Bailout for Italy
(29 November 2011 — Global) The International Monetary Fund (IMF) is readying a €600 billion (A$800 billion) bailout for Italy as Prime Minister Mario Monti strains under pressure to speed up austerity measures.
The money would grant Monti 12 to 18 months to implement urgent budget cuts and growth-boosting reforms "by removing the necessity of having to refinance the debt" according to Italian newspaper La Stampa.
The report said the IMF would guarantee rates of 4.0 percent or 5.0 percent 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 7.0 percent.
Italy will need to refinance about €400 billion in debt in the next 12 months.
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.
French President Nicolas Sarkozy's office meanwhile said in a statement that any problem with Italy would hit 'the heart of the eurozone.'
Italy's €1.9 trillion (A$2.5 trillion) public debt and low growth rate have spooked the markets in recent weeks, prompting concern that it could have to seek a bailout like fellow eurozone members Greece, Ireland and Portugal.
Monti, an economics professor and former top EU commissioner who was installed on November 16 after a wave of market panic ousted Silvio Berlusconi, is under intense pressure to move quickly to implement long-delayed reforms.
The report said the IMF would guarantee rates of 4.0 percent or 5.0 percent 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 7.0 percent.
Italy will need to refinance about €400 billion in debt in the next 12 months.
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.
French President Nicolas Sarkozy's office meanwhile said in a statement that any problem with Italy would hit 'the heart of the eurozone.'
Italy's €1.9 trillion (A$2.5 trillion) public debt and low growth rate have spooked the markets in recent weeks, prompting concern that it could have to seek a bailout like fellow eurozone members Greece, Ireland and Portugal.
Monti, an economics professor and former top EU commissioner who was installed on November 16 after a wave of market panic ousted Silvio Berlusconi, is under intense pressure to move quickly to implement long-delayed reforms.
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