'Demolition Man' Renzi's next fight: Berlusconi
In the revolving door that is Italian politics, the country is set to get its third prime minister in a year with Enrico Letta officially resigning on Friday afternoon after losing a bruising battle for the leadership of his party with Matteo Renzi.
But analysts are keeping a weather eye on ex-PM Silvio Berlusconi, who could yet spoil any welcoming party for the new premier.
Renzi - currently still mayor of Florence and known as the "demolition man" - ousted his Democratic Party (PD) colleague late Thursday after he called for "radical change" in an economically stagnant and politically unstable Italy.
"If we don't take risks and we don't take responsibility now, the slow pace of reform, without a strong push on our behalf, could result in losing our economic competitiveness," Renzi said at Thursday's party meeting.
(Read More: Italy's Letta to submit resignation Friday)
President Napolitano said Friday that he would complete consultations with the center-left PD party officers by Saturday and is expected to give a mandate to Renzi to form a new government. If Renzi accepts, he will then face a confidence vote in both chambers of the Italian parliament.
"The takeover of Renzi is likely to be seen by the market as a moderately positive event as it would increase the likelihood of an acceleration of the reform process in Italy," Fabio Fois and Giuseppe Maraffino, two analysts at Barclays said in a research note on Thursday evening.
Renzi is seen as the brash, young leader that could seek and gain tougher reforms. He has called for political measures designed to enhance growth and job creation and streamline the bureaucracy and judiciary system. On Thursday, he stated that any new government should deliver structural and institutional reforms, which would include changing the voting system and amending the constitution.
Italy, the third-largest economy in the 18-country euro zone after Germany and France, has been struggling to get its finances in order. The country's debt as a proportion of its gross domestic product was 127 percent in 2012, according to European statistics database Eurostat. The only other euro zone country with a higher debt level is Greece at 159 percent. The country's unemployment rate remains stubbornly high at 12.7 percent.
Economists at UniCredit, Chiara Corsa and Loredana Federico, believe that the President will move rapidly to give Renzi his mandate and suggest that the PD Party leader has already been in talks with the political parties of the coalition which had previously supported Letta.
They expect Renzi to have between 170-175 votes in the Senate, with an absolute majority needed of only 161 seats out of 321.
"On balance, we see a high probability that Renzi will manage to secure a decent majority in the Senate. Things will be easier in the lower house, where, Renzi is expected to have a comfortable majority," the UniCredit economists said in a note on Thursday evening.
"The risk of early elections will diminish a lot. This is positive news, since going to the polls now – before the approval of a new electoral law that replaces the current proportional system – would most likely lead to a hung parliament."
As well as a new leader, Italy received yet more good news on Friday morning with gross domestic product for the country posting a moderate quarterly gain of 0.1 percent, the first time Italy has posted growth in almost three years.
This upheaval at the heart of Italian politics may be seen as positive for the pace of economic reforms but it doesn't come without its potential risks. Yacine Rouimi, an analyst at Societe Generale believes that the appointment of Renzi would not change the French bank's view on Italy, adding that there is no certainty that his government would last longer than the previous one.
Instead, Rouimi expects the new electoral law - set to be debated in Parliament from next Tuesday - will have a bigger impact than any new prime minister.
(Read More: Berlusconi stands alone after party split)
"Italy remains in an electoral law vacuum, as the previous law was ruled partly unconstitutional in December," he said in a research note on Friday morning. "(The new law's) success is not assured, as the main opposition party, Forza Italia, said that it could withdraw support of the deal if Renzi builds a new government."
Forza Italia, still led by 77-year-old Silvio Berlusconi, has been prone to upsetting the apple cart of Italian politics. The former-PM has been ejected from his seat in the Senate because of his recent conviction for tax fraud and is due to serve a one-year sentence for that offense, probably under house arrest or via community service.
Corsa and Federico agree that the stance of Forza Italia may pose a problem to Renzi. They believe that Berlusconi opposes a Renzi-led government, especially one having potentially long life.
"Given that Berlusconi's main goal is to go to new elections as soon as possible, he may decide to withdraw his support to the reform of the voting system. This would not challenge the survival of the Renzi government (Forza Italia is already at the opposition), but might nevertheless compromise the whole process of institutional reforms," they said.
—By CNBC.com's Matt Clinch; Follow him on Twitter @mattclinch81