Italy debt package under IMF, EU spotlight

The International Monetary Fund (IMF) and European Union are to strictly monitor Italy’s efforts to reduce its budget deficit, European officials announced Friday, but Italian sources insisted that the IMF’s role would be limited to “advice”.

Reuters/Yves Herman

After an earlier agreement that the EU Commission would keep watch on Rome’s economic policies, leaders at the G20 summit in Cannes agreed to bring in the IMF to increase the measure’s credibility and reassure markets.

But an Italian government source denied that it had agreed to the IMF’s role and said that it would only be seeking IMF “advice” in a complementary role to the EU effort.

At the summit Italian Prime Minister Silvio Berlusconi promised to stick to the target of balancing Italy’s budget by 2013 and said that a package agreed by the cabinet on Wednesday would be in operation by the end of the month.

That package, designed to reduce a debt that is 120 per cent of Gross Domestic Output, has still to be approved by parliament.

The Italian government’s debt package includes privatisation measures, tax handouts to encourage taking on new workers and millions in aid to southern Italy. But it did not take up some more radical proposals, including higher taxes on the rich, a one-off levy on current accounts and a housing tax.

Six former Berlusconi supporters have called for Berlusconi to resign over his perceived failure to tackle the problem seriously.