“My experience of government finishes here,” said a downcast Renzi after acknowledging a defeat of almost 60-40 percent over his constitutional reform bid, which threw the future of one of the eurozone’s biggest economies into turmoil.
Renzi, 41, will meet President Sergio Mattarella later Monday to hand in his resignation formally after a final cabinet meeting.
Mattarella will then be charged with brokering the appointment of a new government or, if he is unable to do that, ordering early elections.
The euro sank to a 20-month low and most Asian stocks also retreated as investors fretted over the effect the political instability could have on a long-running banking crisis in Italy, and the possibility of elections that could usher in anti-EU parties.
Italy’s FTSE MIB stock index tumbled 2.0 percent at the opening before clawing back some ground, underperforming other European markets. Italian bond yields also rose slightly, reflecting investor nervousness.
However, traders were reassured in part by the result of Europe’s other crucial vote this weekend, which saw Austria reject a populist, far-right candidate for president.
And a market meltdown had also been avoided because “the next steps are far from clear for Italy and traders are not panicking yet”, said Craig Erlam, senior market analyst at Oanda.
Nevertheless, Holger Schmieding, an analyst at Berenberg, said the risk that Italy could choose to leave the euro had increased with the referendum.
‘A people’s victory’
Populists in Italy and throughout Europe rejoiced at Renzi’s downfall, with the founder of the anti-establishment Five Star movement Beppe Grillo calling for an election “within a week”.
Grillo said a snap election should be held on the basis of a recently adopted electoral law designed to ensure the leading party has a parliamentary majority – a position the populist movement could find itself in at the next election.
“The people have won,” Matteo Salvini, head of Italy’s anti-immigrant Northern League party cheered on Twitter, with Marine Le Pen of France’s far-right National Front sending him and the Italian people “congratulations on this beautiful victory”.
Britian’s eurosceptic Nigel Farage, who spearheaded the “Brexit” campaign, said the vote looked “more about the euro than constitutional change”.
Most analysts see immediate elections as unlikely because the failure of the constitutional changes has put a spanner in a recent electoral reform, making a parliamentary majority almost impossible.
The most probable scenario is a caretaker administration dominated by Renzi’s Democratic Party taking over until an election due to take place by the spring of 2018.
Finance Minister Pier Carlo Padoan is the favourite to succeed Renzi as prime minister and the outgoing leader may stay on as head of his party – which would leave him well-placed for a potential comeback to frontline politics at the next election, whenever it is.
Padoan cancelled a trip to Brussels on Monday, a spokesperson confirmed.
EU Economic Affairs Commissioner Pierre Moscovici rushed to calm the troubled waters, insisting that while there was “political instability”, Italy was nonetheless “extremely stable. It is a great economy, it is a very committed country in Europe”.
But German Foreign Minister Frank-Walter Steinmeier said it was “not a positive message to Europe at a difficult time”.
Opposition parties had denounced the proposed amendments to the 68-year-old constitution as dangerous for democracy because they would have removed important checks and balances on executive power.
Spearheaded by Five Star, the biggest rival to Renzi’s Democratic party, the “No” campaign also capitalized on Renzi’s declining popularity, a sluggish economy, and the problems caused by tens of thousands of migrants arriving in Italy from Africa.