Every third Italian under the age of 35 is unemployed. Public health and pension funds are financially stretched. “Portuguese conditions” could happen.


For around six months, Italian Prime Minister Matteo Renzi has been pushing for a majority approval of his constitutional referendum. It is intended to approve significant changes to the constitution and administrative structures while “incidentally” strengthening the government. After Renzi initially announced he would resign in the event that the referendum was defeated, the Italian newspaper “Il Messagero” has reported that he is now reconsidering. In addition to abolishing equality between the two parliamentary chambers by reducing the power of the senate, Italian governments will no longer be able to be easily overthrown. Furthermore, it will be impossible to permanently block legislative proposals made by the government. According to Italian opinion polls, Renzi’s popularity has declined as has general support for the EU and domestic reforms initiated as a result of the Italian financial crisis.  

A seven-year economic crisis, overly high debt and numerous cases of corruption in all political camps have increased frustration. Furious citizens who are against the referendum are on the left and right of a constantly weaker political centre. Both the popular left movement “Cinque stelle” formed by ex-comedian Beppe Grillo and neo-Berlusconians and a growing extreme right movement in both the north and south of the country believe their time has come when new elections are held. Polls doubt that Renzi will have an easy win. As such, he has been giving vague answers to a possible resignation in the event of a defeat which gives the impression that he cannot be “gotten rid of this way”. The social-economic situation is indeed dramatic; every third person under the age of 35 is unemployed, the social state is not working at all well and 4.6 million Italians live below the poverty line.  

In October, a serial crisis in the Italian banking system could only be avoided with great effort and dubious financial intervention. As a result of the ailing Banco Monte Paschi di Siena, probably the oldest money house in Europe, the spotlight was put on the creditworthiness and excessive demands of the creditor banks across the whole country. As reported in “Il Messagero”, there are unsecured loans of more than 320 billion euros. Neither the Italian National Bank nor EU rescue packages could offset this. The solvency of the National Bank itself would be put to the test in the event of rampant bank insolvencies. Therefore, the guardians of the euro are very keen to avoid a stability crisis in Italy in the crucial election year of 2017. With elections in Germany and France, the timing is not politically secure. How this will be done is still largely open. 

Italy’s high debt is continuing to grow. Competition is declining and there are increasing capital outflows. Unemployment has not significantly improved; there are cracks everywhere in social welfare. Stakeholders from the unemployment insurance sector are already calling for a “Europeanisation” of funding. The other social sectors will surely follow but they, like the pension insurance system, face major challenges, in particular the ailing public healthcare system whose performance various enormously from region to region. In this charged atmosphere, new elections could result in “Portuguese conditions”, that is, a left-wing government and unabated public spending. However, given the importance of the Italian economy, this would be in an entirely different league.