MILAN (AP) — Italian voters dealt Premier Matteo Renzi a resounding rebuke by rejecting his proposed constitutional reforms, plunging Europe's fourth-largest economy into political and economic uncertainty Monday.

Renzi announced he would quit following Sunday's referendum vote, in which 60 percent of voters rejected his proposals and signaled they wanted a change in political direction. Renzi, who had boldly staked his political future on winning the referendum, was expected to hand in his resignation to President Sergio Mattarella later Monday.

The unexpectedly large margin of defeat with a robust voter turnout of 68.5 percent appeared to rule out any chance that Renzi would be offered another shot at forming a government. Analysts did, however, expect Mattarella to ask Renzi to stay on long enough to pass the new budget, with a target date of Dec. 23.

The vote energized the anti-establishment 5-Star Movement and the anti-immigrant Northern League, whose leader has allied himself with far-right figures in Europe including France's Marine Pen.

While Italy's opposition parties were united in antipathy for Renzi's policies and reform course, they have little else in common and have already begun vying to position themselves for a new election, although the timing of any vote remained unclear. Analysts expect that Mattarella will appoint a transition government to draft a new election law, with speculation centering on either Renzi's finance minister, Pier Carlo Padoan, or the president of the Senate, Pietro Grasso, to lead the effort.

But that course is already facing opposition.

Northern League leader Matteo Salvini called for an immediate election this winter "because real change happens only through electoral victory."

The current election law, which Renzi wanted to reform, would hand a huge bonus of seats to the lower house while maintaining a proportional system for the upper house, raising the potential for parliamentary gridlock.

With much wrangling ahead, the risk facing Italy is "a prolonged muddle-through period, the emergence of an ineffective, patched-up coalition government in the postelection phase and continuously poor economic performance," said Wolfango Piccoli, a political analyst at the Teneo Intelligence consultancy.

European partners sought to downplay the risk for the common euro currency and European unity.

"This is a crisis of government, not a crisis of state, and it's not the end of the West. But it's certainly not a positive contribution against the backdrop of the crisis in Europe," German Foreign Minister Frank-Walter Steinmeier said in Athens.

The EU finance commissioner, Pierre Moscovici, told reporters in Brussels that "I'm very confident in the capacity of the eurozone to resist all kind of shocks."

The main stock index in Milan was volatile. It opened down 2 percent, with many bank shares suspended due to excessive volatility, but recovered to trade down only 0.9 percent.

Investors had been anticipating Renzi's defeat for several days, and had sold off Italian stocks and bonds. Monday's sanguine market reaction can also be attributed to the fact that Italy's markets indirectly enjoy a big backstop from the European Central Bank.

The central bank for the 19-country eurozone is buying 80 billion euros ($85 billion) every month in bonds, including government debt, across the currency bloc. It is expected on Thursday to decide to extend that program beyond its current end date of March. The bond purchases aim to boost growth and inflation but also effectively help keep low government borrowing rates. That is crucial for Italy, which has a massive public debt load of 130 percent of GDP.

Italy's 10-year bond yield was stable at 2.03 percent on Monday. That's up from 1.65 percent last month but is still very low for a highly indebted country like Italy. It's also far short of the 7 percent rate that in 2012 had created fears that Italy might default and fall out of the euro.

Still, the result cast doubts on the ability of Italy's third-largest lender and the worst performer in last summer's EU stress test, Monte Paschi di Siena, to execute a rescue plan that includes a 5 billion euro market recapitalization. Advisers are meeting to discuss the vote's impact, according to Italian media. Italy's biggest bank, UniCredit, also is to present to analysts its new business plan next week in London.

Renzi swept into power 2 1/2 years ago on a pledge to dismantle the system, claiming the moniker of demolisher. His brash ways divided his own party, however, and his confidence was widely perceived as arrogance, even in other European capitals and especially in Brussels, where he had grown increasingly bold in pressing for flexibility on the budget.

"I lost and the post that gets eliminated is mine," Renzi said early Monday after the polls closed. "The government's experience is over."</s>EU leaders today frantically sought to stop Italy’s political crisis from turning into a threat which could tear apart the eurozone.

They insisted the humiliating “No” vote which forced Italian prime minister Matteo Renzi to resign was a domestic issue, not a blow to the European Union. But the referendum result sent the euro plunging to a 20-month low against the dollar, before recovering.

The Milan stock exchange opened down two per cent, with many bank shares suspended due to excessive volatility.

Mr Renzi, 41, formally resigned today after 60 per cent of voters rejected his proposed constitutional reforms and signalled they wanted a change in political direction. The result is a major boost to Italy’s anti-establishment Five Star Movement, led by comedian-turned-politician Beppe Grillo who has in the past been dismissed as a “clown prince” of politics.

Mr Grillo, 68, who is campaigning for a referendum on Italy pulling out of the euro, is calling for early elections next year. Amid fears that some Italian banks could collapse in the political turmoil, French finance minister Michel Sapin insisted that Italy was a “solid country” and that Mr Renzi’s defeat was a domestic issue and not a rejection of the EU.

Jean Asselborn, Luxembourg’s foreign minister, said: “Italy voted on a reform. It would be wrong to extrapolate that now to the European level. It was a domestic political argument.”

However, he added: “It would be bad for the euro if the government crisis dragged on for a long time.”

In a more gloomy warning, German MEP Manfred Weber, the leader of the main conservative group in the European Parliament, said: “Initially, a phase of instability now lies ahead of us — how will one of the biggest countries in the European Union now stabilise itself?”

Megan Greene, chief economist at Manulife Asset Management, said that Italian banks’ woes could trigger problems in other eurozone countries. “You could see contagion spreading beyond Italy to the rest of the EU and that could certainly affect the cohesion of the currency area,” she told BBC radio.

The referendum verdict came hours after relief in many European capitals that Austrian voters had rejected Norbert Hofer’s bid to become the first freely elected far-Right head of state in Europe since the Second World War, choosing Green leader Alexander Van der Bellen as president instead.

However, the Italian vote was swiftly seized upon by French National Front leader Marine Le Pen, who tweeted: “The Italians have rejected the European Union and Renzi.”

The biggest immediate loser from the No vote could be Monte dei Paschi di Siena, Italy’s third-largest bank, which is weighed down by bad loans and looking to raise £4.2 billion this month to stave off collapse.

Its shares initially fell seven per cent before bouncing back to one per cent down. Yields on Italy’s benchmark 10-year bond soared to more than two per cent, before also retreating.

Mr Renzi’s decision to quit after just two and a half years in office deals a blow to the European Union, where elections in France and Germany are due next year. Pier Carlo Padoan, Italy’s economy minister, seen as a possible candidate to replace Mr Renzi, will miss scheduled meetings with European finance ministers in Brussels today, a Treasury source said.

About 33 million Italians, or more than two thirds of eligible voters, cast ballots following months of bitter campaigning that pitted Mr Renzi against all major opposition parties, including the anti-establishment Five Star, the rise of which has been likened to that of Ukip.

In a televised address last night, Mr Renzi said he took “full responsibility for the defeat” and today handed in his formal resignation to President Sergio Mattarella.

Mr Mattarella will consult with party leaders before naming a new prime minister — the fourth successive head of government to be appointed without an electoral mandate, a fact that underscores the fragility of Italy’s political system.</s>The euro fell to its lowst level against sterling since the end of June and Italian bonds dropped on Monday, after the country’s leader, Matteo Renzi, said he would resign after conceding defeat in the nation’s constitutional referendum.

The single currency also fell to a 30-month low against the dollar in Asian trade, but managed to claw bach much of its losses in early trading in Europe, where most stock exchanges also managed to advance.

However, Italian bonds and shares, led by banks, were heavily sold off in Milan, as investors fretted about the political upheaval caused by voters’ rejectin of Mr Renzi’s plans to rein streamling government was defeated by 60 per cent to 40 per cent, with almost all the vote counted.

“While the result is far from a ‘Brexit’ moment for Italian politics, with voters endorsing the status quo, but could embolden populist parties in the next election,” said David McNamara, an economist with Davy in Dublin. “The risk remains that an immediate election will be called, at which the populist Five Star Movement may gain ground.”

The euro fell as much as 1 per cent against sterling in Asian trade, to 0.83048p, though it managed to regain much of its losses in the early part of the European session, to trade at 0.83601p at 8.39am.

The single currency dropped as much as 1.5 per cent to $1.0506 overnight, the lowest since March, 2015, as traders in currency options increased their bets on the two currencies reaching parity in the near term. However, the euro subsequently recovered most of its ground in the early part of the European session, to $1.064 .

A drop in Italian bonds sent the market interest rate, or yield, on its 10-year securities up to 2.082 per cent from 1.89 at the end of last week. The tone was similarly negative across the European govenrment bonds market, with the yield on Ireland’s 10-year securities rising by 0.05 per centage points to 0.87 per cent.

The Italian result is the latest in a series of votes that have roiled financial markets in 2016, following Britain’s vote to leave the European Union in June and Donald Trump’s victory in last month’s US presidential election.

While the referendum has raised concerns over Italy’s future in the euro-region, the nation’s political and legal system mean a “no” vote is unlikely to trigger a quick exit.

Over on the equities markets, Italy’s benchmark FTSE MIB index dropped as much as 2.1 per cent, with banking stocks heavily sold off as investors fretted about the implications of the vote on ailing lenders’ ability to raise capital.

However, the index managed to creep into positive territory within an hour of the session getting underway as beleguered bank Monte dei Paschi di Sienna, whose €5 billio recapitalisation plan is under threat, managed to rally after sustaining sharp losses initially. Still, the stock remains mains down more than 80 per cent so far this year.

The Iseq index edged 1.4 per cent higher to 6,257.8 in Dublin, though Bank of Ireland was off 2.3 per cent. The broader Stoxx Europe 600 index gained 1.5 per cent.</s>The euro and Italian shares recover from an initial slump after Italian Prime Minister Matteo Renzi says he will resign following defeat in a constitutional reform referendum, as investors bet against an immediate snap election. Ciara Lee reports</s>Media playback is unsupported on your device Media caption Matteo Renzi: "I lost and I say this out loud even if with a lump in my throat"

Outgoing Italian PM Matteo Renzi has agreed to stay in power until the Senate passes its 2017 budget in the coming days, the president says.

Mr Renzi formally resigned on Monday after his defeat in a constitutional referendum a day earlier, but the president requested the delay.

President Sergio Mattarella will later have to either choose a new prime minister or call early elections.

European leaders have been playing down the risks of fallout from the crisis.

It comes amid fears of long-term instability for the country's troubled banking sector in the long-term. Shares in Italian banks lost ground following news of Mr Renzi's defeat.

Sunday's No vote on constitutional reform was widely seen as a rejection of establishment politics in Italy.

What happens next?

Mr Renzi held a final brief cabinet meeting on Monday evening, before travelling to the presidential palace to submit his formal resignation.

President Mattarella then asked him to stay on for the budget bill, which is expected to be passed by the Senate in a matter of days.

He wanted to avoid "the risks of a provisional budget", the president said in a statement (in Italian).

The BBC's James Reynolds in Rome says the move will help to reassure markets that the referendum result has not derailed the country's affairs.

Anti-establishment opposition parties have been calling for early elections, although it is unclear yet whether this will happen.

Instead, the president may appoint a caretaker administration led by Mr Renzi's Democratic Party, which would carry on until an election due in the spring of 2018.

Finance Minister Pier Carlo Padoan is the favourite to succeed Mr Renzi as prime minister.

Why did he lose?

The No vote won with nearly 60% against 40% for the Yes campaign. With a turnout of nearly 70%, it was a heavier than expected defeat for the government.

Mr Renzi staked his political future on his attempt to change Italy's cumbersome political system. He wanted to strengthen central government and weaken the Senate, the upper house of parliament.

Image copyright EPA Image caption Five Star's Beppe Grillo led the No campaign in the referendum

His opponents - including some within his own party - had argued that the reforms would give the prime minister too much power. The electorate agreed.

More than a resounding victory for the No camp, it was a chance for a medley of populist parties to reject establishment politics.

The opposition, headed by the Five Star Movement, capitalised on Mr Renzi's declining popularity, years of economic stagnation, and the problems caused by tens of thousands of migrants arriving in Italy from Africa.

After the vote, Mr Renzi defended his record, saying exports and job numbers were up and unemployment was down to 11.7%.

Image copyright EPA Image caption Matteo Renzi visited the presidential palace on Monday evening

Five Star's leader, Beppe Grillo, has called for an election "within a week".

How is Europe reacting?

The result is being seen as a blow to the EU, although there is no question of Italy leaving the union.

Both Five Star and the Northern League are opposed to the eurozone but not to membership of the EU itself.

Image copyright Reuters Image caption The No campaign's victory was bigger than expected

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.

Meanwhile, a spokesman for Chancellor Angela Merkel said she "took note with regret" of Mr Renzi's resignation but Germany would offer to work closely with the next Italian government.

Image copyright Twitter

But the leader of the far-right Front National in France, Marine Le Pen, tweeted: "The Italians have disavowed the EU and Renzi. We must listen to this thirst for freedom of nations."

What will it do to the economy?

Markets seemed to have taken Mr Renzi's departure in their stride. The euro fell initially to a 20-month low but rebounded again. Shares in Italian banks lost ground on Monday afternoon, following a dip and rebound in the morning.

But there are concerns over the long-term financial stability in the eurozone's third largest economy. The economy is 12% smaller than when the financial crisis began in 2008.

The banks remain weak and the country's debt-to-GDP ratio, at 133%, (second only to Greece's in the eurozone) means many Italian banks are in need of refinancing.

There is a risk that the failure of a major bank - such as the troubled Banca Monte dei Paschi di Siena - could set off a wider crisis, but repairing the banks becomes more difficult amid political uncertainty.</s>Italian Premier Matteo Renzi speaks during a press conference at the premier's office Chigi Palace in Rome, early Monday, Dec. 5, 2016. Renzi acknowledged defeat in a constitutional referendum and announced he would resign on Monday. Italians voted Sunday in a referendum on constitutional reforms that Premier Matteo Renzi has staked his political future on. (AP Photo/Gregorio Borgia)

ROME (Reuters) - Italian Prime Minister Matteo Renzi vowed to resign after suffering a crushing defeat on Sunday in a referendum on constitutional reform, tipping the euro zone's third-largest economy into political turmoil.

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 percent 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.

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.

Renzi, 41, took office in 2014 promising to shake up hidebound Italy and presenting himself as an anti-establishment "demolition man" determined to crash through a smothering bureaucracy and redraw the nation's creaking institutions.

Sunday's referendum, designed to hasten the legislative process by reducing the powers of the upper house Senate and regional authorities, was to have been his crowning achievement.

However, his reforms so far have made little impact, and the 5-Star Movement has claimed the anti-establishment banner, tapping into a populist mood that saw Britons vote to leave the European Union and Americans elect Donald Trump president.

In one relief for mainstream Europe, Austrian voters roundly rejected on Sunday a candidate vying to become the first freely elected far-right head of state in Europe since World War Two, choosing instead a Greens leader as president.

The biggest immediate loser from the 'No' triumph in Italy could be Italy's third-largest bank, Monte dei Paschi di Siena, which is bowed by bad loans and is looking to raise 5 billion euros ($5.3 billion) this month to stave off collapse.

Investors are likely to shun the operation if political chaos prevails, meaning a state intervention will be needed to save it. Several other lenders also need a cash injection to stay afloat, raising fears of a domino effect.

Economy Minister Pier Carlo Padoan, seen as a possible candidate to replace Renzi, sought to calm nervous markets on Friday, saying there was "no risk of a financial earthquake" if 'No' wins, though there may be "48 hours of turbulence".

A Nov. 25 Reuters poll suggested investors would expect to demand an extra 25 basis points in yield to hold Italian debt over its German equivalent if the reform is rejected, with the euro dipping 1.25 percent.

The risk to stability, meanwhile, is enough to have the European Central Bank preparing to step in if needed.</s>Mr. Renzi said he took full responsibility for the "extraordinarily clear” defeat

Italian Prime Minister Matteo Renzi announced that he would resign following a stinging defeat on Sunday in referendum over his proposals for constitutional reform.

“The experience of my government ends here,” Mr. Renzi said in a televised address to the nation after early voting results suggested his 'Yes' camp may have lost the referendum by as much as 20 points.

Mr. Renzi said he took full responsibility for the "extraordinarily clear” defeat and that on Monday afternoon he would convene his cabinet and then hand his resignation to President Sergio Mattarella.

Meanwhile, the euro tumbled in early Asian trade on Monday after Mr. Renzi said he would resign.

The euro dropped 1.3 per cent to $1.0505, falling below its 1 1/2-year low of $1.0518 touched late last month, and testing its key support levels where the currency has managed to rebound in the past couple of years.

A break below its 2015 March low of $1.0457 would send the currency to its lowest level since early 2003, opening a way for a test of $1, or parity against the dollar, a scenario which many market players now see as a real possibility.

Renzi's departure looks set to boost political uncertainty in the euro zone's third largest economy, as his Democratic Party (PD) is running neck-and-neck with the anti-euro 5-star Movement in the opinion polls.

It also came at a bad time for Italy's fragile banking system, as Monte dei Paschi di Siena, the country's third biggest but ailing lender, needs to raise 5 billion euros by year end to avert the risk of being wound up.

“The “No” vote was priced in to a certain extent in advance. So I do not expect a free fall in the euro in the near term," said Minori Uchida, chief currency analyst at the Bank of Tokyo-Mitsubishi .

“But in the long run, this will delay progress in Italy's efforts to get rid of banks' bad debt and is likely to widen the yield spread of German Bunts and the Italian bonds,” he added.</s>Mattarella will then be charged with brokering the appointment of a new government or, if he can't do that, ordering early elections.

Renzi said he would be visiting President Sergio Mattarella on Monday to hand in his resignation following a final meeting of his Cabinet.

Markets seemed to take Renzi's departure in their stride. Stocks and the euro fell in early trading in Asia but there were no signs of panic with the possibility of his resignation having already been largely factored in.

"My experience of government finishes here," Renzi told a press conference on Monday, acknowledging that the "No" campaign had won an "extraordinarily clear" victory in a vote on which he had staked his future.

Interior Ministry projections suggested the "No" camp, led by the populist Five Star Movement, had carried the vote by a margin of almost 60-40 with a near 70 percent turnout underlining the high stakes and the intensity of the debate.

Markets seemed to take Renzi's departure in their stride. Stocks and the euro fell in early trading in Asia but there were no signs of panic with the possibility of his resignation having already been largely factored in.

Mattarella will then be charged with brokering the appointment of a new government or, if he can't do that, ordering early elections.

Five Star founder and leader Beppe Grillo called for an election to be called "within a week" on the basis of a recently adopted electoral law, which is designed to ensure the leading party has a parliamentary majority - a position Five Star could well find themselves in at the next election.

"Democracy was the winner," Grillo wrote in a post-vote blog that marked a significant change in the party's position on the electoral law. Prior to the referendum, Five Star had been arguing for it to be revised.

Most analysts see early elections as unlikely with the most probable scenario involving Renzi's administration being replaced by a caretaker one dominated by his Democratic Party, which will carry on until an election due to take place by the spring of 2018.

Finance Minister Pier Carlo Padoan is the favourite to succeed Renzi as prime minister and the outgoing leader may stay on as head of his party - which would leave him well-placed for a potential comeback to frontline politics at the next election, whenever it is.

On the day Austria's voters rejected a far-right candidate for president, the scale of the "No" victory in Italy was even bigger than opinion polls had been indicating up until November 18, after which the media were banned from publishing survey results.

Renzi had gone into the final weekend of the campaign insisting he could still win voters around but he acknowledged he had failed.

Spearheaded by Five Star, the biggest rival to Renzi's Democratic party, the "No" campaign also capitalised on Renzi's declining popularity, a sluggish economy and the problems caused by tens of thousands of migrants arriving in Italy from Africa.

"We are voting to try and change a country that has been stalled for far too long," he said.

After the Brexit vote and Donald Trump's victory in the US presidential election, the No vote is likely to be interpreted as another victory for populist forces and a potential stepping stone to government for Grillo's Five Star.

But the campaign was not just about popular discontent with the state of Italy. Many Italians of a similar political bent to Renzi had deep reservations about the proposed changes to the constitution.

Under the proposals, the second-chamber Senate, currently a body of 315 directly-elected and five lifetime lawmakers, would have been reduced to only 100 members, mostly nominated by the regions.

The chamber would also have been stripped of most of its powers to block and revise legislation, and to unseat governments.</s>Video: Italy's Prime Minister Matteo Renzi says he will resign following referendum defeat

Italian Prime Minister Matteo Renzi said he would resign following a stinging defeat on Sunday in a referendum over his proposals for constitutional reform. Deborah Lutterbeck reports.</s>Italian prime minister Matteo Renzi’s effort to overhaul the constitution and stop the populist march in the euro zone’s third largest country suffered a resounding defeat Sunday night.

Addressing the country shortly after midnight, local time, from his official residence at Palazzo Chigi in Rome, Mr. Renzi said he “takes full responsibility” for the loss and will resign on Monday.

At midnight, local time, the official website of the Italian interior ministry put the No side at 59 per cent and the Yes vote at 41 per cent. But the final results may not be known for hours as polling stations across the country report results.

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The resounding defeat means that Mr. Renzi’s bold plan to overhaul the constitution, secure his tenure as a reformist leader and deliver a blow to the country’s – and by extension Europe’s – rising populist parties has died a premature death.

In a tweet, Marine Le Pen, leader of France’s anti-EU, xenophobic National Front party said “The Italians have disavowed the EU and Renzi. We must listen to this thirst for freedom of nations and protection!”

Mr. Renzi’s resignation will plunge the euro zone’s third largest economy back in to political uncertainty, and perhaps outright chaos, at a time when it cannot afford to alienate the domestic and international investors who fund its burgeoning debt load as growth remains stalled. In early Asian trading, the euro sank, hitting a 12-year low against the dollar.

Italy’s three main opposition parties, including the surging anti-establishment and Eurosceptic Five Star Movement (M5S), had all campaigned against Mr. Renzi. It celebrated the No vote as a victory for democracy and voter damnation of the apparent power grab by Mr. Renzi.

Beppe Grillo, the firebrand former comedian who leads the seven-year-old party and has pledged to hold a referendum on the euro if M5S wins the next election.

But the No vote does not necessarily mean Italy has fully succumbed to the wave of populism and drift to the far right that helped to propel Donald Trump into the White House and secured Brexit – British voters’ decision in June to exit the European Union.

Many Italian voters seem to have used the referendum simply as a plebiscite on Mr. Renzi’s popularity, which waned as the Italian economy failed to revive under his tenure, not necessarily an endorsement of the anti-establishment anger that is rolling across Europe as youth unemployment remains stuck at high levels and refugee resentment builds.

Political pundits also noted that the endorsement of a No vote by M5S, which draws its support from both the left and right sides of the political spectrum, was, ironically, a vote for the status quo, not for sweeping political change. It was Mr. Renzi who wanted use a new constitution to streamline the government by eliminating most of the law-making powers of the Senate, the upper house of parliament. If the referendum had succeeded, the lower house, the Chamber of Deputies (similar to the U.S. House of Representatives), would have dominated the legislative process.

Still, the Italian and European populist parties will promote the No victory as evidence that they are coming on strong. “The No vote adds another dimension to the populist sentiment that has been expressed in the EU referendum in the UK and the presidential elections in the U.S. earlier this year,” said Michael Menhart, chief economist of Munich Re, one of the world’s biggest re-insurers.

Austrians earlier Sunday bucked the populist trend in Europe by electing Alexander Van Der Bellen, a candidate backed the Green party, as president. But in the spring, Ms. Le Pen’s election as France’s next president is not out of the question. She is expected to make it into the second voting round.

Mr. Renzi, 41, has been prime minister and leader of the centre-left Democratic Party for less than two years. Italy’s stability-minded president Sergio Mattarella, who is head of state, is unlikely to endorse a snap election that could be won by M5S, the leading opposition party and the biggest elected populist party among the top EU countries. At 30 per cent, M5S is polling roughly equally with the ruling Democrats.

He could ask Mr. Renzi to form a new government that would last until the scheduled elections in mid-2018, appoint an interim prime minister or seek a non-partisan technocrat to do the same.

Ahead of the referendum, economists and market strategists warned that the Italian banks would suffer more damage if a No vote were to come out on top.

The banks are stuffed with the highest percentage of non-performing loans – loans that are unlikely to be repaid in full – on the continent. At least one of Italy’s biggest banks, Monte dei Paschi di Siena (MPS), is in danger of collapse. Its failure would trigger contagion that would send shockwaves across the banking industry in Europe, including Germany, where market-leading Deutsche bank is in terrible shape.

MPS is in the middle of a € 5-billion capital raising effort that it wants to complete by the end of the month.

“If Italy is plunged into a period of political uncertainty following a No vote in the referendum, investors may well steer clear of participating in MPS’s capital raising efforts,” Manulife chief economist Megan Greene said Sunday night. “MPS would then need to be rescued. From the day after the referendum, this most likely turns into a banking story.”

If the No vote rattles markets on Monday, which is expected, the European Central Bank might buy vast quantities of Italian sovereign bonds to support their price, preventing their yields – their interest rate – from climbing drastically. The ECB has already been buying Italian bonds, and those of most other euro zone countries, though its €80-billion a month quantitative easing program.

Since the No vote was certainly evidence of M5S’s greater popularity, the government, which will retain its majority in parliament even if Mr. Renzi resigns, will make every effort to impede M5S’s chances of victory in the next election.

Doing so would require rewriting Italy’s new electoral law – known as the Italicum – which automatically gives the party that wins the second round of an election enough bonus seats to guarantee it a majority. If the rewritten Italicum reverts back to proportional representation, M5S’s chances of forming a government would fall because, unlike other parties, it refuses to form coalitions.
Following the result of the constitutional referendum, Matteo Renzi will resign from his office as Prime Minister of Italy. With most ballots counted, the "No" vote leads with 60%.