|Published:||Nov 04, 2011 8:14 PM EDT|
|Updated:||Nov 04, 2011 8:14 PM EDT|
CANNES, France (AP) - The International Monetary Fund will monitor Italy's financial reform efforts, Premier Silvio Berlusconi said Friday, a humbling step for one of the world's biggest - but also most indebted - economies as market confidence in its future wanes.
Berlusconi told a press conference Friday at the end of the G-20 summit of world leaders in Cannes that Italy had turned down an offer of financial aid from the IMF. "We don't believe this type of intervention is necessary," he said.
But to solve the political deadlock that threatens to bring down his government and slow down implementation of reforms, he said he had asked the IMF to check up on the country's progress in implementing the measures with periodic, public reports.
Market confidence in Italy's ability to reduce its public debt and spur growth in its anemic economy has withered over recent weeks as the government weakened. Lawmakers have defected to the opposition and some of Berlusconi's ministers have openly suggested the government's days may be numbered.
Italy's fate is crucial to the eurozone, because its economy - the third-largest in the currency union - would be too expensive to bail out like Greece, Portugal and Ireland have been.
Market fears mounted on Friday. Italy's benchmark 10-year bond yield jumped 0.32 of a percentage point to 6.43 percent, indicating a surge in investor worries about the country's ability to repay its debts.
Berlusconi insisted Italy was on track to rein in its public debt, which at â‚¬1.9 trillion ($2.6 trillion), or 120 percent of GDP, is second only to the debt ratio in extremely troubled Greece.
And he insisted that his parliamentary majority was strong enough to pass legislation in the coming weeks containing an initial batch of reforms to sell off government property and privatize some local public services.
"Maybe we were wrong in the past to think our economy could easily support this debt, and we directed our public money in other places," Berlusconi conceded. But he said as soon as the debt became a problem, the government took measures to ensure the budget is balanced by 2013.
The G-20 final communique welcomed Italy's decision to "invite the IMF to carry out a public verification of its policy implementation on a quarterly basis."
IMF chief Christine Lagarde said she hoped a quarterly monitoring mission would start by the end of November to check that the reforms Berlusconi promised in a 15-page letter to the EU last month are implemented.
"It's verification and certification if you will, of implementation of a program that Italy has committed to," she said. "It's one of the best ways to have an independent view ... to verify that promised measures are actually implemented."
She concurred that Italy didn't need IMF funding.
"The problem that is at stake - and that was clearly identified both by the Italian authorities and its partners - is a lack of credibility of the measures that are announced," she said. "The typical instrument that we would use is a precautionary credit line. Italy does not need the funding that is associated with such instruments so the next best instrument is fiscal monitoring, which is what we have identified."
Berlusconi was asked what would happen if the IMF determines that Italy was falling behind on its pledges. "If they certify that they weren't carried out, we will be in difficulty, but we will carry them out," he said.
U.S. President Barack Obama praised Italy's IMF monitoring request, saying it should help build confidence in the EU since "some of this crisis is psychological."
"Italy is a big country with a(n) enormous industrial base, great wealth, great assets and has had substantial debt for quite some time; it's just the market is feeling skittish right now," Obama said. He said Berlusconi's move was "an example of the steady confidence-building measures that ... need to take place in order for us to get back on track."
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