London: Australia's former Ambassador to Italy Mike Rann says the Italian referendum which has seen the resignation of Prime Minister Matteo Renzi is nowhere near as serious as Britain's Brexit vote, and believes there is no risk of the Italian banks failing.

Mr Renzi said he would formally resign as Prime Minister at seven o'clock local time on Wednesday (7am on Thursday morning, AEST), just minutes after the Parliament approved the 2017 budget.

"Budget approved. Formal resignation at 7 pm. Thanks to everyone and Long Live Italy," Mr Renzi tweeted.

Mr Rann, one of South Australia's longest serving Premiers, splits his time between London and Italy where he owns a property with his wife Sasha Carruozzo. He has been in Italy every week for the last ten weeks and maintains high-level contacts with Italian politicians. 

Italian Premier Matteo Renzi, right, arrives at the presidential palace to tender his resignation. Photo: AP

He said the referendum result failed largely because Mr Renzi made it a referendum about his leadership.

"There is no sense of panic, it's nowhere near as serious as Britain's Brexit vote," Mr Rann told Fairfax Media.

But he said the rise of the populist Five Star Movement headed by comedian Beppe Grillo was a real threat and likened it to the now defunct Palmer United Party in Australia.

"It's a kind of bizarre conglomeration of Trotskyists, socialists as well as hard-right people who are opposed to a lot of things, including 'the establishment', politics as usual and immigration. In the long term their problem is there is little they do support," he said.

"The most powerful force in Italy is not the right-wing opposition, Berlusconi's Forza Italian, but the populist anti-establishment movement. When fused with anti-refugee rhetoric it is a real concern for Italy and for Europe," he said.

Beppe Grillo, founder of the Italian Five Star Movement political party. Photo: Darbs Darby

Grillo wants an immediate election, saying his Five Star Movement is ready to govern.

But Mr Rann said despite Mr Renzi's resignation, the government would remain stable and it was possible Mr Renzi would return to the top job after a period of time.

"The opposition in Italy is incredibly divided and Renzi could well win an election, if one is called in the first half of next year, or if the government goes full term to 2018."

"Materella, the respected President, wants stability so that Italy can deal with its problems including the banks. Technocrat Finance Minister Padoan or a Renzi loyalist could hold the fort through most of 2017 until the next election and Renzi could come back."

But he said an early election was a possibility too.

"Government insiders are saying Renzi has changed tack since yesterday and is pushing for an early election to nip the Five Star Movement in the bud while the opposition parties are in disarray. That, of course, would be a big gamble and the rest of Europe will be watching closely. "

The referendum result has also thrown the fate of the Italy's third-largest bank Banca Monte dei Paschi di Siena into further doubt.

The bank is trying to raise 5 billion euros (around $7.2 billion) in capital against a climate of political uncertainty. But Mr Rann said fears the Italian banks would fall over were overblown.

"There's lots of huff and puff, Banca Monte dei Paschi di Siena is to big to be allowed to fail and is likely soon to receive an injection of public funds to ensure long term stability. I can't find anyone in business or on right or left politics who is saying the banks are going to fall over."

President Sergio Mattarella is likely to ask Renzi to remain in office in a caretaker capacity for an unspecified period, during which time he might end up having to resolve the situation at Monte dei Paschi.

Two sources told Reuters on Tuesday that Renzi's administration was preparing to take a 2-billion-euro ($2.8 billion) controlling stake in the bank by purchasing junior bonds.

On Wednesday, a Treasury spokesman denied Italy was poised to ask for a loan from the European Stability Mechanism to support its banking sector.

Shares in Monte dei Paschi were up about 9 per cent at 1540 GMT while Italy's benchmark 10-year bond yield fell to near three-week lows.

with Reuters

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