Matteo Renzi has become the second EU government leader this year to throw in the towel after a referendum. First, British Prime Minister David Cameron, now the leader of Italy. Both have been bested by coalitions of xenophobes, left- and right-wing populists and the reform-averse. In the rest of Europe, EU alarm bells are ringing as the populists claim another fatal victory.

Marine Le Pen in France, Matteo Salvini from Italy's Lega Nord are rejoicing over on the right. Beppe Grillo and his fundamentalist anti-establishment supporters of the Five Star Movement (M5S) are triumphant on the left. "Viva Trump, viva Putin, viva Le Pen!" wrote Salvini, a man who wants to see northern Italy separated from the south. One can hardly believe this level of political discourse.

Of course, the democratic decision of 60 percent of Italians must be respected, particularly in light of the unusually high turnout. Yet the reasons behind the landslide are difficult to grasp. Not only the angry, the frustrated, and the detached have sent Renzi packing - but even those who have benefited from Italy's still somewhat corrupt political system. Did they consider the consequences? Do they have a better antidote to the deadlock that plagues Rome? The country's already weak economic performance is likely to suffer in the ensuing uncertainly. What investor will look towards a country where Grillo's anti-politics politicians may gain a majority in the next election?

A losing bet

Matteo Renzi is largely to blame for his own downfall. He is a political player who does not shy away from risk.

When his party won the European elections in 2014 by a clear margin, he felt strong enough to turn his attention to bigger fish and tried to go for major constitutional reform. By linking his own career to the referendum, he offered the Italian people not only a constitutional question, but a question of their trust in him.

When surveys began to show that he could not count on victory, he began to backpedal. Suddenly it was no longer about him, but about Italy. The voters were not convinced, however. The opposition, especially Grillo, pounced on their chance. Given an inch, Grillo took a mile and said Renzi was trying to cheat Italians and shrink their democracy. This is of course, errant nonsense, like most of the political program from the comedian-turn-politician and popular blogger.

Renzi tried - in a somewhat arrogant and complacent matter - to make Italy's political apparatus leaner and faster. This was basically the right approach, even if some of the details would not have worked, according to experts and political scientists. But Renzi, the great "demolitionist," wanted to at least show that changes in the encrusted and somewhat corrupt system were at least possible. From now on, nothing will change. Renzi must accept the consequences, and he's not alone.

Stagnation doesn't help anyone

The financial world and investors are likely to punish Italy's stagnating economy and leave banks in a lurch. Italy could slip once more into a recession. Its debts, which are already getting out of hand, may grow. Italy would then become Europe's problem.

The EU would have no other choice in a post-Brexit world and as it is already dealing with the unresolved issues in Greece, it hardly needs a crisis-stricken Italy on its hands. In one scenario, Italy will have a technocratic cabinet for a year, which means a one-year standstill until regular elections.

Should Italy have elections sooner, however, chances may well be that Grillo's populists would come to power. Grillo, whose favored political tools are anger and frustration, wants out of the eurozone. This would likely spell the end of the monetary union, as Italy is the third largest euro country and major payer to the EU budget and monetary rescue packages.

In Italy, populism takes on a very different face that in other EU countries. It is not mired in xenophobia, exploiting the refugee crisis, or promoting a nationalist identity. Nevertheless, the rejection of the establishment in Italy will provide a tailwind for Geert Wilders in the Netherlands and Marine Le Pen in France, who will be slinging their own rallying cries in the spring. From there, it's not impossible to imagine the Alternative for Germany (AfD) will try to ride the wave to mobilize its own supporters for Germany's federal elections in September. The Italians have helped them all indirectly.

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