Italian Prime Minister Mario Draghi submits his resignation after failing to revive the government

Prime Minister of Italy Mario Draghi He submitted his resignation Thursday, paving the way for new elections and opening a new chapter of political uncertainty.

Speaking to Parliament, Draghi said he would meet President Sergio Mattarella and inform him of his intentions after he failed to unite his fragile coalition government. Mattarella has reportedly asked him to remain in his position temporarily with a transitional government.

“I thank you for all the work we have done together during this period. After the vote was held last night by the Senate of the Republic, I am requesting a suspension of this session as I am on my way to the President of the Republic to communicate my intentions,” Draghi told lawmakers early Thursday.

It comes after coalition partners ignored Draghi in a vote of confidence in the Senate on Wednesday, effectively implying the collapse of the government.

Although it managed to win the vote, the left-leaning Five Star Movement, one of the parties in the coalition government, said it would not participate. The ruling Lega party and Forza Italia also said they would not participate.

It sets the stage for a difficult and uncertain early election, which could take place in September or October.

Last week, Mattarella Draghi’s first resignation rejected He was asked to lead further negotiations with MPs in the hope of avoiding early elections.

This came after the Five Star Movement opposed a new decree aimed at lowering inflation and combating rising energy costs. Italian lawmakers held a vote of confidence on the broad policy package, but Five Star boycotted the move, angering Draghi and the right-wing parties in the coalition.

my ex cyclist European Central Bank President, then asked by Mattarella to return to Parliament’s upper house and hold a vote of confidence in the government itself on Wednesday, meaning Italian politics was in a stalemate last week.

In addition, stock markets were lower due to Thursday’s news. Italy main index, FTSE MIBIt traded about 2% lower in early European trading.

There are a number of reasons why investors are concerned about Italy. First and foremost, opinion polls point to a fragmented parliament, which means new elections could lead to difficult coalition negotiations.

Meanwhile, Italy has one of the highest debts in Europe, faces record inflation and has limited growth prospects. This macroeconomic context becomes particularly challenging as the European Central Bank prepares to raise interest rates, which could hamper Italy’s economic performance going forward.

“Judging by some long-term fundamentals, Italy is slowly turning into an accident waiting to happen,” Berenberg chief economist Holger Schmieding said in a note Thursday.

He cited three main problems: a trend of low growth, dismal demographics, and a penchant for political plays.

“For now, we have to prepare ourselves for disruptive noise waves but not for the real Euro 2.0 crisis, in our view,” he added.