Referendum Could Put Italy Back on Path to Early Elections
Referendum Could Put Italy Back on Path to Early Elections
(Bloomberg) -- A referendum set to take place in Italy next year has alarmed markets and raised the possibility the country could move to early elections, as politicians weigh their chances at a vote before the number of parliamentary seats is reduced.
Italian bonds dropped and the 10-year yield climbed to its highest since August as news of a referendum on a previously approved plan to downsize parliament fed speculation that politicians might push for new elections in early 2020, before the referendum is held.
Yields on 10-year debt rose 6 basis points to 1.398%, widening the BTP-bund spread 3 points to 162 basis points.
While sitting lawmakers had been seen as loath to contest an election for fewer seats in parliament, the referendum presents a dilemma to the ruling coalition, an unlikely pairing of the anti-establishment Five Star Movement and the center-left Democratic Party.
The government, the second to be led by Prime Minister Giuseppe Conte, has bickered internally and threatened to bring the country to new elections ever since it took power in September.
While an early election would offer disgruntled lawmakers a better chance of retaining seats than would be the case in a scaled-down parliament, it would also likely usher into power the League party’s Matteo Salvini and his center-right allies, based on recent opinion polls.
There could also be a backlash from voters, who might punish politicians seen as maneuvering to delay reforms in order to hold onto their seats.
Voter Resentment
Five Star rose to prominence by channeling voter resentment at the political class, with one of its lawmakers waving a giant pair of scissors at a demonstration in Rome when parliament approved the downsizing plan.
An Aug. 29 projection by polling company YouTrend.it suggested that Five Star -- along with Silvio Berlusconi’s Forza Italia -- would lose the most seats in a vote for a downsized parliament. Unsurprisingly, the referendum is backed by 41 Forza Italia lawmakers, the most from any party.
Conte attempted to put a brave face on the news of the referendum, telling reporters on Wednesday that it won’t have an impact on his agenda, news agency Ansa reported.
The prime minister’s position echoes that of one of his predecessors, ex-Premier Matteo Renzi, who now supports Conte’s coalition as head of the small Italy Alive party.
A Democrat reformist premier between 2014 and 2016, Renzi resigned after Italians rejected his proposed overhaul of the country’s constitution in a referendum that included measures to shrink parliament.
“Although nothing can be given for granted in Italy, we would advise investors to be ready for 2020 snap elections (and volatility on Italian securities),” Citigroup wrote in a report Wednesday.
The League would probably double its seats in a vote under the current system and some lawmakers could be tempted to jump to the anti-immigrant party, the report said.
--With assistance from Sonia Sirletti, Iain Rogers and James Hirai.
To contact the reporters on this story: Jerrold Colten in Milan at jcolten@bloomberg.net;John Follain in Rome at jfollain2@bloomberg.net
To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, ;Flavia Krause-Jackson at fjackson@bloomberg.net, Marco Bertacche
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