By Crispian Balmer, Giuseppe Fonte and Angelo Amante
ROME (Reuters) -Italy will hold a snap national election on Sept. 25 after Prime Minister Mario Draghi resigned following the collapse of his national unity government, sending tremors through financial markets.
It will be the first autumn national election for more than a century in Italy, where the second half of the year is normally taken up with getting the budget law through parliament.
It is likely to be a fractious campaign fought in the fierce summer heat in a drought-hit country.
A bloc of conservative parties, led by the far-right Brothers of Italy, looks likely to win a clear majority at the ballot, a study of opinion polls showed this week.
Draghi, an unelected former central banker who has led a broad coalition for almost 18 months, handed in his resignation earlier on Thursday and was asked by President Sergio Mattarella to stay on in a caretaker capacity.
"We must deal with the emergencies related to the pandemic, the war in Ukraine, inflation and the cost of energy," Draghi told cabinet colleagues.
He said that the government must also implement the National Recovery and Resilience Plan that sees Italy tapping billions of euros of post-pandemic European Union funds in return for reforms.
Although the vote is set for the end of September, it might take weeks of haggling before a new administration is sworn in.
Draghi's coalition crumbled on Wednesday when three of his main partners snubbed a confidence vote he had called to try to end divisions and renew their troubled alliance.
He had sought to reassert his authority as parties began to pull in different directions before the planned end of the legislature in the first half of next year.
TURMOIL RETURNS
The political crisis has up-ended months of stability in Italy, during which Draghi had helped shape Europe's tough response to Russia's invasion of Ukraine and had boosted the country's standing in financial markets.
Italian bond and stocks sold off sharply on concerns that the political crisis would delay reforms and that the new government might be a tougher partner for the European Union.
Italy's 10-year bond yields rose to a one-month peak at 3.75% before pulling back to around 3.60% in late trade.
Draghi, Italy's sixth prime minister in a decade, had drawn warm applause from lawmakers when he made a brief appearance in the lower house of parliament on Thursday, signalling his intention to step down.
"Even central bankers have their hearts touched sometimes," he quipped as he received the ovation.
The former European Central Bank (ECB) president had helped to give Italy a stronger presence on the international stage.
Ukrainian President Volodymyr Zelenskiy thanked him for his "unwavering support".
"I'm convinced that the active support of Italian people for Ukraine will continue," he said on Twitter (NYSE:TWTR).
Although unelected, Draghi was popular with many Italians fed up with years of revolving door governments.
"The fact that there is yet another government crisis only certifies the umpteenth inability of our politicians to govern for the people, and instead govern only for themselves," said Marco Anastasi, 29, a gym instructor from Milan.
However, the Brothers of Italy, led by Giorgia Meloni, welcomed the news of elections, which were not scheduled until the first half of next year.
She was the only major leader not to join Draghi's government and her popularity has soared in opposition. Her group polled just 4% in the 2018 election, but is now seen winning more than 22%, making it Italy's largest party.
If the conservative bloc wins the September ballot, she will decide who should be prime minister and might promote herself to the top job.