Italian Prime Minister Silvio Berlusconi accepted IMF oversight on key reforms at the G20 summit yesterday as he struggled to shore up support at home and ease jitters that pushed borrowing rates to record highs.
The embattled 75-year-old accused defectors from his People of Freedom party of “treason” and warned the centre-left opposition not to try and bring down his government in Parliament, “for the sake of Italy.”
He also said he had refused an aid offer from the International Monetary Fund following reports in Italian media that the IMF had proposed a €44-billion precautionary credit line for Italy.
The agreement to monitor Italian economic policy was part of international attempts to ensure Italy is not dragged into the debt vortex which forced fellow eurozone members Greece, Ireland and Portugal to seek bailouts.
European Commission monitors will arrive in Italy next week and IMF officials are expected by the end of the month. The Washington-based institution will monitor the situation in Italy at quarterly intervals. The agreement sparked indignation among Mr Berlusconi’s centre-left critics.
“Thanks to the incapacity of Berlusconi’s government, Italy has become a high security prison in the international community,” said Alberto Losacco, a member of parliament from the main opposition Democratic Party.
Massimo Donati of the Italy of Values party said Italy’s “phantom government” had effectively been put “under administration.”
Speaking at the G20, IMF chief Christine Lagarde, said: “The main problem we have ... is a lack of credibility in the reforms that have been announced.”
“We will be checking the implementation of the commitments that have been made by Italy,” she said in Cannes at the G20 summit.
Mr Berlusconi wrote to the European Union last week promising to sell state assets, overhaul labour laws and boost competition in professions like law.
A Cabinet meeting on Wednesday launched some tentative reforms but more structural measures are expected to be adopted later this month.
“What the markets want is basically a certainty on expectations,” said Luigi Paganetto, an economics professor at Tor Vergata University in Rome.
Fabrizio Forquet, deputy editor of business daily Il Sole 24 Ore, said: “If we don’t carry out these reforms, the first to punish us will be the markets.”
Jitters have coursed through the markets in recent days, triggering a plunge in the Milan stock exchange on Tuesday, with shares suffering their worst performance since October 2008 at the start of the global financial crisis.
Stocks were down more than three per cent and the difference between Italian and German sovereign 10-year bond yields widened to a record 4.57 percentage points. The yield on 10-year Italian debt also rose to a record 6.404 per cent, with rates above six per cent seen as unsustainable for long.
The last time long-term borrowing rates spiked in August, Italy was forced to adopt emergency austerity measures to cut tens of billions of euros in costs and the European Central Bank had to step in to prop up the bond market.