By Philip Pullella
ROME (Reuters) - Italy's highest court gave the green light on Monday to a referendum that Prime Minister Matteo Renzi says will guarantee political stability and on which he has staked his future.
Renzi has said he will resign if voters do not approve the constitutional changes he hopes will end Italy's notoriously shaky political system that has prevented any government completing a full term since World War Two.
It is a huge political gamble for the center leader, with polls showing many of the 50 million voters undecided, with the "No" camp gaining momentum in what will be a very close campaign.
Now that the Court of Cassation has validated the more than 500,000 signatures needed for the referendum to be held, the government has 60 days to set a referendum date, likely to be between October and December.
On Friday, credit ratings agency DBRS placed Italy under review because of the political uncertainty as well as pressure on banks, a fragile economic recovery and a less stable external environment.
Any protracted political uncertainty could further sour investor sentiment toward the euro zone's third largest, and highly indebted, economy and towards its banks, which are themselves saddled with 360 billion euros of problematic loans.
It could also complicate a recently announced private-sector bailout for Monte dei Paschi di Siena, the country's third biggest bank, which has to raise 5 billion euros ($5.5 billion) on the market by year-end.
The reform, which both houses of parliament approved in April, would shrink the upper house, cutting the number of senators to 100 from 315, and stripping it of powers over the budget and its ability to bring down a government. Instead, it would have oversight of local, rather than national, issues.
It would increase the powers of the central government, diluting those of Italy's 20 regions on issues such as the environment, transport and energy. Twinned with a new, two-round voting system for the lower house, the changes should finally make Italy a governable country, Renzi says.
Opposition parties, such as the anti-immigrant Northern League, say that will strip away democratic checks put in place after the war to prevent the rise of another political strongman like Fascist dictator Benito Mussolini.
Such concerns, plus the fact that some Italians might use the referendum to make a protest vote against Renzi, mean it is far from certain that the changes to Italy's 1948 republican constitution will get the legally required popular consent.
The referendum is likely to be held after parliament approves the 2017 budget, a draft of which must be presented by Oct. 20. Approval by both houses would take about a month.
($1 = 0.9022 euros)
(Additional reporting by Silvia Alosi and Massimiliano Di Giorgio; Editing by Robin Pomeroy)