What if Trump wins the November election and Renzi loses the December referendum?

Jean-Claude Juncker, President of the European Commission (on the left), received Matteo Renzi, Italian Prime Minister. Date: 28/06/2016. Location: Brussels - EC/Berlaymont. © European Union, 2016/Source: EC - Audiovisual Service/Photo: Etienne Ansotte.

Jean-Claude Juncker, President of the European Commission (on the left), received Matteo Renzi, Italian Prime Minister. Date: 28/06/2016. Location: Brussels – EC/Berlaymont. © European Union, 2016/Source: EC – Audiovisual Service/Photo: Etienne Ansotte.

After the Brexit, it became apparent that a large or probably the largest part of citizens/voters in the western world are questioning, if not strongly protesting against globalization, having felt its onerous consequences. The free movement of people, goods and capital is not any more a perceptibly good thing for the average man in the street. The Europeans are deeply perplexed even hostile to the hegemony of Brussels, and the Americans seem to have had enough with the supremacy of the banks and the military-industrial complex.

This reality is boldly exploited by a number of opportunist politicians in Europe and the US and the widely spread ideas of protectionism and xenophobia have created a painful reality. Mainstream politics and politicians are already paying the price. David Cameron, the former Prime Minister of Britain was the first one. Francois Hollande in France is in a precarious situation, unable to successfully confront Marine Le Pen, the leader of the xenophobic and Eurosceptic National Front.

Mainstream politics pay the price

In Germany, Chancellor Angela Merkel is losing ground fast, and the anti-EU Alternative for Germany (AfD) party has reached double digit percentages in opinion polls. In the US, Donald Trump, a volatile, xenophobic and anti-free trade ex reality show celebrity is successfully contesting the Presidency in a tight race with Hillary Clinton, a politician from the heart of the American establishment.

In the face of it, Trump appears as an anti-establishment hero, who can give people back their lost paradise of ‘great America’. To do this he uses some very clear ideas easily understood and grasped by the less educated and affluent Americans. His anathema against the immigrants is a header. Then, follows his inward looking anti-free trade rhetoric, aimed at touching the deeply lying American feeling of protectionism.

Xenophobic and protectionist

Last but not least, he attacks the US military spending, proposing instead that the NATO allies in Europe should spend more for the defense of the western world. All that adds up to less globalization and more protectionism. Not by chance Trump was the only major western politician to advise the Brits to chose ‘leave’.

It’s obvious then that if Trump becomes the next US President, he will try to reduce the involvement of his country in the European matters. That’s why he doesn’t appear hostile to Putin’s Russia, in contrast to the Obama administration’s policy of exorcizing Moscow. During the past years, Washington has proclaimed Moscow as the most important strategic threat to the American interests, a decision that Putin has criticized as completely baseless. The Russian President has also recognized the US as the only superpower and offered a just relationship, but has been turned down by Washington.

Banks and the military-industrial complex

The US-Russia relations as seen by Trump are of course connected with the American military-industrial complex, towards which Trump seems to be hostile. His inward looking attitude is certainly no good news for the US armaments industry. His message for less American military presence abroad goes hand in hand with his rejection of freed trade agreements. He has clearly rejected the Transpacific Partnership and Trade Agreement and opposed the almost dead now Transatlantic Trade and Investment Partnership with the EU.

Back to Britain’s perplexities, the Brexit vote made it clear that Europeans are fed up with ‘more Europe’, fearing that the EU is the Trojan Horse of more globalization and banking tricks. The Britons voted ‘leave’, despite the fact that the whole world not only tried to convince them to vote ‘remain’, but intimidated them if not.

It begun with Brexit

These observations about the meaning and the repercussions of the Brexit plebiscite bring the analysis to the decision of Matteo Renzi to hold a referendum in Italy. In the face of it, he aims at reforming the constitutional chart of the country. He says he wants to cut down the powers of the upper legislative house, to strengthen the muscle of the executive and ease the functioning of the government.

However, during the months after the announcement of the referendum early last June and until the voting day of 4 December, the nationwide discussion has touched every other possible or impossible issue, even Italy’s membership in the EU except the substance of the question. Renzi has repeatedly tried to restrict the discussion on the constitutional reform, but in vain.

What about Italexit?

For one thing, the entire opposition is against Renzi’s proposal. Both Berlusconi’s People of Freedom party and Beppe Grillo’s Five Star Movement are voting ‘no’. The latest polls give a 55% lead to ‘no’. The Italians seem to think that this referendum is a chance to protest for everything that plagues their everyday lives.

In a not so peculiar way, the ‘no’ option seems to be considered also as an indirect criticism for the European Union. The North-South division of the EU has plagued Italy and the public opinion has a lot to reprimand Brussels for. This newspaper has commented that if the result is a clear ‘no’, the next thing may be a referendum for Italexit from the EU.

Renzi in dire straights

Conclusively then, a ‘no’ to Renzi’s question on 4 December will not only shake his government and may force him to resign, but the blow will also be felt in Brussels. With Spain in a political paralysis, a bad turn in the Italian peninsula may trigger pan-European seismic tremors. Add to that the grave problems of the Italian financial situation and this country may trigger not only a European political crisis, but also a global financial meltdown.

In detail, Italy’s government debt is 132% of the country’s GDP or around €1.2 trillion, and being painstakingly served. The Italian banks are reputedly in a very bad shape, dangerously undercapitalized and plagued with 40% of non-performing loans. To be noted also, that the rest of the European banking system is also under pressure. Deutsche Bank is having a bad time in New York and more major European banks are waiting their turn to be scrutinized by the US authorities.

A catalyst

In such a difficult financial environment, a ‘no’ outcome in the Italian referendum may act as a catalyst for further developments. Renzi said in June that he will quit the premiership if he loses. However, the extent of his defeat and the financial difficulties may oblige him to stay.

After August he has being contemplating this possibility publicly, saying that the legislative election will be held in 2018, despite a ‘no’ result in the referendum. In this case though his government will emerge politically much weaker and the next legislative election may come earlier than 2018. Renzi’s full u-turn, changing his position if he loses from a clear ‘quit’ to a ‘stay’, will leave an indelible stain on his political standing.

Markets may sink

No matter then what Renzi says or does during the next ten weeks, a possible ‘no’ result will undoubtedly shake Europe. The vibrations will be felt all over the western world. Add to that the possibility of Trump being the next American President and the mix becomes dangerously unstable. The capital and money markets will have to make very difficult adjustments and probably struggle not to go under. As for the political environment in the West and the rest of the world, it will have great difficulties in incorporating the changes.

All in all, a Trump triumph and an Italian turmoil may trigger a financial and political resettlement, if not a restructuring of the world as we know it.

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