Italy’s prime minister faces a challenging week as he seeks to shore up the country’s strained public finances, with an IMF mission expected in Rome and market pressure building to a point where outside help may be needed to stem a full-scale debt emergency.
However, an International Monetary Fund spokesperson dismissed a report in the Italian daily La Stampa that said up to €600 billion could be made available at a rate of between 4-5% to give Italy breathing space for 18 months.
“There are no discussions with the Italian authorities on a programme for IMF financing,” the spokesperson said.
Adding to international pressure on eurozone leaders to stem the debt crisis, US President Barack Obama is expected to press European Council President Herman Van Rompuy and European Commission President José Manuel Barroso today (28 November) to resolve to the debt emergency.
No breakthroughs are expected, despite warnings by the Moody’s ratings agency which said the developments threaten the credit standing of all European government bond ratings.
Eurozone finance ministers will meet on Tuesday to consider detailed rules to boost the impact of a €440-billion rescue fund.
Germany and France are also exploring radical ways to secure deeper and more rapid fiscal integration among the eurozone’s 17 countries to shore up the region’s defences against the debt crisis [more information].
Italian Prime Minister Mario Monti is expected to unveil measures on 5 December that could include a revamped housing tax, a rise in sales tax and accelerated increases in the pension age. But pressure from the markets could force him to act more quickly.
One source with knowledge of the matter said contacts between the IMF and Rome had intensified in recent days as concern has grown that German opposition to an expanded role for the European Central Bank could leave Italy without a financial backstop if one were needed.
The IMF inspection team is expected to visit Rome in the coming days, though no date has been announced.
On Friday, Italy paid a euro lifetime high yield of 6.5% to sell new six-month paper, a level that analysts said cannot be maintained for long without pushing a public debt amounting to 120% of gross domestic product out of control.
More IMF conditions?
The measures outlined so far by Monti (see background) are broadly in line with directions previously given by the ECB, but there have been no detailed discussions with international bodies on the kinds of conditions normally attached to IMF assistance.
Monti can take some comfort from surveys showing broad popular support for his technocratic government, but austerity measures have yet to bite deeply and surveys also show a mixed picture on individual austerity measures.
On pensions, the government is expected to bring forward an already planned increase in retirement ages, with broader reform possible in the coming weeks.
Monti may reintroduce a housing tax that was scrapped by his predecessor, Silvio Berlusconi, in a last-minute campaign pledge before the 2008 election. The move cost the government an estimated €3.5 billion a year.
Other ideas under consideration include raising the value-added tax in bars and restaurants, which currently stands at 10%.