Renzi Resignation Will Usher in Uncertainty

ROME—Italian Prime Minister Matteo Renzi is expected to resign on Monday afternoon, bringing an end to a government determined to overhaul the country's sluggish system and opening a period of political and economic uncertainty.

The 41-year-old will formally inform Italian President Sergio Mattarella after announcing his decision in the early hours, following a stinging defeat in a popular referendum on a constitutional change he had heavily backed.

Mr. Renzi met informally with Mr. Mattarella for about an hour on Monday, a person close to the situation said, without adding further details on their conversation.

In the coming days, the president will undertake consultations with political parties in order to determine how to proceed. Mr. Mattarella is widely expected to opt for the formation of a caretaker government to deal with several urgent issues, including the passage of the 2017 budget and a banking crisis that threatens to boil over in the coming days.

That government would ferry the country to new elections, which could be brought forward from their current timetable of spring 2018.

Economy Minister Pier Carlo Padoan and Senate speaker Pietro Grasso are mooted as possible candidates, although some believe Mr. Padoan has the edge given the risk that the government may have to bail out Banca Monte dei Paschi di Siena SpA in the coming weeks.

Mr. Renzi suffered a decisive rebuke on Sunday, with 59% of voters rejecting a constitutional change meant to overhaul Italy's legislature to make lawmaking easier and encourage the creation of more stable governments.

Mr. Mattarella's consultations could move relatively quickly, possibly producing the name of a new premier by week's end, which would be a welcome development given rising pressure on Italy's banking system.

A new government would then need to win confidence votes in each of Italy's legislative chambers.

The "no" vote is expected to sap investor appetite for a critical €5 billion capital increase Monte de Paschi needs to stay alive.

The economic and financial concerns raise the likelihood that Mr. Mattarella will chose Mr. Padoan as the new premier. In a recent interview, Mr. Padoan strongly denied any interest in leading a new government, but the well-respected economist could do much to soothe concerns that Monte dei Paschi's troubles will spin out of control and undermine confidence in other Italian banks.

Meanwhile, Mr. Renzi's exit will likely mean the end of Italy's efforts to effect the sort of root-and-branch changes the Italian economy—which has dipped in and out of recession for most of the last decade—needs.

Indeed, European policy makers and some other government leaders, including in Germany, viewed with favor Mr. Renzi's efforts, which included major changes to Italy's rigid labor laws, cuts in taxes and a plan to reduce the country's notorious bureaucracy.

A spokesman for German Chancellor Angela Merkel said she had worked "with great trust" with Mr. Renzi and viewed his resignation "with regret."

(END) Dow Jones Newswires

December 05, 2016 08:35 ET (13:35 GMT)

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