Italian Prime Minister Matteo Renzi has resigned after losing his referendum on constitutional and voting reforms.

Having staked his political career on the vote, the larger-than-expected defeat (59% vs. 41%) left him no choice but to announce his intended resignation.

After falling in early trading, London’s FTSE 100 index recovered on Monday to stand 10 points, or 0.15%, higher at 6,740.73  

Other European stock markets were also higher, although Italy's FTSE MIB fell 0.1%.

Shares in Italian bank UniCredit were down 6% while troubled lender Monte dei Paschi saw its stock fall 3%.

Viktor Nossek, director of research at ETF provider and sponsor WisdomTree, said it was a tough day for Italy’s economy – and indeed Europe in general – as Italy’s position within the EU is now threatened.

“At the epicentre are the Italian banks which pose the biggest systemic risks for the Eurozone.

“We expect investor sentiment to sour and the credit rating agencies to downgrade Italy’s sovereign rating if the stresses on banks intensify, instigating a marked sell off of these debt securities that will put balance sheets under even more pressure than the bad loans are already doing.”

Azad Zangana, senior European economist & strategist at Schroders, said Renzi was Italy’s “best hope” of enacting badly-needed economic and structural reforms, and called his departure a “major blow” for Italy’s medium to long-term outlook.

“Turning down the constitutional reform means that political volatility will rise, the fiscal path will stay shaky and growth low,” added Morgan Stanley analyst Daniele Antonucci.

However, Antonucci reckons that a forthcoming electoral law diffusing power, rather than concentrating it, lowers the probability that the anti-establishment, Eurosceptic Five Star Movement wins the next election.

ECB’s plans

In a note to clients, David Zahn at Franklin Templeton Fixed Income Group, said he does not not anticipate the result of the referendum this week to have any major impact on the ECB’s plans.

“We think this result reaffirms its expected position of extending QE for at least another six months, given the continued European political risk.