The International Monetary Fund could bail out Italy with up to €600 billion, an Italian newspaper reported yesterday, as Prime Minister Mario Monti came under pressure to speed up austerity measures.
The money would give Mr Monti a window of 12 to 18 months to implement urgent budget cuts and growth-boosting reforms “by removing the necessity of having to refinance the debt,” La Stampa reported, citing IMF officials in Washington.
The report said the IMF would guarantee rates of four per cent or five per cent on the loan – far better than the borrowing costs on commercial markets, where the rate on two-year and five-year government bonds has gone above seven per cent.
Italy needs to refinance about €400 billion in debt next year.
The size of the loan would make it difficult for the IMF to use its current resources so different options are being explored, including possible joint action with the European Central Bank in which the IMF would be guarantor.
“This scenario is because resistance from Berlin to a greater role for the ECB in helping states in difficulty – starting with Italy – could be overcome if the funds are given out under strict IMF surveillance,” the report said.
Contacted by AFP, the IMF declined to comment on the report.
French President Nicolas Sarkozy’s office meanwhile said in a statement that any problem with Italy would hit “the heart of the eurozone.”
Mr Sarkozy and German Chancellor Angela Merkel warned at a summit with Italy in the French city of Strasbourg last week that “a collapse of Italy would inevitably be the end of the euro,” Mr Monti’s press office said on Friday.
The EU and the ECB have sent auditors to check Italy’s public accounts and the IMF is set to send experts soon under a special surveillance mechanism agreed at a G20 summit in France earlier this month.
Mr Monti’s predecessor Silvio Berlusconi said at that summit that he had turned down an offer of financial aid in the form of a precautionary credit line from the IMF, although IMF chief Christine Lagarde later denied the claim.
Asked about the report yesterday, Mr Berlusconi claimed no knowledge but referred back to the previous offer saying: “We believed it was not adequate.”
Paolo Guerrieri, an economist at the College of Europe in Bruges, was quoted by as saying: “IMF intervention is inevitable but not enough.
“There is a grave risk of a liquidity crisis soon in the entire eurozone, including both sovereign states and banks,” Mr Guerrieri said.