Italian Prime Minister Matteo Renzi has agreed to delay his resignation until parliament approves the 2017 budget, which could be done as early as this week.
Renzi announced he would resign following a December 4 referendum in which Italians rejected his proposed reforms to the constitution by a decisive 59-41 percent margin.
The result of the referendum tipped the eurozone’s third largest economy into turmoil and sent the common currency briefly downward.
There are worries that the political instability could pile new pressure on Italy’s fragile banking sector and usher in antieuro and anti-EU parties that campaigned hard to defeat the pro-EU Renzi.
In an apparent bid to ease investor fears, President Sergio Mattarella "asked the prime minister to postpone his resignation" until the budget has been passed, Mattarella's office said in a statement, after the president met with Renzi at the presidential palace in Rome December 5.
The budget is expected to be approved by the end of the week, according to Italian media.
The government has already won a vote of confidence on the budget in the lower house of parliament, but still needs ratification by the country's senate.
Mattarella will later have to either choose a new prime minister or call early elections.
The 41-year-old Renzi defended his record in remarks on December 5. "1,000 difficult but wonderful days. Thanks to everyone. Viva l'Italia," he wrote on Facebook.
Renzi had vowed ahead of the referendum to step down if his proposals were rejected, saying his proposed reforms were necessary to give him the power to push through reforms to strengthen Italy's sluggish economy.
However, opposition parties successfully campaigned against the changes by claiming they would concentrate too much power in Renzi’s hands.
Renzi's decision to step down after just two-and-a-half years in office deals a blow to the European Union as it already reels from multiple crises and struggles to overcome antiestablishment forces that have gained ground across the West this year, including Britain's Brexit vote to leave the union.
The White House said the results of the vote should not be taken as a broader sign of the political forces at play in Europe.
White House spokesman Josh Earnest said President Barack Obama had hoped that Renzi's proposed reforms would have been adopted.
A diplomat from a Central European country told RFE/RL in Brussels that Renzi's resignation could make it "easier" to renew EU sanctions against Russia for another six months at a December 15 summit. The diplomat, who is closely involved in EU discussions on sanctions against Russia over its interference in Ukraine, spoke on condition of anonymity because he is not authorized to speak to the media.
Under Renzi, Italy has often dragged its feet on renewing sanctions against Russia, an important trading partner. Rome insisted in March that there should be no automatic extensions of sanctions without full discussion each time.
Renzi's vow to leave office creates uncertainty because it could now offer anti-EU parties the chance to enter a caretaker government or compete with renewed strength in early elections.
Boost For Populists?
If anti-EU parties come to power in Italy, their success could bolster populist parties within the EU that are questioning the value of the union.
"If there is a new election in Italy next year, if there is a success of such groups and parties, this could have another spillover effect,” said Marco Incerti, an EU policy analyst with the Brussels-based Center for European Policy Studies.
"There is a momentum that has started already with the vote in the United Kingdom, notably in the Brexit referendum, and there could be more momentum for parties which are against the European Union in different countries, which is relevant because next year is an electoral one."
"It is bad news for Europe because Italy is one of the founding members of the EU," said Judy Dempsey, a policy analyst with the Carnegie Europe think tank, speaking to RFE/RL.
"Secondly, it supported [EU] integration and was absolutely supportive of the euro," said Dempsey. "And thirdly, as a very major European country, the fact that there were antieuro movements inside Italy wanting to pull Italy out -- this is very damaging for the fabric of Europe and it increases the fragmentation of the EU."
With reporting by Reuters and AFP