What’s next for Italy and Europe after Matteo Renzi resigns?

The scale of his defeat also makes less likely – but not impossible – that Mr Renzi will make a comeback at the next election.

To do that, he will have to first convince his Democratic Party to keep him on as leader when it meets for its Congress next year, and then perform well enough in the next election to form the government.  

Caretaker government - headed by a Renzi ally  

This is the most likely scenario. Mr Mattarella appoints a head of government with the support of the current majority or a new enlarged majority.  

A number of names are already circulating including finance minister Pier Carlo Padoan. Mr Padoan, as member of Mr Renzi’s former government, appears to be favourite, since he represents a blend of both the political and technocratic.

An alternative would be an institutional, caretaker government led by a more neutral figure, such as the current senate leader Pietro Grasso.

 A third option would be a highly political government led by a rival from within Renzi's Democratic Party - the name of Dario Franceschini, the current culture minister has been mentioned.  

Whoever takes over could also decide to continue until the end of the current parliamentary term in February 2018, a move that would likely prove unpopular with political groups such as the Five Star Movement and the smaller anti-immigrant Northern League, who are calling for elections as soon as possible.

The caretaker government would also be tasked with passing the 2017 budget in Parliament and modifying a new electoral law before elections take place. 

The unanswered question is whether the electoral reforms will be constructed in such a way that will make it harder for anti-establishment populist parties to form a government.

Snap elections  

This is highly unlikely. A recent electoral reform was designed to ensure the leading party has a parliamentary majority in the Chamber of Deputies, while the failure of the constitutional reform of the Senate means it still maintains a proportional system, making the two chambers irreconcilable and a parliamentary majority almost impossible.  

The populist Five Star movement, whose founder and leader Beppe Grillo has called for an election "within a week", believes the electoral law could be modified in the senate if necessary to align it more closely with that of the Chamber of Deputies.  

But most other political parties, who have a majority in Parliament, disagree, precisely to avoid a victory of the populist party.

They are instead advocating reform of the electoral law.  In the end it will be for President Mattarella to decide Italy's immediate future and to ensure there is a majority in favour of forming a technocratic government if he wants to avoid - as many analysts believe - early elections next year. 

What next for Europe?

In the short term, Europe stumbles on - a fudged deal is expected to keep the IMF on board with Greece's contentious bailout programme, while Italy will form a government of one kind or another.

Markets seem sanguine about the prospect of a way being found to save Italy's most indebted banks without forcing Italy in a politically suicidal EU bailout programme.

Further down the line - in say one to two years - the outlook is much more negative and uncertain.

Given their strong showing on Sunday in the presidential elections, where 48 per cent of Austrian's voted in support of them, it is highly possible the far-Right Freedom Party will form a government after elections in 2017.

The continued rise of populist parties will also have an impact on elections in the Netherlands and France where two populist-Right candidates - Geert Wilders and Marine Le Pen - will make strong showings in 2017.

In Italy, the true fallout from Mr Renzi's failed back-me-or-sack-me referendum will come some time before 2018 when elections are held and the two big winners from the referendum - the populist Five Star Movement and the anti-immigrant Northern League will have the chance to make an electoral breakthrough, with potentially further destabilising consequences for Europe.

It is these combinations of political factors, potentially allied with a fresh crisis over the failure to resolve Greece's sovereign debts, angry Brexit negotiations and a broader global economic downturn that creates such a negative outlook for the future of the continent and its increasingly moribund political institutions.

What next for Italy's banks?

Long seen as the country's main weak spot, many Italian banks are short of capital - the buffer in their balance sheets what can absorb losses when things go wrong. The problem is more acute for some lenders than others.

At the head of the queue for remedial action is Banca Monte dei Paschi di Siena. It currently has plans to raise €5bn of capital. However, this now looks at risk because of the uncertainty caused by the referendum result.

If MPS can’t raise the money from new investors it will have to impose losses on existing bond holders. This is extremely contentious because around half of the bank’s bonds are held by retail investors (men and women on the street not sophisticate institutions). This means that the Italian government may indemnify investors up to a level of €100,000. If it does this it will also have to pump public money into the bank.

The trouble is this could - in certain circumstances - been deemed in breach of new European rules on bank bailouts. However, government are allowed to pump public money into banks if they think that there is a risk to financial stability. In other words, the rules can be fudged but it will require calmed-headed diplomacy between Brussels and Rome in the weeks and months ahead.