By early in the European morning it had largely rebounded.
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In initial deals, London’s benchmark FTSE 100 index of top blue-chip companies was flat at 6,743.88 points.
(Vatican Radio) European Union leaders are assessing the impact of Italian Prime Minister Matteo Renzi’s defeat in the Italian constitutional referendum on European unity and the euro currency.
Centre-left German Foreign Minister Frank-Walter Stein Steinmeier said Renzi’s demise was not a positive message to Europe at a hard time.
But it was also a victory for Italy’s xenophobic Northern League and the anti-establishment Five Star movement, whose leader Beppe Grillo hailed Trump’s win as a “massive screw you”.
A statement from the Quirinal Palace confirmed that Mr Renzi had told President Sergio Mattarella that it was not possible for him to continue in his post following a heavy defeat in Sunday’s referendum on constitutional reforms.
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.
Renzi’s defeat, and the period of political uncertainty that is now likely to follow, troubles investors for several reasons.
The president told Mr Renzi he should stay in power until the budget was passed to prevent emergency funding rules from kicking in on January 1.
“Considering the need to complete the parliamentary approval of the budget law to stave off risks of (emergency budget procedures), the president of the republic has asked the prime minister to defer his resignation and hand it in once the task is fulfilled”, Mattarella’s office said. But we do not expect the “no” vote to hurt Italian or eurozone assets in the medium term, as we write in our new BlackRock Bulletin piece, “Italian voters reject reform”. Renzi’s squabbling Democrats are the biggest party in the legislature, which could lead the president to tap someone from the Democratic Party fold.
Britian’s eurosceptic Nigel Farage, who spearheaded the “Brexit” campaign, said it looked “more about the euro than constitutional change”.
Demands mounted from opposition parties, eager to capitalise on Mr Renzi’s political misfortunes, for elections to be called far ahead of the spring 2018 due date. He could form a new executive with the support of Renzi’s Democratic Party and other smaller parties that have supported Renzi’s government so far. However, it might mean that markets believe we are today a bit closer to an Italian exit from the euro than we were yesterday.
“Victory will be theirs in the next legislative elections”, she said on Twitter. This is reviving doubts about the survival of the euro, and the European Union itself.
However German Foreign Minister Frank-Walter Steinmeier said that Germany was watching the developments in Italy “with concern”.
The subdued reaction was also aided by the backstop provided by European Central Bank to Italy’s markets.
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Italian Prime Minister Matteo Renzi will delay his resignation for at least a few days after a personal request from the country’s president. Hollande is likely to be succeeded by either Republican Party candidate François Fillon or the National Front’s Marine Le Pen.
