Pound rises against euro in wake of Italy referendum result

On Wednesday, Moody’s ratings agency downgraded Italy’s outlook for sovereign debt to negative from stable, saying the failure of the constitutional referendum slowed reform progress and left Italy more exposed to unforeseen shocks.

Between Friday – before voters would decide whether to reduce the powers of regional governments and the Italian Senate, a reform Renzi pledged to resign over if rejected – and Monday, the euro fell 1.2 percent against the dollar, to $1.0542 from $1.0672, before rising almost 2 percent Monday morning, to $1.0735.

But Hofer came close, winning 46.7% of the vote in the best ever national result for his Freedom Party after a bitter and polarising 11-month race. “They thought ‘I have no hope, and no job, who can I take it out on?” Five Star has promised to hold a referendum on the euro should it win the next general election, which is scheduled for 2018. This government”, he added, “is over.

On Monday, the day after the referendum, the Eurogroup of euro zone finance ministers said Italy would need “significant additional measures” to rein in its deficit next year, leaving a tough prospect for Renzi’s successor. But the financial world bounced back by morning. Italy’s budget raises the structural deficit by 0.6 points. Polls got it right ahead of Italy’s referendum, so traders were prepared. Renzi said in an interview before that vote that a “yes” vote was the true “anti-establishment choice”.

But even in the hours before his resignation, Renzi was seeking to pave a path – however uncertain – for his eventual return.

But Italians were not thinking about the European Union as they went to the polls Sunday. Voters seemed less interested in the technical issues and more motivated by the grim economic outlook.

“We want to go to the ballot box soon”, said Roberto Fico, a 5-Star lawmaker.

One of the proposed reforms would have stripped the Senate of most of its powers and make it no longer directly elected. “It is the expression of a great deal of resentment towards the political establishment in Italy”, Patrick Rumble, University of Wisconsin professor, explained to Al Jazeera.

“What we’ll have now is a compromise with an ambiguous government which at the start will present itself as a simple bridge government to take the country to elections in three or four months, but which could strengthen over time”, he said. But, driven by technological advances and fast communications, politics is “much more exposed to the changes and vagaries of public opinion”, he says. A former comedian and now full-time politician could very well decide the next prime minister.

The Italian political system has the additional problem, rooted in its history, of a weak civic culture. But all the parties had agreed to revise it before the referendum.

Once the budget was passed, he could hand in his resignation, the palace said in a statement.

Infighting and party maneuverings have dogged the Democratic Party for the last few years. Considering 45 days for campaigning are set aside by law, it would be hard to hold an election before April.