ROME (BLOOMBERG) - Prime Minister Mario Draghi has offered his resignation to Italy's president, in a move that will raise the prospect of snap elections as soon as early October.

The former European Central Bank chief announced his decision to President Sergio Mattarella in a meeting Thursday morning (July 21), according to a statement by the president's office.

The government will continue as a caretaker to handle ongoing business.

The collapse of Draghi's government was inevitable after three of his coalition partners withdrew their support in a confidence vote Wednesday.

The resignation threatens to throw the country into turmoil just as Europe is bracing itself for a recession and Italians are contending with a brewing energy crisis.

Lawmakers – now without the discipline imposed by the ex-central banker – will need to agree on reforms in order to unlock 200 billion euros (S$284 billion) in European Union aid. Early elections would also hamper deliberations over Italy’s 2023 budget, a process that usually dominates parliamentary proceedings during the autumn.

Italy’s problems reached a boiling point last week when the Five Star Movement, a key coalition partner, boycotted a confidence vote.

Mr Draghi said he no longer had broad backing and threatened to resign unless all the members in the unity government pledged their support. 

Instead, Mr Matteo Salvini’s League and Mr Silvio Berlusconi’s Forza Italia joined the populist Five Star Movement in abandoning Mr Draghi on Wednesday after a heated Senate debate, leaving the prime minister few options other than to quit his post. 

Italian governments are notoriously unstable and Mr Draghi led the 67th government the country has had in just over 75 years.

And while Mr Draghi will likely remain caretaker prime minister until the next vote, the government will be dramatically weakened, risking its legislative agenda. 

‘Perfect storm'

Mr Paolo Gentiloni, the EU’s economy commissioner, warned late Wednesday that “a perfect storm” could lie ahead for Italy.

It will now fall to President Mattarella to decide whether to call for a new vote or appoint a caretaker government, though that is widely viewed as unlikely.

If the president opts for new elections as expected, they must be held within 70 days.

Tensions had been mounting between the premier and Five Star leader Giuseppe Conte, a former prime minister who has been critical of Mr Draghi’s response to the economic crisis and the government’s stance on shipping weapons to Ukraine.

Five Star splintered last month when members could not agree on how much support to give Kyiv. 

Italian parties have now entered campaign mode.

The centre-right, which acted in lock-step during Wednesday’s debate, has the most to win from an earlier vote. Based on current polls, a right-wing tie-up led by Ms Giorgia Meloni’s Brothers of Italy would win a snap election if its members stick together.

Even though Mr Conte’s Five Star triggered the collapse by withdrawing government support last week, its influence is poised to wane. The party’s popularity has plummeted since it entered government and it would likely lose seats in a new election.