Italy has invited the International Monetary Fund to monitor its progress in carrying out reforms designed to keep the country from succumbing to Europe’s widening sovereign debt crisis.
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The IMF has been invited to scrutinize Italy’s books every three months to make sure a $75 billion austerity package is carried out according to plan. A team from the European Commission will also travel to Rome next week to start monitoring budget-reduction efforts.
Speaking to reporters at the end of a two-day Group of 20 summit in Cannes, Italian Prime Minister Silvio Berlusconi rejected the IMF’s offer of a loan, but asked for the IMF to send inspectors who will act more as corporate auditors. “It’s not monitoring but certification,” said Berlusconi, differing notably from IMF Managing Director Christine Lagarde’s description of a crucial role in “surveillance and monitoring.”
Still, the move should placate European Union officials, who have questioned the credibility of Italy’s pledged reforms. “If we don’t enact the reforms Italy will be in trouble,” said Berlusconi. “But we will enact them.”
Italy has $2.5 trillion in public debt, 120% of the nation’s GDP, making its debt load second only to Greece in the euro zone. But Berlusconi insists that Italy’s economy is prospering. “The restaurants and vacation spots are always full, nobody thinks there is a crisis,” he said, adding that, considering its low household debt levels, Italy has the second-most solid economy in Europe, after Germany.
According to Berlusconi, the nation’s high public debt is a legacy problem, having not grown in the past 20 years. The debt has always been serviced, said Berlusconi. However, the prime minister did admit that his government “might have made a mistake” in assuming that the public debt was sustainable without more aggressive fiscal and reform action.
If Italy were to be swept up in the debt contagion, joining the likes of Greece, Portugal, and Ireland, it would threaten to overwhelm even the European Financial Stability Facility, taking Europe’s debt crisis to a new level that could potentially weigh on the global economy.
For that reason, cash-rich countries like China and Russia want to see guarantees that they will not be throwing away their money when investing it in European recovery efforts, said German Chancellor Angela Merkel. Having the IMF oversee Italy’s attempts to decrease its debt load will add a level of transparency to proceedings, ensuring that investors can follow Italy’s progress.
Despite Berlusconi’s assurances, his government is having trouble implementing a number of recently-passed austerity measures. His government is facing challenges from his main coalition party, the Northern League, which has already said it does not agree with all the structural changes being adopted by Rome in order to get its debt under control. So far, Berlusconi has only been able to provide Merkel and French President Nicolas Sarkozy with a letter outlining his government’s intentions.