Italian Prime Minister Enrico Letta today resigned in a fast-paced political drama in Rome that paves the way for 39-year-old centre-left leader Matteo Renzi to take his place.
Financial markets cheered as Letta submitted his resignation to President Giorgio Napolitano after just 10 tumultuous months at the head of a fragile coalition with the centre-right in which he struggled with a rampant economic crisis.
Napolitano today will now begin consultations with political leaders to pick a nominee to replace Letta, which the presidency said would conclude tomorrow.
Letta was forced to announce his resignation yesterday after his own Democratic Party overwhelmingly backed a motion by its new leader Renzi calling for a new government.
Today he "submitted the irrevocable resignation of the executive that he presides," the presidency said.
It added that Napolitano would move swiftly to find an "efficient solution" to the political crisis and move on with economic and "urgent" election law reforms.
The outgoing premier smiled as he arrived at the presidential palace and thanked his supporters in a tweet after losing in the showdown with Renzi.
"Thank you to everyone who helped," said Letta, a 47-year-old former Christian-Democrat who had defiantly ruled out resigning and presented his programme of reforms for 2014 as recently as Wednesday.
The "relay" between Letta and Renzi is unpopular among Italians who would have preferred early elections, according to opinion polls, and there is concern in the party that it could end up strengthening disgraced former prime minister Silvio Berlusconi.
Pippo Civati, a leftist opponent of Renzi within the party, said the ambitious leader was resembling more and more "a character from a roman noir novel".
Analysts said Renzi will have to overcome the shock caused by him engineering Letta's overthrow despite an earlier gentleman's agreement that he would not do so.
But they also said he could quickly win support if he manages to push through important reforms, and investors were broadly supportive with stocks and bond rates holding stable on the financial markets.
"The reform process will probably get a boost," Italy's UniCredit bank said in a research note, adding however that "the road ahead is not without bumps".
Stocks today jumped up 1.6 per cent as Letta resigned, also thanks to new data showing that the economy grew by 0.1 per cent in the fourth quarter.
The result was the first positive one for gross domestic product in two years after Italy's longest post-war recession ended in the third quarter.
