In an agreement reached alongside a G20 meeting in Cannes, France, Italy has agreed to accept monitoring from both the European Union and the International Monetary Fund on its progress with financial goals and reforms. Reacting to Greece’s shocking flirtation with a referendum on its own bailout package, a source at the EU said the group sought to be sure that Italy’s work toward financial change was credible.
Italian Prime Minister Silvio Berlusconi, his own position in jeopardy as support at home dwindles, agreed to the conditions, according to Reuters, as all sought to soothe markets already unnerved by Greece’s unexpected action. The bond markets have not treated Italy kindly, and such an action could bring some relief to borrowing costs; if not, the country could find it difficult to keep up with expenses that boost its current debt load of about 120% of GDP.
The EU source was quoted saying, “We need to make sure there is credibility with Italy’s targets—that it is going to meet them. We decided to have the IMF involved on the monitoring, using their own methodology, and the Italians say they can live with that.” Adding, “Italy has no problem with surveillance at all, even with the IMF being involved,” the source said the European Commission and the IMF would each report separately on Italy’s progress in meeting targets.
While denying that Italy alone was the focus of closer observation, an Italian source said the entire eurozone would be subject to additional scrutiny. He did confirm that Rome was open to seeking IMF advice on how to implement commitments the country gave to EU leaders on specific reforms on Oct. 27.
The EU source said that Italy was plagued by market confidence, adding, “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.”
Although the source said it was not considered feasible to grant Italy a precautionary credit line, analysts view Italy as a test case for the new anti-crisis framework hammered out by the eurozone last week.
BNP Paribas analyst Luigi Speranza was quoted in the report saying, “Italy holds the key to the euro zone debt crisis. Developments in Italy are a crucial test for the credibility of the anti-crisis framework set up by the EU.”