When Matteo Renzi took office, he promised to wreck the old structures that have been slowing Italy down for decades. But on Sunday he was hit by the wrecking ball himself, writes Andreas Rostek-Buetti.
In the beginning, Renzi's claim to be the wrecking ball for Italy's outdated structures was very popular. A young man who had been the successful mayor of Florence, a gifted speaker and somebody who seemed to have the self-confidence to turn Italy around. He had to be the right one to clean up his party, to get things right again in Italy's economy and preferably in all of Europe. Italy just loves such baroque characters, even if they look like young and modern innovators.
Good slogans are not enough
The man, who was never elected but nevertheless made it to the top of the EU's third biggest country and the world's eighth largest economy, has never been at a loss when it came to talk big. He also had plenty of pretentious plans. But his policy simply didn't show results, even before his defeat in the referendum.
This is what the majority of Italy's voters have attested Renzi in a massive turnout which has hardly been seen before in the country. Renzi's received the answer of the electorate for the lack of success, combined with his arrogance. The fact that the reform of Italy's constitution and bicameral parliamentary system has been left behind, almost seems to be a mere collateral damage.
A little while ago, hopes had been high that Italy would be on the right track with this young, energetic Social Democrat after years of stagnation during the Berlusconi years. But now is the time to take a look at the balance sheet after two and a half years with Renzi at the helm.
Until today, Italy has not yet overcome the economic shocks of the global financial crisis of 2008. Italy's growth has been stalling or sluggish at best with less than a one percent economic expansion - something that won't change in the near future. The country's level of debt is as high as ever. Currently it stands at 135 percent of GDP. No country in the eurozone has more outstanding debt than Italy.
Jobs, Jobs, Jobs!
Since 2007, per-capita income has slipped down ten percent, a major setback for the majority of Italians. Not for all of them, of course, but for many millions. Enough voters to give the country's prime minister the boot. Especially Italy's young generation is affected. The country's unemployment rate stands at 11.7 percent. And almost every third Italian between 20 and 24 does not have a job.
And yes, finally there are Italy's banks with a heap of non-performing loans. Experts estimate the level of bad loans to be around 360 billion euros ($284 billion). Instead of lending money to businesses to stimulate the economy, banks like the venerable but ailing Monte dei Paschi di Siena have been battling for survival. It's a vicious cycle because first of all, the success of the Italian economy is based on the country's small and medium-size enterprises, which rely heavily on outside capital.
Instead, the financially stricken bank from Siena now has to fear for its five billion euro rescue package. It remains to be seen if the ailing bank will be able to find enough financial backers without the essential political backing from Rome. And the crisis of Monte dei Paschi has the potential to unhinge the entire financial sector of the country. Because if there are not enough funds to save Monte dei Paschi, what will happen to Italy's biggest bank? Even the Milan-based UniCredit is struggling to raise 13 billion euros of additional capital.
Banks and public budgets are closely linked with each other and, of course, an impending government crisis causes great anxiety. But Italy's banks do not alone have giant heaps of bad loans: they also finance staggering amounts of Italy's sovereign debt.
Italy needs reforms!
But despite all this, Italy has been able to maintain its position as one of the world's biggest economies for years. Even though some people in the north of the continent might look down south with malice and a quizzical look on their faces. After nearly seventy governments in seven decades in Rome since the end of World War II, that hasn't changed. The country's political and economic system has been surprisingly flexible - before the euro and since the country adopted the single currency. Without Renzi, with Renzi and probably after Renzi.
But after all, the much needed reforms that have sealed the fate of Renzi are long overdue. A baroque system, sporting two chambers of parliament with equal rights, is not a showcase of democracy. It is expensive and slow. An assertive government in Rome doesn't have to remind us of Mussolini. It would rather pave the way for Italy's modernization which is long overdue. The beneficiaries of a deadlocked system have been impeding reforms for many years, in Italy's south as well as in the country's rather euroskeptical north.
All this will be on the agenda again, after another of so many intermediate stages with what is known as a 'technocratic government'. Nothing will be solved on its own and a new government won't be able to sort everything out. The country has just lost valuable time. Because it has counted too many times on leaders like Berlusconi, Renzi or Grillo. Beppe Grillo with his 'Five Star' movement now could be the profiteer after Renzi's lost battle.
And with his smart and frightful political slogans he will also remain a beneficiary of this baroque system, whose reconstruction could have started with this constitutional reform.
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