Italian PM Mateo Renzi resigns after referendum with 60% "No"

President Mattarella must either appoint a new PM or trigger elections.

European politicians reacted calmly to the result, saying there was no crisis.

The scale of his defeat on Sunday has fueled speculation that Renzi could quit as party leader as well as prime minister, or that he could even be ousted.

Q: What about the longer-term?

President Sergio Mattarella asked him to postpone it for a few days while his government finished a Budget.

The government crisis could open the door to elections next year and to the possibility of the opposition 5-Star Movement gaining power in the heart of the single currency area.

Italian Prime Minister Matteo Renzi said he will resign after losing a key referendum on constitutional reform, plunging the country into political turmoil and the European Union in further uncertainty.

With a turnout of 65 percent - high by Italian standards - the verdict was clear: Italians rejected the referendum, and Renzi, with almost 60 percent voting "no" and just 40 percent backing the measures.

Mr Renzi had staked all on his reform plan - vowing to resign if it was rejected by voters.

Italy's lower house has already approved the budget, leaving the Senate with the final vote.

The euro held firm on Tuesday, having seen a wild 3-cent swing in the wake of Italy's referendum, while the region's bond yields dipped in line with USA peers as oil saw its first fall for five days.

Unless the "no" vote results in political instability, we expect the recapitalization of Italy's troubled banking sector to push ahead and do not see it affecting other eurozone bank efforts to raise capital.

That could well thwart the ambitions of comedian Beppe Grillo who leads the populist Five Star Movement, an Internet-based and ideologically unorthodox party with socially liberal, economically populist and tough law-and-order views.

Five Star says it is getting ready to govern Italy.

President Mattarella, who praised the high voter turnout, called for a political climate with "serenity and mutual respect".

"Institutions must ensure the deadlines and commitments we face are respected, guaranteeing responses that are commensurate with the current issues", the statement said.

They are opposed to the Eurozone but not the European Union itself, views likely to cause sleepless nights ahead for some European Union leaders.

But Lorenzo Codogno, former chief economist at the Italian Treasury Department, insisted: "The outcome of the referendum is much more complex and nuanced than "just another wave of protest across the globe". "For today, EUR/USD should hover around 1.0700", said ING's analyst.

"Global risk sentiment roared back after falling prey to the initial Renzi fallout and whatever negatives Italy creates for the eurozone, yesterday was not the time for a euro implosion", said Stephen Innes, senior trader at online FX platform, OANDA.

With the resignation of Renzi, Europe has lost one of its strongest champions of change in European economic policy, something that appeared to be recognised last month when the commission called for a 0.5 per cent fiscal expansion for the euro zone.

Spokesman Steffen Seibert said in Berlin that Merkel "worked very well and trustingly with Matteo Renzi, but of course the democratic decision taken by Italian citizens must be respected". Marine Le Pen of France's Front National, who is hoping to inflict another blow to Brussels with her bid to become French President next year, said that "we must listen to this thirst for freedom".

What will it do to the economy?