GIE Research Market Commentary Italy`s Constitutional reform bill

GIE Research Market Commentary
Italy's Constitutional reform bill completed the second reading in parliament
Yesterday, the Constitutional reform bill was approved in the second reading by the Lower
Chamber. The positive vote came seven months after the first approval by the Senate in August 2014.
Despite the long period of time passed since then, the schedule set by PM Renzi at the end of last
year for this reform was broadly respected.
In terms of contents, the bill approved yesterday by the Lower Chamber confirmed the guidelines
already entailed in the first reading. The milestone of the reform is the end of the perfect
bicameralism, with the Chamber of Deputies gaining the exclusive right to exert the legislative power
in all but very specific topics (on which it will share responsibility with the new Senate composed by
regional and local representatives). A more rapid procedure to approve laws, in particular the ones
proposed by the government, will overcome one of the key problems of Italian legislative power, which
is the extreme slowness in passing laws (given the need to have each bill approved exactly in the
same way by the two chambers of the parliament, often in presence of difference majorities).
The bill was approved with 357 votes, with 125 deputies opposing the text and 7 abstaining. The 5
Star MoVement did not take part in the voting session in order to express the deep discontent with the
contents of the reform. The government coalition supported the bill, while Mr. Berlusconi’s Forza Italia,
the Northern League, the left-wing party SEL and other smaller parties voted against it. PM Renzi’s
Democratic Party was broadly compact in supporting the Constitutional reform bill, with only a
dozen of deputies manifestly opposing it.
The Constitutional reform bill will now move back to the Senate for the third reading. A final vote
(the fourth) is then needed in the Lower Chamber. The two chambers need to approve exactly the
same text in order to conclude the parliamentary process. While the two-third qualified majority
required to enforce immediately the reform is unlikely to be reached, PM Renzi has already
announced that he will seek a confirmation referendum on the Constitutional reform bill. In terms of
timing, the third and fourth reading can be completed within the summer and by year-end respectively,
while the confirmation referendum will likely take place in H1 2016.
The main obstacle to a final smooth approval of the Constitutional reform comes from the
ongoing debate on the electoral law. A minority within the Democratic Party (PD) has expressed its
dissatisfaction with the guidelines of the electoral law approved by the Senate at the end of January.
At that time, the support of Forza Italia’s party was determinant in passing the bill. Now, the minority
of PD threatens not to support the final vote on the electoral law in the Lower Chamber and/or
the third reading of the Constitutional reform bill in the Senate. While in the former case the risk
is low given the large majority enjoyed by the government coalition, the withdrawal of the support in
the Senate could delay the approval of the Constitutional bill, given that the government coalition can
rely on a much smaller margin there (166 seats out of 321, the absolute majority is 161). PM Renzi,
however, has locked the text of the electoral law and he is confident to have it approved by the
Lower Chamber after the regional and local elections (scheduled on May 31 and June 14).
While remaining aware of the risks attached to the final approval of the electoral law, we are
confident in PM Renzi’s ability to secure the approval of the key Constitutional reform bill and
the new electoral law by year-end. The fragmentation among and within the several opposition
parties and PM Renzi’s ability in controlling the opposition within his own party support our view. We
stress that the combined approval of the new electoral law and the Constitutional reform bill are key for
Italian politics as they would result in more stable governments and more effective policy action.
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