On Sunday Outgoing Italian PM Matteo Renzi has met the country's president following a heavy defeat in a constitutional referendum.
Mr Renzi, who
resigned after the vote, and President Sergio Mattarella will be anxious to
ease fears of instability and a deeper crisis for Italy's troubled banking
sector.
President
Mattarella must either appoint a new PM or trigger elections.
European
politicians reacted calmly to the result, saying there was no crisis.
Meanwhile
financial markets have stabilised after initial falls on news of Mr Renzi's
defeat.
However,
there are concerns about Italy's fragile economy in the longer term.
What will happen
next?
Though
Mr Renzi has already met Mr Mattarella, he will not hand in his resignation to
him until after a final cabinet meeting.
The president may
ask him to stay on at least until parliament has passed a budget bill due later
this month, but this seems unlikely in view of the scale of his defeat.
In
spite of the pressure from the opposition, early elections are also thought to
be unlikely.
Instead,
the president may appoint a caretaker administration led by Mr Renzi's
Democratic Party, which would carry on until an election due in the spring of
2018.
Finance
Minister Pier Carlo Padoan is the favorite to succeed Mr Renzi as prime
minister.
Why did he lose?
With
most ballots counted, the No vote leads with 60% against 40% for Yes, with a
70% turnout, a heavier than expected defeat for the government.
Mr
Renzi staked his political future on his attempt to change Italy's cumbersome
political system. He wanted to strengthen central government and weaken the
Senate, the upper house of parliament.
His opponents -
including some within his own party - had argued that the reforms would give
the prime minister too much power. The electorate agreed.
But
the referendum was more than a vote on constitutional reform, it was widely
regarded as a chance to reject establishment politics.
It was a resounding
victory for the No camp, a medley of populist parties headed by the Five Star
Movement, which capitalized on Mr Renzi's declining popularity, years of
economic stagnation, and the problems caused by tens of thousands of migrants
arriving in Italy from Africa.
Five
Star says it is getting ready to govern Italy. Its leader Beppe Grillo said an
election should be called "within a week".
How is Europe
reacting?
The
result is being seen as a blow to the EU, although there is no question of
Italy following the UK out of the door.
Both Five Star and
the Northern League are opposed to the euro zone but not to membership of the EU itself.
Jeroen
Dijsselbloem, who heads the group of 19 eurozone countries, denied any
impending crisis.
"It
doesn't really change the situation economically in Italy or in the Italian
banks. The problems that we have today are the problems that we had
yesterday," he said.
Reuters
news agency quoted German Finance Minister Wolfgang Schaeuble as saying there
was no reason for a euro crisis but that Italy urgently needed a functioning
government.
Meanwhile,
a spokesman for Chancellor Angela Merkel said she "took note with
regret" of Mr Renzi's resignation but Germany would offer to work closely
with the next Italian government.
But the leader of
the far-right Front National in France, Marine Le Pen, tweeted: "The
Italians have disavowed the EU and Renzi. We must listen to this thirst for
freedom of nations."
What will it do to
the economy?
Markets seemed to
have taken Mr Renzi's departure in their stride. Stocks and
the euro fell in early trading in Asia but there were no signs of panic, as the possibility of his
resignation had already been factored in.
But
the referendum result could have longer-term implications.
There
have been growing concerns over financial stability in the eurozone's third
largest economy.
Italy's
economy is 12% smaller than when the financial crisis began in 2008.
The
banks remain weak and the country's debt-to-GDP ratio, at 133%, is second only
to Greece's.
There is a risk that
the failure of a major bank could set off a wider crisis, but repairing the
banks becomes more difficult amid political uncertainty.
One
of the threatened banks is the world's oldest and Italy's third-largest, Banca
Monte dei Paschi di Siena, which has been ordered by the European Central Bank
to reduce its holdings of bad debt.
The bank is trying to raise new capital to the tune of €5bn (£4.2bn;
$5.3bn). A consortium which had hoped to organist a rescue plan was to meet on
Monday morning to review its options.
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