Italian Prime Minister Matteo Renzi speaks at the Palazzo Chigi in Rome on December 4, 2016 | Gregor Fischer/EPA Matteo Renzi resigns after Italian referendum rout Victory for the No camp will bring new government into power in Rome, possibly force fresh elections. For the EU, it’ll be seen as a fresh populist blow.

ROME — Italian Prime Minister Matteo Renzi resigned on Sunday night after suffering a crushing defeat in a referendum on constitutional reform.

His fall ushers in a period of political uncertainty for Italy, not a new thing for a nation that has had 65 prime ministers in almost as many years, as it searches for a new government, possibly holds early elections or both. The unexpectedly resounding rejection of the proposed electoral reforms is in one sense a vote for the status quo, another Italian specialty. But it raises uncomfortable questions for EU leaders about the enduring strength of populism across the Continent and the future of the euro.

Italy's banking system is fragile as is, and any political instability casts a cloud over the plans to shore up the most troubled institutions — in particular the agreed on €5 billion recapitalization for its oldest bank, Monte dei Paschi di Siena (MPS), and a planned €10 billion private capital injection for UniCredit, its largest bank. MPS's advisers will meet Monday morning to decide the way forward on the bank’s capital raising plan, sources told POLITICO's Morning Exchange.

The 41-year-old center-left leader turned a proposal to streamline the lawmaking process and centralize more political power into a referendum on his own rule that he said he hoped to use as a mandate for reform. Renzi's opponents won almost 60 percent of votes and 17 out of Italy's 20 regions, according to preliminary results, while his Yes campaign managed just 40 percent and three regions. High voter turnout of more than 66 percent made it an even more conclusive defeat for the former mayor of Florence.

Renzi had promised to quit his position if he failed, and an hour after the exit polls came out, he did. "I lost. In Italian politics, no one ever loses," he told a news conference just past midnight. "But I am different. My political experience in the government comes to an end here.”

“The No won in an extraordinarily clear way. Now it's up to them to come up with concrete proposals and reforms," Renzi said, adding that he would formally advise President Sergio Mattarella of his decision on Monday, after saying goodbye to his cabinet.

The euro sank against the U.S. dollar in Tokyo trading at the news of Renzi’s defeat and resignation, falling below $1.05, a two-year low, before rallying.

5Star fillip

Renzi's defeat constitutes another populist setback for the European Union, following the U.K.'s Brexit vote in June. Although Austria's presidential election on Sunday night saw off a challenge from the far right, the No campaign in Italy was led by populists such as Beppe Grillo's anti-establishment 5Star Movement, the far-right Northern League and ex-premier Silvio Berlusconi.

In a further note of concern for the EU, the 5Star Movement has previously called for a referendum on Italy's membership of the eurozone and the renegotiation of the country's public debt, though opinion polls have suggested Italians would not vote to leave the euro.

Vito Crimi, a 5Star senator, told POLITICO late Sunday night that his party wants new elections "as soon as possible," though it does not yet have a candidate. He ruled out governing in a coalition with Renzi's Democratic Party (PD), saying it "is absolutely off the table. They kept the country hostage for three years for these constitutional changes and clearly they are not a reliable partner."

As head of state, Mattarella will now be in charge of calling new elections and/or setting up a temporary technocratic government. The Northern League's Matteo Salvini told POLITICO before Renzi had even stepped down that he was "ready to run for prime minister."

Renzi's proposed constitutional reform was also opposed by some within his own party, such as former prime minister Massimo D'Alema, and moderate figures such as the former European commissioner and ex-prime minister Mario Monti.

The Renzi camp included European Commission President Jean-Claude Juncker, who said last week that he "would like the No not to win.”

Renzi's resignation was not unexpected, but was not welcomed by the No-backers within his own party.

“We did not demand his resignation and it is a mistake," the PD's Miguel Gotor told POLITICO Sunday. "The government and the constitution are two different things and should be kept separate."

What's next

It may not all be over for Renzi.

Though it is unlikely in the face of strong opposition calls for early elections, Mattarella could still turn down Renzi's resignation and ask him to go before parliament to clarify whether he has the majority needed to form government.

If Mattarella accepts the resignation, Renzi, who retained his role as PD leader, may yet manage to reshuffle cabinet and re-form government, potentially with Economy and Finance Minister Pier Carlo Padoan as prime minister. In the event that, as some analysts predict, Padoan is rejected by the opposition, the new premier could be an institutional figure like Senate President Pietro Grasso.

If that fails, Italians may need to go back to the ballot box for an early general election. Polling indicates that in that scenario, no party would reach an absolute majority in the first round, while the Euroskeptic 5Star Movement would win both against the center-right and Renzi’s Democratic Party in the second round. The 5Stars have already indicated they would not form a coalition with PD.

Whether Renzi is able to hold on to his party leadership in the face of the humiliating defeat is also not certain.

"Renzi is on the ropes," said Francesco Galietti, chief executive of Policy Sonar, a Rome-based political risk consultancy. "Not only has he had to resign as prime minister, the pressure within his own party will reach unprecedented levels and he may even have to step down as head of the party ... If he loses the party leadership, he is out of politics."