IMF urges Italy to enforce spending cuts
- 13 July 2011
- From the section Business
The International Monetary Fund (IMF) has asked Italy to ensure "decisive implementation" of spending cuts to reduce the country's debt.
Its comments come as concerns continue that Italy may be the next country to be hit by the eurozone's debt crisis.
The IMF also said that Greece needs an additional 71bn euros ($100bn; £62.5bn) in EU aid and 33bn euros from private creditors.
And it pushed back Greece's return to the capital markets to 2014.
The international lender said in a report that it intended to continue its financing to Greece, but predicted a deeper recession in the country this year than previously thought, with the economy contracting 3.9%.
Separately, credit ratings agency Fitch downgraded Greece deeper into junk territory, citing "the absence of a new, fully-funded and credible EU-IMF programme" for the country.
It cut Greece's rating by three notches from B+ to CCC, a rating that implies a substantial risk of default.
In a report on Italy, the IMF said "only sustained growth will reduce the burden of public debt".
Concern about Italy's finances has led to the Italian government moving ahead with plans for an austerity budget.
But the IMF said Rome may be being too optimistic about economic growth.
"[IMF] directors stressed that decisive implementation of the package is key and a number of them felt that more front-loaded spending measures would have a positive effect on market sentiments," said the IMF report.
It added that Italy's plans on tax reform lacked detail, and that the Italian government had to do more to boost the economy.
The IMF predicts that the Italian economy will grow by 1% this year, down from 1.3% in 2010.
Responding to the IMF report, Italy's Finance Minister Giulio Tremonti said: "We have to do more and we will do more in the coming hours."
Mr Tremonti is proposing 48bn euros ($67bn; £42bn) in budget cuts over three years, and aims to cut the deficit to zero by 2014 from this year's 3.9% of gross domestic product.
He left a meeting of European Union finance ministers in Brussels early on Tuesday so he could continue to work on the austerity plans.
In a sign that investors are worried about Italy's financial situation, the yield on Italian 10-year bonds on Tuesday increased to 5.8%, before falling back to 5.6% on Wednesday.
Analysts say the yield remains close to levels at which the Italian government will have problems servicing its debts, which are currently more than 120% of the country's annual economic output.
The Italian central bank has confirmed this is the case.
"If these kind of [yield] levels persist, the burden for public finances would be severe," Ignazio Visco, the Bank of Italy's deputy director general, told a parliamentary hearing.
As concerns about the debt crisis in the eurozone continue, the Irish Republic had its debt-rating cut to junk status by ratings agency Moody's on Tuesday.
Moody's said there was a "growing possibility" that the country would need a second bail-out from the European Union and the IMF.
The credit rating agency's move was criticised by the European Commission.
A spokeswoman for Commission President Jose Manuel Barroso described it as "incomprehensible", adding that the timing was "questionable" because it came before the Commission published its latest review of Ireland's finances.
The Irish Republic is one of three eurozone countries that have so far needed such financial support, the other two being Greece and Portugal.