ROME Nov 29 Italy holds a referendum on Dec. 4
on the government's plan for a comprehensive reform of the
Opinion polls are banned in the last two weeks of
campaigning. Before the blackout started on Nov. 18, the final
battery of surveys all showed the 'No' camp well ahead, but with
up to 25 percent of voters still undecided.
Here are some central questions thrown up by the ballot.
WHAT IS THE REFERENDUM ABOUT AND WHY DID RENZI CALL IT?
The vote is on Prime Minister Matteo Renzi's plans to
abolish the elected upper house Senate and replace it with a
chamber of regional representatives which will have much reduced
powers. The government is also proposing taking back some key
decision-making powers from the regions.
Renzi got parliamentary approval for the overhaul, but
failed to secure the backing of two-thirds of lawmakers. As a
result, because this calls for a change to the constitution, he
had to call a referendum to get the reform passed into law.
WHY MIGHT VOTERS REJECT IT?
Critics say the reforms risk undermining democratic
safeguards put in place after World War Two to prevent the rise
of a new strongman. However, many people are likely to vote 'No'
simply to register their dissatisfaction with Renzi, who has
struggled to revive economic growth, rather than because they
oppose the proposed revamp.
WHAT HAPPENS ON THE POLITICAL FRONT IF IT'S A 'NO'?
Renzi has repeatedly said he will resign if the 'No' camp
wins, so he will almost certainly offer his resignation to
President Sergio Mattarella.
The head of state might urge him to rethink his decision for
the sake of political and market stability. One possibility
would be for Renzi to accept a new, limited mandate to oversee
an essential electoral reform and open the way for elections in
the first half of 2017, a year ahead of schedule.
If Renzi refuses, the president could ask a technocrat, such
as Economy Minister Pier Carlo Padoan, or an institutional
figure, such as Senate speaker Pietro Grasso, to lead a new
government. As head of the largest party in parliament, Renzi
would have a strong say on who is chosen.
WHAT HAPPENS IF IT'S A 'YES'?
Renzi's position would be considerably strengthened within
the country and his own feuding party. Some have suggested he
might look to cash in and seek snap elections, but one senior
government source categorically ruled that out to Reuters,
saying there was too much to do in 2017 including hosting G-7
world leaders and a European Union summit.
Renzi will also emerge highly bolstered on the European
stage. With both France and Germany likely to be distracted in
the coming months by national elections, Italy will be in a
strong position to push its anti-austerity message in Brussels.
WHY WOULD 'NO' BE BAD NEWS FOR ITALY'S BANKS?
Italian banks hold some 360 billion euros ($381 billion) of
bad loans, roughly 40 percent of all bad loans across the euro
zone. A number of lenders are financially shaky, with the
third-largest lender, Monte dei Paschi di Siena, set to launch a
5-billion-euro cash call next week. Investors are not expected
to sign up if political instability prevails, meaning the state
would have to intervene to stave off collapse.
Analysts worry a meltdown at Monte dei Paschi could damage
confidence in the entire banking system and trigger a full-blown
crisis that could take down several lenders.
HOW ARE FINANCIAL MARKETS VIEWING THE RISK OF 'NO'?
Financial markets have lost ground recently as the
likelihood of a 'No' vote has risen. Given that, a Reuters poll
last week said there might be only a muted response to
confirmation of such a result, with investors expected to demand
an extra 25 basis points in yield to hold Italian debt over its
German equivalent if the reform is rejected, and the euro
expected to dip 1.25 percent. However, they did not see much
upside in a 'Yes' vote.
Clearly any banking crisis could trigger selling on the
financial and stock markets, too.
The European Central Bank is ready to temporarily step up
purchases of Italian government bonds if the result of a crucial
referendum on Sunday sharply drives up borrowing costs for the
euro zone's largest debtor, central bank sources told Reuters.
IS THE 5-STAR MOVEMENT POISED TO TAKE POWER?
Opinion polls show the anti-establishment 5-Star Movement
beating Renzi's Democratic Party under the terms of Italy's new,
two-round voting system, which would put it in pole position to
win the next national elections. However, all parties say that
this law must be changed before a general election, so whatever
happens on Dec. 4, Italy will not be heading to a snap election
at breakneck speed.
Instead, the parties will try to thrash out a new election
law and it is certain that the main centre-right and centre-left
blocs will want a system that does not favour 5-Star. So the
5-Star's route to power looks likely to get more complicated
after the referendum.
COULD THE VOTE DEAL ANOTHER SETBACK TO THE EU?
Italian's faith in the EU took a battering during the recent
financial crisis, and both the 5-Star Movement and opposition
Northern League are against the euro currency. The 5-Star has
called for a referendum on membership of the single currency,
although it does not question membership of the EU.
However, a poll published last week by La Stampa newspaper
found 71.1 percent of Italians thought leaving the euro would
make the economy worse, with just 16.7 percent seeing it as a
boon. The same poll showed 67.4 percent support for the EU.
Given that, the threat to the EU and euro comes more from
the possibility of a banking crisis in a heavily indebted
country, which analysts say is too big to save and too big to
($1 = 0.9437 euros)
(Writing by Crispian Balmer; Editing by Pravin Char)