Italy president tells Renzi to delay resignation until budget approved

Rome – Italian voters dealt Premier Matteo Renzi a stinging defeat on his reforms referendum, triggering his resignation announcement and galvanising the populist, opposition 5-Star Movement’s determination to gain national power soon.

The no vote in Italy’s referendum is “devastating for Prime Minister Renzi and a negative outcome for both political stability and the economy in Italy”, said Wolfango Piccoli, co-president of research firm Teneo Intelligence.

Initial market reaction to Renzi’s departure has been subdued.

Q: What about the longer-term?

Though Mr Renzi has already met Mr Mattarella, he will not hand in his resignation to him until after a final cabinet meeting.

President Sergio Mattarella told him to stay on until parliament approves the 2017 budget.Moving quickly, Renzi on Tuesday called a definitive confidence vote on the budget, to be held in the Senate on Wednesday, after which he is expected to return to Mattarella with his resignation. Italy is not scheduled to hold legislative elections until 2018.

Renzi, who had spent an hour with Mattarella earlier to discuss his options, arrived by vehicle at the Quirinale Palace, the historical presidential residence that used to house popes and sits on the highest of Rome’s seven hills.

The Finance Minister Michael Noonan has denied there is a new financial crisis as a result of yesterday’s referendum in Italy.

Italians living overseas also backed the plans, but the no victory was overwhelming, with areas of southern Italy, such as the Sicilian port city of Catania, voting more than 70 per cent against change.

“What interested me was speeding up the process of passing laws and not continuing the ping pong between the House of Representatives and Senate, waiting years before things happen”.

However, critics claimed the reforms would impact the constitution’s checks and balances and give the Prime minister too much power. Instead, Italian voters pulled the plug on the reforms, and now political leaders agree the electoral rules as they now stand are unworkable.

Backing for the Northern League has been largely stable at around 15 percent of voter intentions, and Five Star’s hopes of power are seen as being restricted by its reluctance to countenance alliances with other parties.

Martin Radjaby, managing director of the agency Jung von Matt, which coordinated the winning campaign, said: “Van der Bellen’s success in Sunday’s election has shown that liberals can reclaim subjects now occupied by populists and nationalists, such as tradition and patriotism”.

Both Five Star and the Northern League are opposed to the eurozone but not to membership of the European Union itself. At worst, they say, Italy’s shaky banks could need some extra rescue money.

Mr Berlusconi himself was forced to resign in 2011 amid growing global concern over Italy’s sovereign debt crisis and was replaced by economist Mario Monti, without elections.

Reuters news agency quoted German Finance Minister Wolfgang Schaeuble as saying there was no reason for a euro crisis but that Italy urgently needed a functioning government.

Speaking en-route to Bahrain for an official visit, Mrs May said: “This is a matter for the Italian people”. “Starting tomorrow we’ll be working on a government of the 5-Stars, we’ll involve the energies and the free persons who want to participate”.

What will it do to the economy?

The euro however, later recouped some of its losses in mid morning trade.

However it has become clear that Europe will face a new period of political uncertainty.

European Union rules require countries to cut their “structural” budget deficits – adjusted for swings in the business cycle – by at least 0.5 percent of GDP every year until they reach balance or surplus.

Shares in Italy’s largest bank, UniCredit, sank more than 3%, while shares in Monte dei Paschi di Siena (the oldest and one of the most vulnerable) dropped by 4% on the day when bankers are due to meet (paywall) to come up with a rescue plan for the teetering lender.