Italian voters have dealt premier Matteo Renzi a resounding rebuke by rejecting his proposed constitutional reforms, plunging Europe’s fourth-largest economy into political and economic uncertainty.
Mr Renzi announced he would quit following the referendum vote, in which 60 per cent of voters rejected his proposals and signalled they wanted a change in political direction.
The unexpectedly large margin of defeat, with a robust voter turnout of 68.5 per cent, appeared to rule out any chance Mr Renzi would be offered another shot at forming a government, although analysts expect President Sergio Mattarella to ask Mr Renzi to stay on long enough to pass the new budget, with a target date of 23 December.
The vote energised the anti-establishment 5-Star Movement and the anti-immigrant Northern League, whose leader has allied himself with far-right figures in Europe, including France’s Marine Le Pen and Norbert Hofer in Austria, who lost a presidential run-off in the country on Sunday.
While the opposition parties were joined in antipathy for Mr Renzi’s policies and reform course, they share little else in common, and have already begun vying to position themselves for new elections, although the timing of any vote remains unclear.
Analysts expect that Mr Mattarella would try to appoint a transition government to draft a new election law, with speculation centred on either Mr Renzi’s finance minister, Pier Carlo Padoan, or the president of the Senate, Pietro Grasso.
But that course is already facing opposition.
Northern League leader Matteo Salvini called for elections this winter, “because real change happens only through electoral victory”.
The election law, which Mr Renzi wanted to reform, would hand a huge bonus of seats to the lower house while maintaining a proportional system for the upper house, raising the potential for parliamentary gridlock.
With much wrangling ahead, the risk facing Italy is “a prolonged muddle-through period, the emergence of an ineffective, patched-up coalition government in the post-election phase and continuously poor economic performance,” said Wolfango Piccoli, a political analyst at Teneo Intelligence consultancy.
The Milan Stock Exchange opened down 2 per cent, with many bank shares suspended due to excessive volatility, before returning to positive territory.
Investors had been anticipating Mr Renzi’s defeat for several days, and had sold off Italian stocks and bonds. Yesterday’s sanguine market reaction can also be attributed to the fact that Italy’s markets indirectly enjoy a big backstop from the European Central Bank.
The central bank for the 19-country eurozone is buying 80 billion euro (£67.5 billion) every month in bonds, including government debt, across the currency bloc.
It is expected on Thursday to decide to extend that programme beyond its current end date of March.
The bond purchases aim to boost growth and inflation but also effectively help keep low government borrowing rates. That is crucial for Italy, which has a massive public debt load of 130 per cent of GDP.
Mr Renzi swept into power two-and-a-half years ago on a pledge to dismantle the system, but his brash ways divided his own party and his confidence was widely perceived as arrogance, even in other European capitals and especially in Brussels, where he had grown increasingly bold in pressing for flexibility on the budget.
“I lost and the post that gets eliminated is mine,” Mr Renzi said. “The government’s experience is over.”
Chancellor Angela Merkel’s spokesman said the German leader “took note with regret” of Mr Renzi’s announcement that he would resign following his defeat in the referendum.
Spokesman Steffen Seibert said in Berlin that Ms Merkel “worked very well and trustingly with Matteo Renzi, but of course the democratic decision taken by Italian citizens must be respected”.