In a major concession, Italy’s Prime Minister Silvio Berlusconi will reportedly allow the International Monetary Fund (IMF) to monitor the progress of the austerity program that the European Union has imposed upon the Rome government.
Reportedly, a reluctant Berlusconi accepted the measure in the wake of extreme pressure from other Eurozone members at the G20 summit meeting in Cannes, France.
Nonetheless, Jose Manuel Barroso, the president of the European Commission (EC), nonetheless told reporters in Cannes that Berlusconi was not forced into it.
"Italy has decided on its own initiative to ask the IMF to monitor,” he said. “I see this as evidence of how important Italy's commitment to reform is."
Barroso added that the EC will also oversee Italy’s fiscal measures.
"Everything we can do to ensure the credibility of all our member states is important," he said.
French President Nicolas Sarkozy praised Berlusconi.
"I salute the efforts of Italy, which has taken the necessary measures to... reach a balanced budget by 2013,”Sarkozy noted.
“Italy is an essential state of the Eurozone and the world economy."
Still, there are concerns that Italy – which is burdened by almost 2 trillion euros ($2.7 trillion) of debt (or 119 percent of GDP) – might not be able to adequately reduce its burden. Berlusconi had proposed a series of half-hearted measures, including a sale of state-controlled assets, higher taxes and a reform of the pension program.
Compounding the problem is Italy’s tepid economy, which is expected to grow by less than 1.0 percent this year and next.
As a reflection of its insurmountable problems, the yield on Italian sovereign bonds is now in excess of 6 percent.
Berlusconi (like Prime Minister George Papandreou of Greece) is also facing pressures from Roman officials to resign, leading to rumors his own fragile coalition government could soon collapse.
An EU official told Reuters: "We need to make sure there is credibility with Italy's targets -- that it is going to meet them. We decided to have the IMF involved on the monitoring, using their own methodology, and the Italians say they can live with that."
Indeed, the stakes with Italy – the third-largest economy in the Eurozone – are very high.
Eric Strutz, chief financial officer of Commerzbank, told reporters Friday morning: "The whole stability of Europe depends on whether Italy gets its act together".