What Happens if the Yes Wins at the Referendum

Most national and international observers have focused on the domestic and international consequences of  a possible NO victory, currently leading in the polls,  in the Referendum on Constitutional reforms, next Sunday. The list features: political instability, a possible resignation of Renzi to be replaced by a transitional “technocratic” government and leading to new elections, a possible electoral victory of Beppe Grillo’s Movement,  serious difficulties  in the recapitalization of Monte dei Paschi Siena and other smaller regional banks, a (possibly sharp) rise in Italian and Euro-zone’ periphery’s bond spreads, a blow to the Italian debt sustainability, with negative consequences for the “bank-sovereign” debt vicious-circle, a likely fall in the Euro (when the USD is likely to appreciate as a consequence of Trumponomics) , political repercussions on the upcoming elections in Europe (France and Germany) which may strengthen the anti-Euro parties and make the solution of the EU’s most pressing issues (migration, Brexit to name just two) even more difficult.

Hopefully, and with a “little help from my friends” (Draghi), this nightmarish scenario will not materialize, following a similar fate to the hysteric predictions on Brexit and Trump consequences. Yet, this scenario has positive probability, albeit a rather small one, at least judging from the relatively minor rise in the Italian spreads. More worryingly, it is far from clear that YES victory would be sufficient to avert all these consequences. For one reason.

The main issue at stake in the Constitutional referendum is the transformation of the Senate which now performs the same tasks as the Lower House (Chamber of Deputies) into a  sort of German Bundesrat which would represent local governments and become a link between the State and local issues.  There is however, one crucial difference between the “old” Senate and “new” Bundesrat. The “old” Senate is elected by citizen of at least 25 years of age , whereby the new one would be elected by the representatives of local governments, who are in turn elected by citizens of at least 18 years. More importantly, the new more powerful Lower House that may emerge from a YES victory will also be elected by 18-and-above years old.

According to  recent polls, while the Democratic Part (PD) and M5S are head-to-head in overall voting intentions, M5S is the first party in voting intentions of voters aged less than 54 years, while the PD is the first party among voters aged above 54 years.  What will happen in the new elections will largely depend on the new electoral law that Renzi has promised to modify. Yet it is conceivable that the M5S may actually  benefit  from a YES victory in the next elections, as younger generations will matter more. In short, the PD may be politically strengthened in the aftermath of a YES victory, although the M5S may reap the electoral benefits in the next elections. Add to this that the present electoral law gives a very large majority premium to the first list, and that the check-and-balances role of the Senate will disappear with  a YES victory.

The  implication of all this is that a YES victory may avert the bad consequences listed above in the short run, but that will likely come at the cost of postponing them and of making them even worse if they materialize.