Italy's Renzi will face critical tests before year-end

Significance

This is a crucial step for the government before year-end, together with long-term banking issues and slowing economic recovery. The European Commission has allowed Italy considerable fiscal flexibility; the government promises to start reducing its debt-to-GDP ratio this year. However, the slowdown could delay achieving this goal. Under this scenario, the government has to campaign for the referendum on its Senate reform. A 'yes' vote is key not only for reforming the political system, but the government's survival.

Impacts

• A 'no' outcome would pull Italy into deep uncertainty concerning its political leadership.
• It would also end Renzi's premiership; a new majority could follow up to the 2018 general election.
• However, since Renzi is the PD leader, he is unlikely to support a new government; early elections are likely.
• In case of a 'yes' outcome, Renzi's premiership will be reinforced, marking a turning point to his declining popularity.