In Italy the ironies keep piling up as fast as the national debt. A constitutional referendum that was designed to give Italy stronger, more stable, government and a base from which to reform its economy has instead resulted in the resignation of the Prime Minister and pushed Italy’s banks another step towards going bust. The result is also another boost for the populist Five Star Movement, a strange amalgam of anti-globalist, Eurosceptic and green causes, led by a former comedian. That fact will do nothing for confidence in the banks, the nation’s public finances or improve its competitive position. This is, after all, a country that will be fortunate to stay solvent over the next year or two.

And yet Matteo Renzi's failed gamble brings another irony in its wake. The fact that Italy’s political structures will weaken any attempt at strong government has come as something of a relief to those, especially overseas investors, who fear the wrong kind of strong government – such as one led by Five Star, supported by the separatist Northern League. Better, the markets seem to be indicating, an Italy in its usual state of political paralysis and economic sclerosis than one that is heading out of the eurozone and the world economy.

Perhaps that is why the reaction of the markets has been relatively muted. Grateful for small mercies, they have observed the defeat of the far right Freedom Party in the Austrian presidential election, and events in Italy and concluded that things could be worse.

Even so, Italy’s financial system remains in a parlous state, undercapitalised and threatening both the savings of individuals and the capacity of the Italian Treasury to finance its activities. Given the interconnections between Europe’s banks, the Italian “contagion” could spread throughout the continent and wider. The wisest thing would be for Italy’s government – if and when it acquires one – to follow the example set in the UK, the US and other places during the last financial crisis, and to nationalise its banks, with the funding for that exercise coming from the wealthier parts of the European Union. A bailout overseen by the EU and the European Central Bank requires Brussels to relax some of its strictures on state aid, and, more challenging, for the German taxpayer to be willing to become the unwilling indirect owner of a collection of unhealthy Italian banks with little-but-bad loans on their books. That may be asking too much even of the ever-patient Angela Merkel and her compatriots.

The alternatives for Italy are bleak. Oddly, the Five Star Movement’s wish for Italy to leave the single currency, while enormously destabilising, would be in the Italian people’s best interests. It would allow for a devaluation of a new Italian currency, and, with some debt forgiveness and assistance from her European partners, offer the country the chance to become internationally competitive once more, if at the expense of some extra inflation. As we have witnessed in Greece, the option of “internal devaluation” – prices forced lower by unremitting austerity – is a much more difficult policy to make succeed. Besides, Italy, unlike Greece, is probably just too big to save and retain in the single currency, and certainly if Germany decides it has had enough. That said, Five Star is not going to make Italy great again.

Italian Referendum Show all 10 1 /10 Italian Referendum Italian Referendum Italian Premier Matteo Renzi casts his ballot in a polling station during the referendum on the government's constitutional reform in Pontassieve, near Florence, Italy EPA Italian Referendum Supporters of the "No" faction for a referendum on constitutional reform hold a banner in front of Chigi palace in Rome, Italy Reuters Italian Referendum A supporter of the 'No' faction for a referendum on constitutional reform holds a flare during a protest in front of Chigi palace in Rome, Italy Reuters Italian Referendum Silvio Berlusconi after leaving Constitutional Referendum voting in Rome, Italy Rex Italian Referendum A barmaid reads the Corriere della Sera newspaper at a coffee shop in Rome, Italy Reuters Italian Referendum A man holds a banner reading 'I say no' during a march in support of the 'No' vote in the constitutional reform referendum in Rome Reuters Italian Referendum Newspaper headlines show Italian Premier Matteo Renzi's resignation following the result of Sunday's constitutional referendum, at a newsstand in Rome AP Italian Referendum An anti-referendum poster showing Premier Matteo Renzi is reflected in a scooter mirror in Rome a day after the referendum vote AP Italian Referendum Italian Premier Matteo Renzi, left, speaks during a press conference at the premier's office Chigi Palace in Rome AP Italian Referendum Italian Premier Matteo Renzi, left, leaves with his wife Agnese at the end of a press conference in Rome AP

The disintegration of Italy represents an even greater threat to the progress of the European project than Brexit. Let alone the EU, the unity of Italy itself is increasingly in jeopardy as the prosperous north seeks to disengage itself from the social and industrial problems of the south. Farewell Risorgimento. Whenever the general election comes, the hopes for Italy’s established political parties, even including Silvio Berlusconi's relatively youthful, though splintered, Forza Italia vehicle, are as poor as they can be.