Italian Prime Minister Mario Draghi resigns; FTSE MIB slides

Italian Prime Minister Mario Draghi has handed in his resignation after three of his coalition partners withdrew their support in a confidence vote on Wednesday, sending the country’s stock markets tumbling.

At 0930 BST, Italy’s FTSE MIB was down 2.6% at 20,797.15, massively underperforming its European peers, with the benchmark Stoxx 600 index down a much more most 0.4%.

Neil Wilson, chief market analyst at Markets.com, said: "It seems all too apposite that Mario Draghi, the man who ‘saved’ the euro, is going to fall on his sword the very day the European Central Bank raises rates for the first time in more than a decade, and that the economic problems in Italy that his policies papered over as ECB chief have not been resolved."

President Sergio Mattarella said in a statement that Draghi would remain in charge of current affairs. He is now expected to dissolve parliament and announce snap elections.

Melanie Debono, senior Europe economist at Pantheon Macroeconomics, said: "A snap election would make more fiscal support in the near term less likely. The earliest a snap election can be held is 2 October, given that it cannot be held sooner than 45 days after the dissolution of parliament, and any new government will only begin work around the end of November.

"Polls suggest that no single party will gain a majority and coalition politics in Italy mean that forming a government may take a while, let alone any such government agreeing new aid. Mr. Draghi’s government will remain in post, as a caretaker government, in the meantime."