Italy’s Renzi to resign after referendum rout

Italian Prime Minister Matteo Renzi announced on Monday that he would resign after suffering a resounding defeat in a referendum over constitutional reform, leaving the euro zone's third-largest economy in political limbo.

Italy's largely ceremonial head of state, President Sergio Mattarella, told the prime minister to stay on until parliament had approved the 2017 budget. That could be achieved as soon as later this week, after which, the president said, Renzi would be free to tender his resignation, Reuters reports.

His decision to quit after less than three years in office deals a new blow to Western political establishments, still in shock from Britain's unexpected vote to leave the European Union and the US election of outsider Donald Trump as president.

The referendum, intended to change rules to make Italy more governable, was opposed by right-wing and populist parties, including groups that want Italy to ditch the euro.

Those groups have crowed that the referendum showed voters reject traditional elites, in the vein of the victories of Brexit and Trump, although mainstream opposition parties and even some leaders of Renzi's fractured center-left Democratic Party (PD) had also campaigned for "no".

Italy's youngest ever premier had been feted around the world as a pro-European reformer and lauded by US President Barack Obama for his "bold, progressive" leadership. Obama had hoped Renzi would stay on even if he lost the referendum.

But the 41-year-old Renzi said he would leave office after voters decisively rejected his plans to reduce the role of the upper house Senate and centralize power. Voters had turned the referendum into a de facto vote on Renzi, who gambled everything by pledging to quit if he lost.

After a meeting lasting about half an hour, Mattarella's office said in a statement that the prime minister had told the president he could no longer remain in office.

The president, who serves as the ultimate political arbiter in times of crisis, told Renzi to see through the passage of the budget, so as to prevent emergency funding rules from kicking in at the start of the year.

After the referendum the euro initially fell along with European stock and bond markets on concerns that early elections could follow, possibly paving the way for an anti-euro party to win power. But markets rebounded as European officials dismissed talk of a broader euro zone crisis.

It was not immediately clear if Renzi would retain enough support in his PD to remain party leader - a role that could give him a say in who becomes the next prime minister. Party leaders are due to meet on Wednesday.

Economy Minister Pier Carlo Padoan, who has pulled out of meetings with European finance ministers in Brussels this week, is viewed as a possible candidate for prime minister. Senate President Pietro Grasso and Transport Minister Graziano Delrio have also been tipped as potential premiers.