Renzi prepares to resign after referendum failure

Alternatively, Italy could call a snap election if the President and Parliament are unable to form a caretaker government.

Initial market reaction was subdued.

In a note to clients, David Zahn at Franklin Templeton Fixed Income Group, said he does not not anticipate the result of the referendum this week to have any major impact on the ECB’s plans.

“The markets recovered very quickly and they’re back to where they were”. Italian bond yields rose slightly, having already edged up prior to Sunday’s vote.

“It is up to the other 27 governments to relaunch Europe. It seems to ne now that there isn’t a financial crisis coming from the referendum in Italy”, he said.

“I think we should see the situation in Italy with a certain calmness”, he said, adding: “I think there is no need to talk about a euro crisis”.

In October, Nobel Prize-winning economist Joseph Stiglitz predicted that Italy would leave the eurozone, as “Italians are starting to realize that Italy doesn’t work in the euro”.

At this point, he added, it appears that the Five Star Movement, which is now pushing for a non-binding referendum on Italy’s membership in Euro zone, appears to be the biggest victor in this situation.

Observers varied widely in their interpretation of the vote.

“It doesn’t really change the situation economically in Italy or in the Italian banks”, said Jeroen Dijsselbloem, the Dutch finance minister who chairs meetings of his euro-area counterparts.

Before the referendum, most commentators, and financial markets, assumed that even if Renzi lost and resigned, a temporary unelected government would be installed to tide Italy over until the end of parliament’s term in 2018.

The result of the referendum could lead to snap elections as early as February and the growing popularity of the Eurosceptic Five Star Movement has many anxious the Italians could vote to leave the political bloc as Britain had done earlier in the year. Renzi said in an interview before that vote that a “yes” vote was the true “anti-establishment choice”. “They didn’t get into the subtleties”.

Also on Monday, Mattarella in a statement urged all sides to ensure “a climate of serenity and mutual respect” and that “the high turnout in Sunday’s referendum is a testament to a solid democracy (and) an impassioned country (that is) capable of active participation”. We want the same thing.

A presidential palace official, Ugo Zampetti, told reporters that Mr Mattarella will begin consultations on a replacement on Thursday with the heads of parliament’s two chambers, as well as with former president Giorgio Napolitano.

Since the adoption of the euro in 1999, government debt in Italy has soared to 133 per cent of annual economic output.