Italian referendum: managing the fallout for capital

On Sunday 4 December, Italians voted ‘No’ in a referendum on constitutional reform, a consistent issue in Italian politics. A ‘Yes’ vote would have meant changes to the composition and powers of the Italian Parliament, ending Italy’s ‘perfect bicameralism’ by reducing the powers and size of the Senate. Currently, all laws must be passed in exactly the same wording by both houses, leading to almost unending navetta parlementare (parliamentary shuffle). The proposed reforms would have eliminated this requirement in the vast majority of cases, as well as modifying the division of powers.

This was the third constitutional referendum in the history of the Italian Republic and its roots date back to 2005 when former president Silvio Berlusconi proposed a Reform Bill, which in 2006 was also rejected by referendum. Discussions on constitutional reform resumed in 2011, during the technocratic government of Mario Monti (see FRFI 227). In February 2014, Matteo Renzi became Prime Minister and pledged to implement constitutional and electoral reforms, hoping to give the government more power and combat the ‘gridlock’ which characterises Italian politics. In January 2016, Renzi set the date for the referendum as October 2016 and announced that if he lost he would resign. 

On a turnout of 65.47%, 59.11% voted ‘No’. Immediately following the result, anti-EU right-wing ‘populist’ groups renewed their calls for new elections in an attempt to politically capitalise on the situation. For the ruling Partito Democratico (PD), things are more complicated. Some in the party feel that new elections would do nothing but give ground to Eurosceptic parties like the Northern League and the Five Star Movement  (see ‘European elections: irrelevant for the majority’) while others argue that delaying them will further infuriate voters and push them towards these parties, where currently they predict a PD victory due to the fact that the ‘populist’ vote is split and the fact that the centre-right Forza Italia party would probably form a coalition with PD in order to keep out the eurosceptics.

The Eurozone crisis is highlighting divisions in the Italian ruling class. On the one hand there are those who believe in the reactionary fantasy of an independent Italian imperialism, and on the other there are those who acknowledge that Italian imperialism can only survive as a part of a larger imperialist bloc.

The first trend is represented by groups like the Northern League. One of its key figures, in charge of economic policy, is Claudio Borghi, a former broker for Merrill Lynch and Deutsche Bank who favours ‘Italexit’ and a return to the Lira, which he insists on calling the ‘Florin’ in reference to past Florentine commercial supremacy. Borghi’s view is that outside the Euro, the Italian state would be free to shore up Italy’s problem-ridden banking sector: ‘You have to step in to save the banking system in a crisis otherwise everything is destroyed.’[1] Groups like the Northern League advocate the same kind of reactionary fantasies of an independent imperialism as the Brexit camp in Britain. They also represent the same class forces: the petty bourgeoisie whose living standards have been hit as the crisis drives the subsumption of small capital into big capital, sections of the big bourgeoisie whose financial interests lay outside of the Eurozone, and the most backwards sections of the labour aristocracy whose political role is to defend imperialism against the interests of the mass of the working class.

On the other side of the split is the dominant pro-Europe section. While the eurosceptic camp’s key priority is to capitalise on the referendum vote, the europhile camp’s key priority is damage control in the interests of big capital. Matarella stated on the day after the referendum that he will not call snap elections and ‘froze’ Renzi’s resignation until the 2017 budget was passed on 6 December.

On 12 December, Paolo Gentiloni, who was foreign minister throughout Renzi’s premiership, was sworn in as Prime Minister. His coalition government is supported by his own DP and the Popular Area, a Christian centre-right coalition – almost exactly the same majority which supported Renzi’s government. Renzi’s resignation has served the illusion of political change, but in reality very little has changed, and the representatives of big capital retain control of the government. For this section of the ruling class in particular the main priority now is Italy’s banking sector, and this ‘caretaker’ government, should be able make unpopular political decisions such as funneling public money into the ailing Monte dei Paschi bank, something which Renzi desperately tried to avoid in order not to infuriate voters.

European banks currently hold around €1trn in ‘non-performing loans’: loans that the borrowers are no longer paying interest on and on which they could be about to default. Of that €1trn, around €360bn is held by Italian banks. Italian banks, therefore, are offering low returns, which is discouraging investment. This, in turn, means that Italy’s banking sector is seriously lacking in capital. When the European Banking Authority carried out its annual stress tests in July, Europe’s worst-performing bank was Italy’s Monte dei Paschi de Siena. MPS shares are volatile, regularly posting double-digit swings in single trading sessions. They have fallen 86% over the last year, and by fell 4.2% on the day after the referendum.

The bank has been brokering a deal to raise around €5bn in capital funds, but investors have backed off since the referendum due to political uncertainty. The most important potential investment is €1bn from the Qatar Investment Authority, without which the other investments are likely to be retracted. JPMorgan Chase and Mediobanca (advisers to MPS) have been working with Finance Minister Pier Carlo Padoan (a technocrat who, before becoming finance minister, had worked for the IMF, World Bank, European Central Bank, the OECD and the European Commission) to persuade the Qatar Investment Authority to invest. On 6 December, Marco Morelli (chief executive of MPS) flew to Frankfurt to meet bank supervision officials at the ECB. At the end of trading on that day market confidence, and therefore MPS shares, recovered after Vladis Dombrovkis, the EU’s commissioner for financial stability, said that Brussels was in close contact with Italy over the banking sector. The Financial Times reports that according to ‘people close to the talks [between MPS and the ECB], other potential investors, including US hedge funds, have asked for the new government – preferably led by finance minister Pier Carlo Padoan – to be in place before proceeding.’[2] On 7 December , MPS wrote a letter to the ECB saying that it would be unable to conclude any deal until a new government is formed. The dominant sections of the Italian bourgeoisie have allies in the intra-imperialist bloc of the EU. Both favour a technocratic government to rescue MPS and to restore market confidence in the banking sector of the Eurozone’s third largest economy, the collapse of which could endanger the entire Eurozone. The likelihood of this outcome has reassured investors. Faith that MPS will be recapitalised in one way or another pushed the Italian banking index 9% higher on 5 December, its best one day performance since 8 July. Monte dei Paschi stock even added 1%. Confidence has also limited the shock on the euro: end of trading on Monday 4 December saw the euro at £0.842, down only 0.002 from the Friday prior to the referendum. Since the appointment of a pair of safe hands as prime minister, market confidence looks set to fully recover.

Imperialism is parasitic and decaying capitalism. Italy is a minor imperialist power that has been hit hard by the crisis. The reality of the Eurozone is that it forces the cost of the crisis onto the weaker powers in order to shore up French and German imperialism. The dominant sections of the Italian ruling class understand that even though a disproportionate amount of the cost of the eurozone crisis is forced onto Italy by membership in the European bloc, this is a necessary price to pay to prop up a weak Italian imperialism which cannot survive on its own. Without the power that the EU brings, Italian capital could never compete against US capital and its position as an imperialist power would collapse completely.

According to calculations by Michael Roberts since Italy joined the Eurozone in 2000 the rate of profit has fallen by 20% (double the decline of the US and the UK), and is now down 30% since 2004.[3] Between 2007 and 2016, real GDP per head at purchasing power parity fell 11% in Italy, while in Germany it rose by 11%. Real GDP growth per head has been negative since 2004. In the entire Eurozone, only Germany’s rate of profit has risen since 2009. Like all capitalist crises, this is a crisis of profitability. As the rate of profit has fallen, investment into Italy has slowed, leaving Italian banks with no capital to invest. This creates a contradiction for the ruling class. The solution to a falling rate of profit is the large-scale destruction of defunct capital, but this is something that the ruling class simply cannot countenance.

The great Italian communist Antonio Gramsci argued in his Prison Notebooks that the ‘historical unity of the ruling classes occurs in the state, and their history is essentially the history of states and groups of states.’ Big capital and its representatives are moving to cement their control over the Italian state. Matarella has stated that the priority for the new government before the next elections in 2018 will be to change the ‘Italicum’ electoral law which came in in July and which allows for the possibility of a majority Five Star Movement government, an undesirable outcome for big European capital. As the divisions in the ruling class are creating problems, the dominant section is moving to secure a ‘technocratic’ government in place of a right-wing populist one. We warned during the 2012 elections that if ‘the left does not find a way to unite and to create a structure where a class-based movement can grow, the country is in great danger of falling prey to the far-right and its petty-bourgeois decoys.’ (FRFI 227) It seems that the big bourgeoisie is moving to ensure that the country will remain in its parasitic grip.

Séamus Padraíc

[1] The Telegraph, 7 December 2016

[2] Financial Times, 7 December 2016

[3] Michael Roberts, ‘The long depression in Italy’,


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