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Italy's latest risk to stability: the 'Renzi Factor'

Roberto Serra - Iguana Press | Getty Images News | Getty Images

The latest rising star in Italian politics is the brash mayor of Florence, who became the head of the country's most powerful political party this weekend and the latest headache for Prime Minister Enrico Letta.

Matteo Renzi gained power and influence over the future of the country's fragile coalition government when he was elected leader of Letta's center-left Democratic Party (PD) this weekend.

Data from two-thirds of the 9,000 polling booths showed the 38-year old Renzi took 68 percent of the vote in a three-way race, Reuters reported on Sunday.

Renzi has now become the PD party's secretary while Enrico Letta remains a prominent member of the party and Italy's prime minister. Renzi does not become a part of Letta's government despite his position as party leader.

Renzi's refusal to toe the party line and informal political style has appealed to voters: his nickname is "Il rottamatore" – "the scrapper" – after he once called for the entire scrapping of the higher echelons of Italy's political establishment.

Analysts have been watching the so-called "Renzi factor" for some time and say that now he has won the PD leadership, he could have his eye on the Letta's job.

(Read more: Berlusconi stands alone after party split)

"Renzi will have to strike a delicate balance with Premier Enrico Letta in order to maximize his chances of becoming the new prime minister, " Wolfango Piccoli, director of the political risk analysis firm Teneo Intelligence, wrote in a note ahead of the vote, warning that Renzi "remains keen on becoming prime minister and ultimately hopes for early elections."

Elections are a constant headache in Italy, the euro zone's third largest economy with the second largest debt pile after Greece. After two and a quarter years of recession, the country is struggling to make economic reforms as its political instability dominates parliament.

(Read more: Italy's 2014 budget could spark further trouble)

Letta was invited to form a government in April this year a prolonged political deadlock following inconclusive elections in February. He has since then ruled in an awkward coalition with Silvio Berlusconi's "Forza Italia" party before the latter's withdrawal of support from Letta and recent ejection from politics.

Now, the coalition is a "hotch-potch" of center-right and center-left elements, including defectors from Berlusconi's party. In spite of the fragmented coalition, the public and president of the republic, Giorgio Napolitano, is keen to hold on to some political stability in order to get reforms and the economy moving again.

(Read more: Berlusconi's gone - but Italy's big problems remain)

As such, Renzi's "convincing victory is something of a double-edged sword," Nicholas Spiro, head of Spiro Sovereign Strategy, told CNBC. "On the one hand, one of Italy's main parties is now headed by a popular and young reform-minded politician who's determined to face down Italy's trade unions [and] is the breath of fresh air which Italy's discredited politics desperately needs right now."

"On the other hand, Mr Renzi's victory injects yet another of uncertainty into what remains an extremely fluid Italian political scene. His victory threatens to make things more difficult for premier Letta who, while in a somewhat stronger position since seeing off a challenge from Mr Berlusconi, has a relatively slim majority in the upper house."

Teneo Intelligence's Piccoli added that despite Renzi's eye resting firmly on the eventual premiership "pulling his party out of the majority may not be possible before talks on the electoral law are concluded."

"Given his need to consolidate support within the PD, President [Giorgio] Napolitano's opposition to early elections and the loss of personal credibility that forcing a break with Letta would entail, Renzi has little choice but to continue backing the cabinet for the foreseeable future," Piccoli added.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt

Follow us on Twitter: @CNBCWorld

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