Italy's Prime Minister Matteo Renzi announces his resignation during a press conference at the Palazzo Chigi following the results of the vote for a referendum on constitutional reforms, on December 4, 2016 in Rome. "My experience of government finishes here," Renzi told a press conference after the No campaign won what he described as an "extraordinarily clear" victory in the referendum on which he had staked his future. / AFP PHOTO / Andreas SOLAROANDREAS SOLARO/AFP/Getty Images
Italy's prime minister Matteo Renzi announces his resignation during a press conference in Rome © AFP

Matteo Renzi is set to resign after suffering a heavy defeat in a referendum on his flagship constitutional reforms, a result that plunges Italy into political crisis and raises fears of turmoil in its banking system.

Italians rejected the constitutional changes— designed to ease gridlock in the country’s political system — by a wide margin of 59-41 per cent, according to early returns, in a vote marked by a high turnout of nearly 69 per cent.

In an emotional press conference at the Palazzo Chigi early on Monday, Mr Renzi said the outcome had been “extraordinarily clear”.

He added: “We gave Italians a chance to change. It was simple and clear, but we didn’t make it.” Mr Renzi said he should bear the entire responsibility of the loss, and announced that he would submit his resignation to Italy’s president, Sergio Mattarella, on Monday afternoon.

The political instability triggered by Mr Renzi’s defeat could jeopardise plans by Monte dei Paschi di Siena, Italy’s struggling third-largest bank, to raise up to €5bn by the end of the year. The bank and its advisers are expected to meet on Monday morning to decide whether to go ahead with the plan.

Shares in Monte dei Paschi, along with other Italian banks, were volatile on Monday morning while traders digested the news.

The euro initially suffered a steep fall in the wake of the first exit poll showing a defeat for the Yes side, dropping to its lowest level against the dollar since March 2015. After falling as much 1.5 per cent to $1.0503, the euro was down only 0.3 per cent at $1.0639.

Analysts said investor sentiment was fragile ahead of the critical Monte dei Paschi meeting. Filippo Alloatti, an analyst at Hermes, said: “They [investors] need to wait to see what comes out of the meeting between Monte dei Paschi and the banks today, and what comes out of Rome in terms of formation of a new government”

Although Italy’s result is a blow to the EU establishment, there had been some cheer from Austria earlier on Sunday evening when a left-leaning environmentalist beat the far-right candidate to the presidency.

The Italian vote had been seen as yet another litmus test for the strength of populism in Europe.

While Mr Renzi comes from the moderate centre-left, the opposition to his reforms was led by the anti-establishment Five Star Movement led by comedian Beppe Grillo, Matteo Salvini, the leader of the anti-immigrant Northern League, and Silvio Berlusconi, the media tycoon and former prime minister. 

The No coalition was not exclusively composed of populists, however. It also included other former Italian prime ministers such as Mario Monti and Massimo D’Alema, as well as an array of senior jurists who believed the reforms were poorly crafted and concentrated too much power in the hands of the executive branch.

Marine Le Pen, the leader of the far right National Front in France, cheered Mr Renzi’s defeat, saying the “thirst of freedom” coming from Italy needed to be listened to.

Mr Renzi’s resignation seals the political downfall of the 41-year-old former mayor of Florence, who took office in February 2014 with a mission to reform Italy and will now see his tenure come to an abrupt end.

Earlier this year, Mr Renzi’s Yes camp had been widely expected to prevail in the referendum, but a combination of factors — including the weak economy, the migration crisis and problems in the banking industry — dented his popularity. Moreover, Mr Renzi chose to personalise the vote early in the campaign by threatening to resign if he lost, a move that galvanised and united the opposition against him. 

Mr Renzi had tried throughout the campaign to channel the anti-establishment mood sweeping Europe in his favour, arguing that a vote to streamline Italy’s political system represented a much-needed change for the country. But his pitch was met with derision from the opposition, which dismissed him as a power-hungry establishment politician who was excessively close to the European elite and global finance. 

“I don't like the Renzi government, I don't like what they are doing,” said Alfredo, a 68-year-old self-described communist voter at a polling booth on the Via Pannonia in Rome, near the ancient Baths of Caracalla. “I don’t like the way Italy is subordinated to Europe. I am in favour of Europe but I want a Europe of the people,” he added after casting a No vote.

5-Star Movement leader Beppe Grillo arrives at a polling station to vote in a referendum on constitutional reforms, in Genoa, Italy, Sunday, Dec. 4, 2016. Italians vote Sunday in a referendum on constitutional reforms that is being closely watched abroad to see if Italy becomes the next country to reject the political status quo. (Luca Zennaro/ANSA via AP)
Five Star Movement leader Beppe Grillo arrives at a polling station to vote on Sunday © AP

Livia Astolfi, a 44-year-old tourist guide, said: “I voted No because I don't like the way the reform has been written. The constitution is not carved in stone and it can be changed, but that’s not the way of doing it. I think Italy needs a better reform, not the one they asked us to vote. I don’t trust the current government and its policies and I don’t want to choose the lesser of two evils.”

Some, however, had hoped he would win. “I am going to vote Yes because we [Italians] are bogged down and Renzi is trying to drag us out,” said Francesca Romana Freni, a 34-year-old biologist.

After accepting Mr Renzi’s resignation, Mr Mattarella will launch a round of talks on the formation of a new government.

Any new government would either be led by Mr Renzi himself, or another senior member of his centre-left Democratic party — with Pier Carlo Padoan, the finance minister, Pietro Grasso, the president of the Senate, Graziano Delrio, the transport minister, and Dario Franceschini, the culture minister, among the candidates that are most frequently mentioned.

They would probably have a narrow mandate to carry the country to the next elections due in early 2018. But if there is no agreement on a new government, Italy would face the prospect of snap elections.

Mr Renzi’s defeat marks a big victory for the Five Star Movement, which has been running neck and neck with the ruling Democratic party in most national polls this year and has been aiming to unseat the prime minister for most of his tenure. Mr Grillo, the Five Star leader, labelled Mr Renzi a “wounded sow” and a “serial killer” during the campaign, which became increasingly ill-tempered towards the end.

But while the referendum result will embolden Five Star — which has called for another referendum, this time on exiting the euro — it would still have to gain power in parliamentary elections in order to carry out its political programme.

The result of Sunday’s vote could also boost the stock of Northern League’s Mr Salvini, in what has been a duel for primacy over the centre-right with Mr Berlusconi, who pushed for a No with less verve since his Forza Italia party includes more moderate voters.

As well as for Italy’s banks, the victory of the No camp will mark a huge disappointment for Italian business, whose top ranks almost unanimously pushed for a vote in favour of the reforms on the grounds that they would represent a big step towards the country’s modernisation. Confindustria, Italy’s main business group, and Coldiretti, the top agricultural lobby, were at the forefront of Mr Renzi’s campaign.

Supporters of the
Supporters of No in front of Chigi palace in Rome on Monday © Reuters

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