Essen (Germany), Dec 5 (IANS/AKI) German Chancellor Angela Merkel said on Monday she was "sad" that Italian Premier Matteo Renzi had lost a referendum on key constitutional reforms to overhaul the country's political machinery.
"I am said that the referendum did not go as the Prime Minister wished because I always supported his reform policies," Merkel said in the western German city of Essen where her conservatives are holding a party congress.
"But it is of course a domestic Italian decision that we must respect," she added.
Renzi was due to tender his formal resignation on Monday after a cabinet meeting at 6.30 p.m. (local time) after his heavy defeat in Sunday's referendum on which he had staked his political future.
Merkel had a good relationship with Renzi marked by deep trust and Germany would offer to work closely with the next Italian government, spokesman Steffen Seibert said earlier.
Many investors hope Merkel can show leadership in Europe amid fears that instability could reignite a debt crisis as the bloc grapples with 'Brexit' and a surge in support for populist or right-wing parties.
But Pierre Moscovici, the European Commissioner for Economic Affairs, warned against turning the Italian referendum result into a "psychodrama", insisting it was not an anti-EU vote.
"It's not a psychodrama. It's a domestic Italian political affair with important consequences for Italy, but it won't become a European crisis," he said.
Markets, similarly, reacted with relative equanimity. The euro quickly recovered from an initial drop against the dollar in early trading which was attributed to shock at the scale of Renzi's defeat: some 60 percent of Italians rejected the proposed constitutional reforms.
Jeroen Dijsselbloem, who heads the group of 19 eurozone countries, denied any impending crisis.
"It doesn't really change the situation economically in Italy or in the Italian banks. The problems that we have today are the problems that we had yesterday," he said.
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