Eurozone September 21, 2020 / 02:47 pm UTC

Referendum Legitimates Parliament Cut and Italy’s Populism

By Giacomo Pallaro

As expected, a large majority of Italians voted to approve the reduction of Members of Parliament (MPs) from 945 to 600, according to provisional results (Figure 1). Regional elections results are largely in line with pre-election polls, with Apulia and Tuscany both being close races whose results will be clear only once all votes have been counted.

Figure 1: Italians: Would You Like To Downsize Parliament? (% of Votes, Provisional Results)

Source: Home Office, Continuum Economics

As we explained, downsizing the Italian parliament will simply impoverish democracy, with a smaller number of MPs representing the same population, thus having leverage over a larger territory. There is no guarantee that the fewer representatives will be of better quality compared to the current; on the contrary we expect the opposite to be true. Moreover, a smaller parliament does not equate to a better functioning one as the parliamentary procedures have not been changed. 

As far as the regional elections are concerned, the first exit polls suggest that the centre-right coalition led by Matteo Salvini’s League was confirmed the dominant power in Liguria and Veneto, and won over the Marches, previously ruled by the centre-left. The latter, in turn, can be happy with the confirmation of Vincenzo De Luca in Campania, though he has long been a vocal critique of the Democratic Party he is part of. In Apulia, the centre-left incumbent president Michele Emiliano is tie at 36-40% with the centre-right candidate, so this will likely go down to the last vote. Finally, the all-important Tuscany seem set to remain ruled by the centre-left, as it has always been for the past 50 years. However, the fact that with 38-42% of the votes the centre-right candidate Susanna Ceccardi is narrowly behind the centre-left candidate Eugenio Giani (41-45%), is a strong signal. 

All in all, we believe there is little positives to take a way for the ruling majority, which strengthens its reluctance to hold snap elections, more so that now a new electoral law will need to be designed after the referendum’s approval to the reduction of the number of MPs. This referendum approval is, however, a victory for the 5 Star Movement whose populist approach of implementing simple solutions to complex problems has been legitimized again by Italians. Yet, we can read the referendum result as Italians protesting their contempt with the government, Parliament and the political system more broadly, which is seen wasting public resources and caring more about producing personal gains than the well-being of the country.

Despite what we believe is not a positive political result, the bond market reacted in a slightly positive way, with the 10 year BTP-Bund spread narrowing by some 6 basis points as the first exit polls results were released.

Figure 2: Slightly Positive Bond Market Reaction

Source: Bloomberg, Continuum Economics. Spread analysis of 10-year Italian and German government bond yields.


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I, Giacomo Pallaro, the lead analyst certify that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further certify that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.