The upcoming constitutional referendum is a key event for Italy’s government and the political developments heading up to the general elections in Spring 2018. According to opinion polls, the outcome remains too close to call. The proposed constitutional reform has some flaws, but the bulk of it would be a significant positive step toward making (1) the legislative process more effective, (2) governments more stable, and (3) the relationship between central and local governments better functioning. In the event of a ‘no’ vote, the reform would have to return to the drawing board, which would mean a delay of at least 2-3 years. The two-pronged risks of (1) prolonged government instability and (2) the Five Star Movement rising to power remain low probability scenarios.
Italy’s policymakers will try their best to avoid overcrowding an already heated autumn with a cluster of banking, political, and fiscal events. The referendum on constitutional reform will be the most crucial event by far, as it could have consequences for the survival of the current government, future political developments, and the timing of the next elections. Would a ‘no’ vote send Italy into a tailspin? What are the possible scenarios?