Will Italy’s political drama spawn a new eurozone crisis?

The Latest on the Italian referendum (all times local): 6:10 p.m. Italy’s president is urging calm in the political crisis triggered by Premier Matteo Renzi’s resignation after a resounding defeat on a referendum about reforms.

Renzi’s resignation could open the door to an early election next year and the possibility of the anti-euro 5-Star Movement gaining power, though many investors and analysts see it as more likely that a caretaker government will be put in place until an election in 2018.

Initial market reaction was subdued.

Euro fell to 20-month lows Vs USD, with markets anxious that instability in the Eurozone’s 3rd largest economy could reignite a smoldering financial crisis and deal a hard blow to Italy’s fragile banking sector. Even as Italian bond yields rose in response to the referendum, equity markets across the continent showed little sign of panic.

At the open, Italy’s benchmark stock index, the FTSE MIB fell off a cliff, starting the day’s trading lower by around 2.4% as investors react to the political instability caused by Renzi calling time on his premiership.

The Netherlands has already had two referendums seen as punishing Europe – the country rejected the EU’s proposed constitution a dozen years ago and earlier this year voters rejected a free-trade pact between the European Union and Ukraine – a vote that was widely seen as a rebuke of the bloc’s policies.

But some analysts said the referendum could yet come to be seen as a landmark moment.

Mr Wills said such an outcome would lead to “a depreciation of the euro against the USA dollar, followed by the selloff of European sovereign bond markets” given Italy’s position as the third largest member of the EU’s monetary union.

In Bologna, traditionally a left-leaning city, about 100 people rallied after the defeat to burn several Yes-vote flags and carried a banner saying “Mr. Renzi go home”.

Still, compared with the heartening liberal victory in Austria’s presidential election, the outcome in Italy has clearly emboldened the far right as well as the populist Five Star Movement, whose leader Beppe Grillo has been compared to Trump.

Observers varied widely in their interpretation of the vote.

According to Mr Terrinoni, more accountability and a faster decision-making process are required, and Mr Renzi’s constitutional reform would have brought about change in that direction.

But former Bank of Italy economist Lorenzo Codgno insisted: “The outcome of the referendum is much more complex and nuanced than “just another wave of protest across the globe”.

“No” won an overwhelming 59.1 percent of the vote in Sunday’s vote.

Pippo Nicosia, a stall-holder at Campo dei Fiori market in central Rome, said he would vote “Yes” but had no doubt about the result.

The current electoral law would grant the biggest vote-getting a generous bonus of seats in Parliament. “They didn’t get into the subtleties”.

Calls mounted rapidly Monday from populist and other opposition leaders for quick elections in Italy, seeking to capitalize on Premier Matteo Renzi’s humiliating defeat in a referendum on government-championed reforms. Renzi had said he would resign if the reform wasn’t approved by voters.

“Our assumption is that whoever is asked to form the next government would win the confidence of parliament, reducing the chances of a snap election soon”, Turner says. The results hit Italy’s sovereign debt, increasing the spread on Italy’s 10-year bonds to 2 percent, from 1.7 percent on December 1 and a record low of just over 1 percent last March and April.

The Finance Minister Michael Noonan has denied there is a new financial crisis as a result of yesterday’s referendum in Italy.