A little background is in order. Italy has been a focus of efforts to stabilize the EU since the last fiscal crisis. You remember the term PIIGS, right? That was the term for Portugal, Italy, Ireland, Greece, Spain, the most financially troubled countries in the EU. My earliest reference to the term was the first actual post on this blog, so it goes back before February of 2010.
Like most of the Western world, Italy is going through a period of anger with their elected leaders, thinking them a corrupt, venal, criminal ruling class interested only in their own betterment at the expense of taxpayers. In 2007, Beppe Grillo, an Italian actor and comedian, launched Vaffanculo Day to register that disgust with politics. Those of us not from areas where Italian is spoken every day are probably not aware that “vaffanculo” is Italian for “f*** you” (you'll also see that interpreted as “f*** off”).
What began as a joke morphed into a political party which took the more publicly acceptable name of the 5 Star Movement or M5S. M5S then morphed into one of the most popular parties in Italy, winning mayoral elections in Rome and Turin earlier this year. Italy has had virtually no productive growth since it joined the euro in 1999. M5S blames Italy’s chronic lack of growth on the euro and it appears a large plurality of Italians agree.
M5S has promised to hold a vote to leave the euro and return to Italy’s old currency, the lira, as soon as they’re in power. Under these circumstances it would probably pass.Remember Brexit? How about calling this iExit? Leaving the EU and government reform have become the central theme of a referendum coming on December 4th, which CITI bank is calling a bigger risk to the EU than Brexit. Renzi has offered to take power from the senate because Italians think the senate is a useless, obstructionist debating club. (Sound familiar?) Renzi's proposal doesn't seem to be widely popular because Italians also don't seem to trust transferring the power to the Prime Minister. They have a well-kept memory of a too-powerful executive (can you say Benito Mussolini?).
Meanwhile, the current pro-EU Italian government of Matteo Renzi is holding a referendum on changing the Italian constitution later this year.
If Renzi's constitutional change fails, he has said he'll resign, and this opens the path to Italy leaving the EU. Voting against the current government, though, seems like it's giving them the finger, a real Vaffanculo Day.
There's more at stake here than just populist politicians and an angry population wanting to tell their leaders to “f*** off ”. Italy's economy has brought the concept of bank bail-ins back to the population.
Last year, four small Italian banks became insolvent and immediately needed capital. They turned to a bail-in.A pair of retirees living off their savings in those banks responded by committing suicide. The news rocked the nation. The level of anger at the banks and the government is reaching a boiling point. (Again, sound familiar?) It’s hard to imagine that the frustrated Italian populace won’t vote to give the establishment the finger in the referendum and humiliate the pro-EU government. By that time, our election should be over (barring another Florida-style perpetual recount). It seems like it has the potential to be a pretty ... interesting couple of months.