Friday, November 4, 2011

G20: Italy accepts IMF monitoring, sources

Italy, under fierce pressure from financial markets and European peers, agreed to have the IMF monitor its progress with long delayed reforms of pensions, labor markets and privatization, senior EU sources said today.

Prime Minister Silvio Berlusconi, his government close to collapse, agreed to the step in late-night talks with euro zone leaders and US President Barack Obama on the sidelines of a G20 summit in Cannes.

The move came after a European ultimatum made Greece step back from a referendum that could have triggered its exit from the euro area and agreed to seek national consensus in support of a new 130 billion euro ($178 billion) bailout program.

By contrast, discussions with Italy were smooth, European diplomats said. Berlusconi appreciated the gravity of the situation and was thoroughly engaged in the talks

"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," one EU source said.

"Italy has no problem with surveillance at all, even with the IMF being involved," he said, adding that the European Commission and the International Monetary Fund would each report separately on how Italy was meeting its targets.

The leaders of France, Germany, Italy, Spain, the European Central Bank, the IMF and European Union institutions also discussed with Obama ways of ramping up the IMF's warchest to help prevent contagion from the euro zone's debt crisis plunging the world economy back into recession.

EU officials said three options were under consideration, including pooling the euro zone countries' rights to borrow from the IMF to build a fighting fund to support vulnerable sovereigns such as Italy and Spain. This could make available another $280-300 billion, the G20 source said.

The concession by Berlusconi was an attempt to shore up his country's perilous position on bond markets, where its borrowing costs soared well above 6 percent this week, raising doubts about its long-term ability to cope with a debt pile of 120 percent of gross domestic product. Underscoring Italy's problems, two corporate surveys this week showed Italy sliding rapidly into recession.

An Italian official denied that Italy was being singled out for special surveillance and said the whole euro zone would be under closer monitoring. However, he confirmed that Rome was willing to request IMF advice on implementing the commitments it gave EU leaders on specific reforms on October 27.