His decision to quit after just two and a half years in office deals a blow to the European Union, already reeling from multiple crises and struggling to overcome anti-establishment forces that have battered the Western world this year.
The euro fell to 20-month lows against the dollar, with markets worried that instability in the euro zone’s third largest economy could reignite a dormant financial crisis and deal a hammer blow to Italy’s fragile banking sector.
Renzi’s resignation could open the door to early elections next year and to the possibility of an anti-euro party, the opposition 5-Star Movement, gaining power in the heart of the single currency. 5-Star campaigned hard for a ‘No’ vote.
“I take full responsibility for the defeat,” Renzi said in a televised address to the nation, saying he would hand in his formal resignation to President Sergio Mattarella on Monday.
Mattarella will have to embark on a round of consultations with party leaders before naming a new prime minister – Italy’s fifth in as many years – who will be tasked with drawing up a new electoral law.
Early projections said Renzi managed to win little more than 40 per cent of the vote on Sunday following months of bitter campaigning that pitted him against all major opposition parties, including the anti-system 5-Star Movement, however the rejection still came as a surprise.
“We didn’t know what kind of a result we were expecting and the turn out was pretty impressive,” PhD candidate at Swinburne University of Technology Chiara De Lazzari said.
almost seventy per cent of the electorate cast a vote and that’s pretty impressive and it came as a surprise … because nobody knew until the last minute how the outcome could be.”
Opinion polls in Italy are banned two weeks prior to a vote.
Italy’s parties will now have to work together on the new electoral law, with the 5-Star urging a swift deal to open the way for elections in early 2017, a year ahead of schedule.
Opinion polls show Renzi’s Democratic Party (PD) is neck-and-neck with the 5-Star, which has called for a referendum on Italy’s membership of the Euro currency.
Where to for Italy now?
Matteo Renzi’s resignation will throw the Italian political system into limbo, Ms De Lazzari said.
“The problem is that he [Renzi] is also the leader of the Centre-Left party so they will have to have an election also within the party to nominate a new leader .
“I think certainly now the Opposition leaders are very very happy to go straight to an election and that’s something the Centre-Left will not support because they will have to restructure the entire party considering Matteo Renzi is not welcome in the party at this stage,” she said.