzi’s resignation were reported, share prices across Italian banks fell.
 
However, most have since recovered, prompting some analysts to wonder whether markets have misinterpreted the situation. The Italian banking sector is seen by experts as fragile. This is because, according to the Independent, “the sector was never properly restructured and recapitalised in the wake of the global financial meltdown or in the subsequent eurozone crisis”.
 
Whatever the impact of the referendum and resignation of the prime minister, Currencies Direct should remain your first port of call when transferring money abroad. We can help you avoid the hassle and cost of dealing with your bank and ensure the process is completed as quickly as possible.