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EU and IMF ‘to monitor Italian reforms’

Posted by admin On November - 4 - 2011

Italy agrees to be put under “surveillance” as part of plan to restore trust in its economy, senior EU sources say.
Italy, under fierce pressure from financial markets, has agreed to be put under surveillance by the International Monetary Fund (IMF) and the EU as part of a plan to restore market trust in the eurozone’s third-largest economy, senior EU sources have said.

“Italy holds the key to the eurozone debt crisis. Developments in Italy are a crucial test for the credibility of the anti-crisis framework set up by the EU”

– Luigi Speranza, BNP Paribas

The agreement was reached after late-night talks on Thursday with eurozone leaders on the sidelines of a G20 summit in Cannes, France.

Silvio Berlusconi, the Italian prime minister, agreed to have the IMF check every three months the way pension and labour market reforms are implemented and privatisations are carried out, the sources said.

“We need to make sure there is credibility with Italy’s targets – that it is going to meet them,” one EU source told the Reuters news agency on condition of anonymity.

“We decided to have the IMF involved on the monitoring, using their own methodology, and the Italians say they can live with that.

“Italy has no problem with surveillance at all, even with the IMF being involved,” the source said on Friday, adding the EU Commission and IMF would each report on how Italy was meeting its targets.

The Italian move came after Greece stepped back from a proposed referendum that could have triggered its exit from the euro bloc and agreed to seek national consensus in support of a $180bn new bailout plan.

‘Singled out’

The leaders of France, Germany, Italy, Spain, the European Central Bank, the IMF and EU institutions also discussed with US President Barack Obama ways of increasing the IMF’s war chest to help prevent contagion from the eurozone’s debt crisis plunging the world economy back into recession.

A G20 source said no figures were agreed, but the boost to IMF resources, mostly from large emerging countries such as China, could be in the range of $300bn to $350bn.

EU officials said three options were under consideration, including the possibility of combining the eurozone countries’
rights to borrow from the IMF to build a fund to support vulnerable sovereigns such as Italy and Spain.

In Depth

Q&A: Eurozone debt crisis
Map: Eurozone members
Profile: George Papandreou
Programmes: Buying time in the eurozone

The concession by Berlusconi was an attempt to shore up his country’s perilous position on bond markets, where its borrowing costs soared well above six per cent this week, raising doubts about its long-term ability to cope with a debt pile of 120 per cent of gross domestic product.

An official Italian source denied that Italy was being singled out for special surveillance and said the whole eurozone would be under closer monitoring.

However, he confirmed that Rome was willing to request IMF advice on implementing the commitments it gave EU leaders on specific reforms on October 27.

G20 leaders will try to look beyond the Greek drama that has shaken their annual gathering and agree on measures on Friday that will convince markets the risk of further eurozone contagion can be stemmed.

Delegates ga thered in

the Riviera resort of Cannes found themselves watching the eurozone battle to calm the situation as Greece threw a rescue deal into question and seemed on the brink of quitting the euro.

The EU source said a precautionary credit line was not seen as a credible option for Italy, where one of the main problems has been market confidence.

“With the general climate and Italy’s lack of credibility, every small setback or problem is compounded and makes things worse, so the markets cannot have confidence,” he said.

Greece’s future in the eurozone may hinge on a vote of confidence in Socialist Prime Minister George Papandreou late on Friday night.

If he wins, government sources say he has pledged to step aside and make way for an interim national unity government that would enact the EU/IMF bailout plan, receive a vital aid instalment and pave the way for early elections next year.

However, if he loses, Greece will be plunged into deeper political turmoil and may face a hard default and possible exit from the 17-nation single currency area.

But analysts are already eyeing Italy as a test case for the anti-crisis package agreed in Brussels last week.

‘Greek roller-coaster’

“Italy holds the key to the eurozone debt crisis,” BNP Paribas analyst Luigi Speranza wrote in a research note late on Thursday.

“Developments in Italy are a crucial test for the credibility of the anti-crisis framework set up by the EU.”

Concern is growing that Italy, the euro area’s third-largest economy and biggest government bond market, could go the way of Greece and require a bailout without rapid action.

Berlusconi has repeatedly promised to make deep reforms, balance the budget in 2013 and trim the public debt, but there are doubts about his commitment.

A clause in a draft communique for the G20 summit, obtained by Reuters, showed Italy would only be held to bring
its budget “close to” balance in 2013 as part of a package of economic pledges aimed at reducing economic imbalances.

Al Jazeera’s Jacky Rowland, reporting from Cannes, said: “A draft copy of the final communique talks in general terms about its desirable goals for ‘strong sustainable balanced growth’ – a slogan you see cropping up throughout this draft – and there’s clearly a desire to see a downward trend in deficits – this debt to GDP [Gross Domestic Product] ratio.

“However, what the draft communique lacks is specific figures and dates, by which it hopes certain goals to be achieved. For example in the case of Italy, there’s a hope or aim expressed that Italy should come close to a balanced budget by 2013 but it doesn’t say how close is close,” she said.

“The European leaders meeting here in Cannes have really been riding a kind of Greek roller-coaster over the last 48 hours or so.

“[Obama] made it clear that this is not a crisis that just affects European leaders but has an impact on the whole world.

We only have to look at the kind of volatility recently that there has been on the euro-dollar exchange rate to see why people like President Obama are telling the European leaders that they need clarity and detail about how this rescue plan is going to be implemented.”


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