The global financial markets were on high alert Monday after Italian Prime Minister Matteo Renzi conceded defeat in the December 4 referendum. Analysts note his defeat likely paves the way for the populist Five Star Movement to sweep to power.

Renzi staked his political career on a “Yes” outcome in the referendum he proposed, which would have reformed the constitution by reducing the powers of the Senate. Renzi, who made his name as an anti-establishment candidate, has formally resigned from office.

“The experience of my government ends here,” Renzi said in a news conference, adding that the outcome of the plebiscite “extraordinary clear.”

“I have lost and I say it out loud,” he said.[1]

Exit polls showed more than 59% of voters said “No” to the constitutional reforms, compared to around 40.4% who voted in favour of them. According to the country’s Interior Ministry, around 70% of eligible voters participated in the plebiscite.

Public opinion polls in the weeks leading up to the referendum painted a grim picture for the embattled prime minister, who was increasingly viewed in a negative light by Italians frustrated by dismal growth and high unemployment.[2] Therefore, the referendum was also seen as a vote of confidence in the now former leader.

The global financial markets are bracing for possible turmoil in the aftermath of the vote. The euro immediately plunged to 20-month lows against the US dollar, with the EUR/USD exchange rate falling toward 1.0500.

Asian stocks were down across the board, with mainland China’s Shanghai Shenzhen down nearly 2% in the early afternoon.

However, analysts noted that the market’s response was muted in comparison to other major events earlier this year, as investors had already priced in a Renzi defeat.[3]

“Risk sentiment has taken a hit from rejection of the Italian referendum,” Citigroup analysts said in a report following the referendum, adding that the margin of rejection is “surprising.”