Brussels, 04/11/2011 (Agence Europe) - In a joint press conference before the end of the G20 summit, the president of the European Council, Herman Van Rompuy, and the president of the European Commission, Jose Manuel Barroso, said that Italy had itself invited the International Monetary Fund (IMF) to monitor the implementation of budget reforms unveiled by the Italian prime minister, Silvio Berlusconi, to his G20 partners on Thursday 3 November (see EUROPE 10488). The IMF will send experts to Italy every quarter to assess progress and check that the reforms are being properly implemented, in addition to the in-depth surveillance of Italy's economic reforms by the European Commission that was agreed at the special EU summit of 27-28 October. Next week, the Commission will be sending its own experts to Italy to monitor application of the budget cuts and structural reforms promised by Berlusconi.
The two EU leaders said that Italy's request for scrutiny demonstrated the importance of the reform process for Italy and for the rest of the eurozone. The European Commission's detailed monitoring of progress would ensure the process was open and credible and give the markets and Italy's international partners reassurance because it was a fact that the markets doubted Italy's ability to actually implement the reforms it has promised, explained Barroso on the fringes of the G20, adding that this was why Italy would be introducing all the reforms.
The scrutiny by the IMF and the Commission should prevent the debt crisis spreading from Greece to Italy and other eurozone countries and Van Rompuy was at pains to point out that things were very different in Italy from in Greece. If speculation were to pick up, the ECB and the European Financial Stability Fund (EFSF, the bailout fund) are prepared to intervene where necessary, said President Sarkozy at a press conference, praising Italy for taking the measures needed to restore confidence and boost credibility.
Behind the scenes and despite Van Rompuy's insistence that the surveillance of Italy's reforms had not been forced on the country, it is reported that Berlusconi was forced to acquiesce under strong pressure to scrutiny from the IMF and the Commission. A private meeting took place on Thursday morning between Berlusconi, Italian Finance Minister Giulio Tremonti, Chancellor Merkel, President Sarkozy, Van Rompuy, Barroso and Christine Lagarde of the IMF. Lagarde offered IMF aid to Italy with the option of rapid crisis prevention loans of €44 billion. Urged by the IMF and his European partners to accept the offer, Berlusconi is reported to have declined but given in to increased IMF surveillance as a compromise.
His capitulation is due to ever higher interest rates being demanded for rolling over Italy's debt, currently standing at 6.4% for ten-year bonds, compared with 1.8% for Germany. In the long-term, these interest rate hikes will jeopardise Italy's chances to reaching its aim of cutting its debt and returning to a balanced budget in 2013. If the debt crisis were to spread to Italy, then it could have a domino effect and spread to Spain and then France, throwing the eurozone into chaos. This scenario is of great concern to President Barack Obama, who said at the first G20 working meeting that although Greece was the most urgent question, the situation could get out of hand if it spread to bigger countries.
The Italian government is very weak and hampered by Berlusconi's own lack of credibility. He is under increasing pressure at home, with disagreement between himself and Tremonti the day before travelling to Cannes about the exact details of the reform package Berlusconi would be unveiling at the G20.
Against this backdrop, no matter what European leaders say, IMF and European Commission surveillance certainly looks like external management of Italy's finances as the only way of building trust among its international partners. (FG/transl.fl)