The inauguration of Donald Trump as 45th President of the United States represents the triumph of populism over the world’s greatest democracy. It also sets the stage for populists to make further gains across Europe. Trump’s affection for Nigel Farage is plain to see. His affinity for (and his attraction to) populists of other shades is easy to find as well. The challenge is to sort out what this means for the European project. Populists tend to stake out Euroskeptical positions, and Donald Trump has made no secret of his indifference for the European Union, but it is hard to say just how populists can have a lasting impact unless they somehow manage to seize control over government.
The political landscape of Europe is changing rapidly and in ways that are hard to interpret. The recent Italian referendum is a good illustration. Matteo Renzi inherited an agenda to reform the Italian constitution when he became prime minister. He negotiated an agreement with the centre-right on the precise details of the package. He shepherded the agreement through two majority votes in each of Italy’s two chambers of parliament. He then brought the agreement to a popular vote as per constitutional requirement and with an electorate broadly disenchanted with politics and therefore favourable to reform. Nevertheless, virtually every party outside the government opposed the reform package and Renzi lost the referendum vote by a spread of twenty percentage points. Now Renzi is out of office. Italy is without a viable electoral system because of changes made in anticipation of the (failed) constitutional reforms. And it is unclear whether the new government headed by Paolo Gentiloni has sufficient support in the Senate to pass a new electoral law. Most Italians did not want Renzi’s constitutional reforms and yet they are not happy with the status quo either. Disillusionment with politics has grown as a result.
The meme that is circulated about the referendum in Italy is that Prime Minister Matteo Renzi gambled heavily and lost. Having staked his political future on the success of a controversial constitutional reform package, Renzi has now placed both the country’s financial system and the euro area as a whole in jeopardy. As with most memes, there is some truth hidden in this assertion. There is also much that is misleading. The complicated reality is that Renzi must have recognized that it would be hard to win the referendum. He also must have realized that he had little choice but to try.
Italians head to the polls on Sunday, December 4, to approve or reject a series of constitutional reforms that will redirect policy competence from the regions to the state, that will transform the Senate into a council of regions, and that will concentrate power in the Chamber of Deputies and the national government. Italian Prime Minister Matteo Renzi argues that these reforms are necessary to equip Italy with the flexibility needed to compete in the global economy of the 21st Century. His opponents counter that changing the constitution this way will eliminate critical checks and balances and so make the country vulnerable to authoritarianism if not dictatorship.
The surprise victory of Donald J. Trump in the United States (US) presidential elections briefly pushed the euro, the Swiss franc, and the Danish kroner up against the dollar. It also pushed down the yields on high quality sovereign debt and it temporarily sent equity markets into the red. This was all to be expected. Like almost everyone, market participants thought Hilary Clinton would gain the White House alongside a predominantly Republican Congress. They placed their bets to take advantage of another four years of competent administration and legislative logjam. A Trump victory upset that calculation and so some of those market participants were trying to safeguard their capital until they could get a better sense of what is happening. The assumption they made was that Europe can act as a safe-haven. Unfortunately, that assumption is mistaken.
The center left in Europe is ceding ground almost everywhere. The British Labour Party not only lost the May 2015 elections but then threw itself into the arms of Jeremy Corbyn. Barring a Brexit debacle for the ruling conservatives, Labour is unlikely to return to power in the next decade despite Corbyn’s success at recruiting new party activists. The Spanish socialist workers party (PSOE), having been weakened by widespread corruption, jettisoned its leader and looks ready to offer tacit support for a minority government led by the conservative Popular Party (PP) to avoid facing the voters this December.
The U.S. Ambassador to Italy, John Phillips, caused a minor uproar by telling the Italians that international investors were going to be disappointed with a ‘no’ vote in the upcoming referendum on constitutional reforms. At about the same time, Finch announced that a popular rejection of the reforms would put downward pressure on the country’s ratings. The Italians responded that the ambassador should mind his own business and that the ratings agencies should find some new analysts. Italy will be fine whatever the referendum outcome, they insisted. If anything, this unwelcome foreign intervention is going to encourage the Italians to vote against the reforms just to prove a point. The echoes with Brexit were obvious – and widely noted. So is Italy headed for disaster or is this just another storm in a teacup?