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2nd Jul 2022

IMF said to be readying Italian bail-out

  • Lagarde (c) - the Washington-based lender is readying a bail-out for Italy, according to reports (Photo: IMF)

The International Monetary Fund (IMF) is preparing a multi-billion-euro rescue of Italy, reports in the Italian media on Sunday (27 November) claim.

The Washington-based lender is in talks readying a €600 billion assistance package for Rome in return for swingeing austerity and structural adjustment measures, according to an article in Italian daily La Stampa, quoting unnamed officials in the American capital.

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Spain meanwhile may not need a full bail-out programme and be offered instead a credit line.

Buttressing speculation that the IMF is set to bail out the eurozone’s third biggest economy, ECB member and Bank of France governor Christian Noyer was asked directly by reporters whether the IMF is preparing a programme of support for Italy, but he refused to comment.

"Italy should not be considered a weak economy," he said, speaking in Tokyo. "A breakup of the euro zone is out of the question. There is no plan B."

However, an IMF spokesperson has since denied the reports: "There are no discussions with the Italian authorities on a programme for IMF financing."

According to the Italian newspaper, a range of options is being considered, although the core of the plan would be for the IMF to provide funding to Rome at rates of between four and five percent, considerably lower than the seven percent rates forced upon Italian government borrowing in recent days.

The eurozone's own bail-out fund, the European Financial Stability Facility, can only provide loan guarantees of up to €440 billion, and some €230 billion of that sum has already been spoken for by Greece's rescue package.

On Friday, the office of the Italian prime minister put out a statement saying that at a summit of the Franco-German eurozone powerhouse duo where Italy was invited for the first time, French President Nicolas Sarkozy and German Chancellor Angela Merkel had warned: “A collapse of Italy would inevitably be the end of the euro.”

Underscoring Rome’s precarious situation, Italian banks have issued an appeal to citizens’ patriotism, calling on regular savers to fill the gap left by the market and purchase government bods.

Following an Italian Banking Association scheme, on Monday, banks will waive commission fees for customers who purchase bonds. A similar effort will be mounted on 12 December.

The country’s highest-paid footballers have joined in the appeal, with their union of multi-millionaires saying that they too will be purchasing the government’s debt.

Separately on Monday, US credit rating agency Moody’s warned that all EU sovereign credit ratings were threatened by the worsening crisis.

"The continued rapid escalation of the euro area sovereign and banking credit crisis is threatening the credit standing of all European sovereigns," the firm said in a new assessment.

Meanwhile, Britain’s Sunday Telegraph has reported that UK embassies are drawing up contingency plans to help British citizens travelling in the eurozone in the event of a collapse of the euro and possible social unrest.

Italian bonds shatter 7% bail-out ceiling

The interest rate on Italian 10-year government bonds breached seven percent on Wednesday, shattering the psychological bail-out ‘ceiling’. Greece, Portugal and Ireland all had to seek multi-billion-euro bail-outs when their 10-year bonds exceeded this threshold.

Report: Italy to be put under IMF surveillance

Reuters reports that Italy has agreed to be put under surveillance by the International Monetary Fund (IMF) as part of a plan to restore market trust in the eurozone's third-largest economy.

Spanish borrowing costs soar

Eurozone woes deepened Thursday as Spain and France were forced to pay sharply higher interest rates than usual and anti-austerity protesters in Italy and Greece clashed with police.

EU looking to new €940bn bail-out fund

The EU's troubled bail-out fund, the EFSF, could have its lending capacity more than doubled to €940 billion to reassure markets that Italian and Spanish debt is safe.

Minister breaks down announcing new Italian austerity

The government of ex-EU-commissioner Mario Monti has outlined the key points of an emergency €20 billion austerity programme, adopted on Sunday, a day ahead of schedule under pressure from markets.

IMF unlikely to play major role in eurozone rescue

Hopes that the IMF will ride in on a white horse to save Europe are likely to be dashed, as key players on its board believe that the eurozone has enough resources to solve the crisis itself.

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