01:01 - Source: CNN
Italians vote 'no,' a win for Eurosceptics

Story highlights

Prime Minister offers to resign after losing a referendum on constitutional reform

Questions now emerge over who will succeed him and the future of Italy in the EU

CNN —  

After a resounding loss at the polls for his constitutional reforms package, Italian Prime Minister Matteo Renzi has announced his intention to resign.

The outcome of Sunday’s vote has thrown the country into renewed political turmoil, with the prospect of a sixth prime minister in a decade and frenzied talk that Italy could follow the UK and hold a referendum on its future in the European Union.

What happens now?

Italian President Sergio Mattarella is the man calling the plays on how the political situation will unfold. Renzi met Monday with Mattarella and offered his resignation, but he has been asked to remain until a budget bill has been approved on December 23.

Mattarella then has two options: Accept Renzi’s resignation or reject his offer to step down, telling him to reshape his Cabinet and prioritize completing his mandate. If Renzi were asked to stay on, he would have to seek a vote of confidence from Parliament.

The more likely scenario is that Mattarella will order the formation of a caretaker government led by a member of Renzi’s Cabinet or a technocrat (someone with appropriate experience in government but not a politician).

The impact on Italy’s financial markets will play a part, said Wolfango Piccoli, director of research at the global advisory firm Teneo Intelligence. Reaction so far has been fairly mild, but should the prospect of instability in the eurozone’s third-largest economy move the markets significantly, he suggests Finance Minister Pier Carlo Padoan, a close ally of Matterella’s whom investors largely respect, would be a front-runner.

“But the problem with him is that he will be seen as a continuity and that will spark further criticism from the (anti-establishment) Five Star Movement, (former Prime Minister Silvio) Berlusconi and so on,” Piccoli told CNN.

“If not Padoan, it could either be an institutional figure – think about a former judge of the constitutional court, a safe pair of hands, or the speaker of the Senate, Pietro Grasso.”

He added, “But at the end of the day, the name itself is not going to make a huge difference – this is going to be a short-lived caretaker government with a very narrow mandate.”

The next general election is scheduled for 2018, but it remains unclear if the interim government would wait and finish out the end of the parliamentary term or go to the polls earlier.

Who benefits?

Following the “No” vote victory, opposition parties have called for a dissolution of Parliament and snap elections, but such moves would be unlikely.

Piccoli said “a coterie of anti-establishment parties” could gain from the win – the most notable being the Five Star Movement and Northern League as well as another small extreme right-wing party, the Brothers of Italy.

Last year an electoral law, intended to build more stable governments, was passed that would give extra seats in Parliament to any party receiving votes of 40% or more. However, there is a constitutional court ruling pending on the law.

Mainstream establishment parties will want a rewrite on this bill before any early elections in an effort to prevent far-right populist parties from making significant gains in power.

“Electoral law will be used to somewhat defuse the risk of a Five Star Movement victory in the next election,” Piccoli said.

“(These calls are) more about the claims that they won (Sunday) and that it is a major defeat for Renzi so the next step is an early election. But we know that (an) early election won’t happen until the electoral system is changed, and this will take months, not weeks.”

Is Italy more likely to leave the EU?

Whatever shorthand word the media settle on – “Itexit,” “Quitaly” or “Italexit” – the stage is slowly being set for a battle over Italy’s place in the EU. Far-right parties will want to capitalize on the momentum of the referendum victory and call for Italy’s exit from the eurozone repeatedly in the coming months.

And while the loss of Renzi’s reforms proposal hands Italy’s EU skeptics a stronger mandate, it’s not yet enough, Piccoli said.

“This was a vote against Renzi so it shouldn’t be read as a vote against the euro, against the establishment,” he said. “It is clear that the alarm bells have gone off in Italy now. … There is going to be a certain sense of alarmism, but this is not a vote that will necessarily change the projection of Italy in the short term.”