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Italy's populist revolution did not happen on Sunday, in spite of appearances to the contrary. But it stands a good chance of happening in 2018, when Italy is to hold its next election. By then, the populist, anti-establishment and Euroskeptic Five Star Movement, the main opposition party, could find itself governing a Group of Seven country.

If Italy's centrist parties are to ward off the populist threat, they will have to create a lot of jobs, for it was jobs – or the lack thereof – that played a big role in Prime Minister Matteo Renzi's crushing defeat in the referendum on constitutional change.

He resigned on Monday, thrusting Italy back into political limbo, possibly chaos.

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Mr. Renzi's downfall was self-inflicted. He had vowed to resign if the referendum were to go against him, setting up a vote on constitutional reform as a test of his popularity. In itself, the loss of a centrist, pro-European leader in the euro zone's third-largest economy was not an immediate blow to the European project – European Union leaders come and go all the time. It's the timing that was particularly sensitive. Europe is in the grips of a populist revival and populist parties are largely opposed to the EU and the euro, as well as immigration. Mr. Renzi's early departure gives Five Star and other Italian populist parties a chance to exploit the political vacuum and build their base.

Mr. Renzi's political demise did not conveniently fit the conventional populist narrative as much as populist leaders such as France's Marine Le Pen said it does. Yes, Five Star had urged a No vote and had its wishes fulfilled. Still, the referendum's outcome was more about the clapped-out Italian economy than an alleged populist tidal wave rolling over the European Union's southern flak.

Evidence? The European and Asian markets took a benign view of the outcome of the referendum, which had sought to streamline the government by downgrading the senate, parliament's upper house, into a regional talking shop with virtually no law-making powers. The British and German stock markets rose on Monday morning, oil was up and so was the euro, by more than half a percentage point, against the dollar.

The main casualties were sovereign Italian bonds, whose 10-year yields rose eight basis points – hardly a massive loss of investor confidence in Italian debt (100 basis points equals one percentage point). Over one month, the Italian bonds' yield rise is still less than those of Britain, France and Spain.

In other words, Italian and international investors did not see the 60-40 result against Mr. Renzi as a compelling sign that Italy faces the Brexit treatment (known by the hideous term "Quitaly") or is about to install a Donald Trump clone in the Palazzo Chigi, the prime minister's official residence in Rome. A No vote was expected; the only surprise was the high proportion of No voters.

"Since the start of the euro, Italy had nine different governments. Hard to see why Italian 'No' should now end the euro zone," ING-DiBa economist Carsten Brzeski said in a Monday tweet.

Instead, the Italian referendum took on the appearance of an old-fashioned punishment vote, even if it did have populist overtones. Mr. Renzi was punished for presiding over a jobless non-recovery and the punishers-in-chief were Italy's youth, of whom 36 per cent are jobless.He tendered his resignation to Italy's President, Sergio Mattarella, on Monday. Mr. Mattarella will now seek to form an interim government under a new leader, possibly plucked from Mr. Renzi's cabinet, who will hold the fort until the next elections.

While Italians in almost all regions, cities and towns voted No in the referendum, it was the youth who led the charge. They voted 81 per cent in favour of No while the over-55s, whose unemployment rate is relatively low, leaned toward the Yes side – that is, endorsement of Mr. Renzi.

Italy's triple-dip recession since the 2008 crisis, followed by virtually non-existent growth, has been especially cruel on the country's youth. In Sicily, to take but one region, youth unemployment is 56 per cent – higher than Greek levels. Government goodies tend to go to the cosseted, and burgeoning, pensioners' class (Italy has one of the world's oldest average populations and one of the lowest birth rates). Italy's internal devaluation – falling wages – during the recession years was largely limited to the young. Through stealth and voting and lobbying power, the oldsters keep their lifestyles mostly intact.

The banking crisis helped to destroy the employment prospects for young people. Italy's banks are plugged with the highest proportion of non-performing loans in Europe, equivalent to an astounding 20 per cent or more of gross domestic product. Italy's third-largest bank, Monte dei Paschi di Siena, has been in crisis for years and may or may not be resurrected by a €5-billion capital raising exercise that is supposed to be approved or abandoned this week. The No vote, and the political uncertainty that goes with it, will not make that exercise any easier. Its shares fell 4.2 per cent on Monday. Other big Italian banks fell too.

Sick banks don't make loans. Small and medium-sized businesses, the lifeblood of Italy's economy, don't hire if they can't get credit. The banking crisis was not fixed by Mr. Renzi and his can-kicking manoeuvres.

Mr. Renzi, 41, the former mayor of Florence, became Italy's unelected prime minister in early 2014 after a brutal and efficient Democratic Party coup. Young and dynamic, he promised to revive Italy's economy and launch sweeping reforms to make Italy competitive. He made only barely visible progress, and for that the hapless youth brigade – Italy's lost generation – took revenge.

Are Italian youth populists? Some are, though probably most are not. But that could change. Five Star, led by the drain-the-swamp former comedian Beppe Grillo, is supported by 50 per cent of 18- to 24-year-olds, according to Mediobanca Securities. The party, which recently won municipal elections in Rome and Turin, is polling more or less equally with the Democratic Party and pledges to hold a referendum on the euro if elected.

If Five Star wins the next election, Italy, and by extension the EU and the euro zone, will face a genuine populist threat. Between now and the election, Italy needs to create a lot of jobs to ward off that threat. It may fail. Italy's new-found political instability is not conducive to reforms aimed at reviving the economy. And big, bold changes, as Mr. Renzi found out on Sunday, and former British prime minister David Cameron found out in June, when the Brexit vote went against him, can be politically suicidal if mismanaged. Five Star's moment is about to come, it appears.

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