Italy Referendum to Set Renzi's Fate


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ROME—When Italians vote on a much-awaited popular referendum on Sunday, they will also be deciding the fate of Prime Minister Matteo Renzi's government—and expressing the country's appetite for change.

The ballot is ostensibly over Mr. Renzi's proposal to overhaul Italy's legislature. But with his popularity waning and the economy stalled, it has become a make-or-break vote on the premier himself and his vision for a nimbler and faster-growing Italy. A loss would likely drive Mr. Renzi from office and usher in a period of instability amid growing support for a large populist party.

Italy's referendum kicks off a momentous electoral year in Europe, where populist parties are expected to do well. On the same day as the Italian vote, Austrians go to the polls to elect a new president, in a race that could install the country's first right-wing populist head of state since World War II. Support for antiestablishment parties is surging in France and Germany, too, both of which have elections next year.

The overhaul would cut the size of the Italian Senate to 100 from 315 members and strip it of its power to hold votes of confidence on new governments, leaving that responsibility entirely to the lower house. Mr. Renzi says that change would make for more durable governments in a country that has seen more than 60 since World War II. The proposal also aims to eliminate overlapping powers between central and regional authorities that exacerbate the inefficiencies of Italy's notorious bureaucracy.

Mr. Renzi has pledged to resign in the case of a "no" vote, making the ballot effectively a vote of confidence in his government. That has galvanized Mr. Renzi's opposition. Everyone from union leaders to center-right leader Silvio Berlusconi and former Prime Minister Mario Monti is seizing on the chance to topple Mr. Renzi, a self-styled "Demolition Man" who swept into power in early 2014 with promises to overhaul Italy's political and economic establishment.

The vote also comes as voters' patience wears thin waiting for Mr. Renzi's economic reforms to kick-start an economy that is only 0.5% larger than in 2000 and where nearly half of young people have no jobs.

"Renzi used to be the Demolition Man, and now he's the man to be demolished," says Roberto D'Alimonte, professor of politics at Rome'sLUISS University. "He has become the establishment…. Many voters want to use this opportunity to punish him for what he has promised and not delivered."

The last polls published before a blackout was imposed Nov. 18 had the "no" vote ahead by as much as 8 percentage points. However, at least 20% of respondents were undecided, leaving Mr. Renzi's supporters hope that a "yes" vote could still prevail.

Some say Mr. Renzi's resignation could open the door to a new government headed by the 5 Star Movement, an antiestablishment group that now enjoys nearly 30% of popular support. That prospect has spooked markets because of the party's eclectic economic positions, including a nonbinding referendum on Italy's euro membership and renegotiation of the country's €2 trillion ($2.1 trillion) debt.

But if Mr. Renzi resigns, most analysts instead expect Italian President Sergio Mattarella to appoint a caretaker government to draft a new electoral law and ferry the country to new elections, currently slated for early 2018. There is broad consensus on the need for a new law, since Italy currently has two different electoral rules for the upper and lower house of Italy's legislature—a situation likely to produce a hung parliament in the next elections. If parties agree on a new law quickly, the president could bring forward parliamentary elections, possibly to next autumn.

Among those mooted as possible leaders of a caretaker government are Dario Franceschini, now arts and culture minister and an expert on electoral law, and Pietro Grasso, president of the Senate. Another much-discussed figure is Economy Minister Pier Carlo Padoan, although he has strongly denied any interest in the job.

Italy's main parties—worried about the strength of the 5 Star Movement—are likely to coalesce around a new electoral law that blunts the populists' strength by establishing a strong proportional mechanism. That means future governments will be coalition affairs, which typically involve melding together a raft of parties to win a vote of confidence. Since the 5 Star Movement rejects the idea of participating in coalition governments, it would remain in opposition.

But an electoral law that neuters the populists will also produce governments too weak to make the bold changes the Italian economy sorely needs, according to Wolfgango Piccoli, head of the think tank Teneo Intelligence.

Minimizing the threat of a 5 Star government "will come at a cost," he said. "We end up with patched-up coalition….[and] whoever takes power will take a very hard look at what happened with Renzi and think very seriously about whether to embark on anything serious."

Meanwhile, Mr. Renzi wouldn't exit the scene. Since he would likely remain leader of the large center-left Democratic Party, any coalition would require the support of the 41-year-old, who is widely regarded as a savvy operator without any real rivals.

"There is only one real political leader [in Italy] and his name is Matteo Renzi," Mr. Berlusconi said last month.

Write to Deborah Ball at deborah.ball@wsj.com


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