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Europe was plunged into a fresh crisis last night as Matteo Renzi, the Italian prime minister resigned after a crushing defeat in a constitutional reform referendum, handing a major boost to populist parties across the continent.
The clear rejection of Mr Renzi’s reforms was seen as a huge victory for anti-establishment forces and another serious setback for the Europe’s ruling elite less than six months after Britain voted to leave the European Union.
Market analysts warned Mr Renzi’s defeat could derail plans to rescue Italy’s banks, triggering stock market upheavals and increasing the risk of a renewed future financial crisis in the Eurozone. The Euro sank to a nearly 2-year low in Asia on the news.
A highly emotional Mr Renzi immediately announced his resignation, saying he would tender it formally this morning to Sergio Mattarella, Italy’s president, ushering in a fresh period of political uncertainty for Italy.
Mr Renzi said that ‘No’ had won in an “extraordinarily clear” way, and took responsibility for the defeat while charging the anti-establishment forces that defeated him with coming up with constructive solutions for Italy’s future.
“This vote gives them a great responsibility,” he said as some exit polls showed him approaching a 60% to 40% per cent defeat, “It is the turn of those who won to propose things that are serious and credible.”
“You had a marvelous idea,” he told his supporters, “You wanted to help the citizens combat populism and simplify the system. You did not win. Tonight go home and rest and tomorrow go to work.”
He added that Italy’s government would “continue to work” in the coming days, passing an emergency budget for Italy’s recent earthquake victims.
Opposition groups, such as the Northern League, called for immediate elections, though it is now expected that a caretaker government will be appointed, possibly with a mandate that will bring elections forward to the first half of 2017.
The result was seen as a snub to the political establishment, following both the Brexit result in June and the election of Donald Trump as US president last month.
However, Austria’s Freedom Party conceded defeat last night in a presidential election that nearly propelled a far right party to presidential power for the first time in the European Union’s history.
How the world reacted
Euro hits 20-month low against dollar
The euro slid to a 20-month low early this morning following Mr Renzi's announcement.
The single currency, which slumped as much as 1.4 percent to $1.0505 after opening at around $1.0685, recovered later to $1.056.
The drop to its session low was the sharpest fall since June and opened the way to a retest of the March 2015 trough around $1.0457.
"The 'no' vote was priced in to a certain extent in advance. So I do not expect a freefall 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.
The euro slid as much as 2.1 percent to 118.71 yen, but pared some of the losses to trade down 0.9 percent at 120.08 yen.
What next for Matteo Renzi?
Mr Renzi has resigned, but this could be refused by Italy’s president, Sergio Mattarella, who could in turn send him back to Italy’s parliament, triggering a vote that will bring elections forward to the spring.
Mr Renzi is expected to remain head of his Democratic Party from where he could lick his wounds and plot his own return after the next general election.
This will also enable Mr Renzi to become kingmaker for the next caretaker prime minister – either a figure from the Senate or a technocrat like his current finance minister, Pier Carlo Padoan.
Austria avoids far right president
Austria's voters have resoundingly rejected anti-immigration and eurosceptic Norbert Hofer's bid to become the European Union's first far-right president, a result greeted with relief from centrist politicians across the continent.
Instead, Greens-backed independent candidate Alexander Van der Bellen swept 53.3 percent of Sunday's vote against 46.7 percent for his rival from the anti-immigration Freedom Party (FPOe), according to public television projections.
"Today it is not an exaggeration if I say that today we see a red-white-red - the flag of Austria - as a signal of hope and change. A red-white-red signal from Austria to all the capitals of the European Union," Van der Bellen, 72, said in Vienna.
The official result of what has been an ugly and polarising election in normally peaceable Austria, lasting 11 months, was not expected until Monday. But on Sunday an "incredibly sad" Hofer conceded defeat.
"I congratulate Alexander Van der Bellen on his success and call on all Austrians to stick together and work together," Hofer said on Facebook.
The result ends a bitterly fought presidential election that threatened to deal a further blow to the liberal European consensus that has prevailed since the end of the Second World War.
His victory would have been widely seen as a blow to the post-War consensus of the same magnitude as Britain's vote for Brexit and the election of Donald Trump as US president last month.
It would also have been hailed by other far-right movements like Marine Le Pen’s Front National in France and Geert Wilders’ Party for Freedom in the Netherlands.
Analysis of the day
Matteo Renzi's biggest mistake was vowing to resign if he lost - turning referendum into de facto plebiscite on his record in office:
It was a reform designed to streamline the Italian political machine and increase stability, in a country that has had more than 60 governments since the end of the Second World War.
But in the end, it came down to a referendum on the popularity of Italy’s youthful prime minister Matteo Renzi and his own record in office at a time when Italy is angry and deeply divided.
Given the febrile climate both at home and abroad following June’s vote for Brexit and the election of Donald Trump, it was perhaps unsurprising that Mr Renzi lost.
As he looks back, the 41-year-old prime minister will reflect that he made a huge tactical error at the end of 2015 by pledging, so early on in the campaign, to resign if the reforms were rejected by voters.
By doing so he crystalised popular discontent with his two-and-a-half year administration and unwittingly turned the referendum into a de facto plebiscite on his record in office.
Mr Renzi made grandiose promises when he was first appointed premier in 2014 and many Italians are deeply disappointed that he has failed to deliver on them.
When he took power via an internal party coup in 2014, Mr Renzi was nicknamed the 'rottamatore' or destroyer – a Tony Blair-like reformer who attracted the young and promised to tackle old dogmas in his Democratic Party.
But as that sheen faded in the face of Italy’s seemingly intractable political divisions and continuing economic malaise, it exposed only divisions which deepened during a bitter Referendum campaign.
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