European politics
Italy under IMF supervision
Berlusconi burlesque
Nov 4th 2011, 19:33 by Charlemagne
FIRST Greece. Next Italy? Troubled euro-zone countries get bail-out money with conditions and strict monitoring by the International Monetary Fund (IMF). But at the G20 summit that concluded in Cannes today, the troubled euro zone got no more money (more on this in my next post), and Italy was placed under IMF monitoring.
Though yields on its bonds have soared alarmingly, Italy has not had to seek a bail-out (not yet anyway). And in an attempt to ensure it does not succumb, bringing down the euro with it, it has been placed under a special preventive regime—placed on probation to ensure it implements the many promises it made to carry out reforms designed to promote growth and balance the budget by 2013.
The polite fiction is that Italy has "invited" this monitoring, but nobody makes any secret of the fact that the government of Silvio Berlusconi has a problem with “credibility”. Nicolas Sarkozy, the French president, says Italy’s case is “completely different” to that of Greece, which has galvanised the attention of the G20 summit, given the prospect that it may soon default on its debt (see my recent post here and my last column here)
By the same token, Italy’s position is now markedly worse than that of Spain, which until this summer had been seen as the country most likely to succumb after Greece, Ireland and Portugal. But Spain's outlook is now less dire as a result of a succession of reforms, and the decision by the prime minister, José Luis Rodríguez Zapatero, to step down at the next election later this month.
So Mr Berlusconi, in the dying days of his government, has been put in remedial class—a humiliation for the third-biggest economy in the euro zone, and a founding member of the European Union. “He is fully aware of the seriousness of the situation. And if he wasn’t, he is aware of it now,” says one senior EU source.
Little more than a fortnight ago, such treatment would have been unthinkable. Officials in Brussels recount how Mr Van Rompuy had sent Mr Berlusconi an early draft of the last European summit’s conclusions, making passing reference to “specific commitments made by Italy and Spain”.
Mr Berlusconi telephoned him, saying being singled out in such a manner was “a scandal”. Italy’s fiscal position, with a primary budget surplus (before interest) and low private debt, was healthier than that of most other euro-zone members, insisted Mr Berlusconi. Italy’s high debt was the product of the past, accumulated by previous Christian Democrat and Socialist governments for which he could not be held accountable. “I have always wanted to carry out reforms,” Mr Berlusconi told Mr Van Rompuy. To which the European Council president replied: “Silvio, it's time to make your dreams come true.”
At the first of two pairs of European summits last month, Mr Berlusconi was summoned by Angela Merkel, Germany’s chancellor, and Nicolas Sarkozy, the French president, to be told to come up with a credible reform plan within three days (see my column here), in time for the second round of summits on October 26th.
Euro-zone leaders welcomed Italy's promises but, as with cold-war nuclear pacts, decided to “trust but verify”. The summit declared:
We invite the Commission to provide a detailed assessment of the measures and to monitor their implementation, and the Italian authorities to provide in a timely way all the information necessary for such an assessment.
A week later, the IMF was also “invited” to join the monitoring process. As well as humbling Mr Berlusconi, the decision was also a sign of mistrust in the ability of the commission to act with sufficient rigour.
Mr Berlusconi shrugged it all off as nothing more that an audit, of the sort that a company might seek from an accountancy firm. Some audit. Christine Lagarde, the IMF's boss, said she would be reporting quarterly, in public documents, on Italy’s progress. This is what she had to say:
We will be checking the implementation of the commitments that have been made by Italy under the 15-page commitment that it has made to the members of the euro zone a couple of weeks ago. So it’s verification and certification, if you will, and implementation of a programme that Italy has committed to. As far as I’m concerned, I might be laborious I might be demanding, I might be rigorous but I will be looking at the commitments that have been made to confirm the implementation.
The problem that is at stake, and that is what was clearly identified both by the Italian authorities and by its partners, is a lack of credibility of the measures that are announced. Therefore, to attest the credibility of those measures, in other words their implementation, the typical instrument that we would use is a precautionary credit line. Italy does not need the funding that is associated with such instruments. The next best instrument is fiscal monitoring.
The question of precautionary credit lines led to a strange little incident that highlights Mr Berlusconi’s problem with credibility. The Italian prime minister claimed that the IMF had offered him such a line of credit. But Ms Lagarde said no such offer was made. Who to believe? Most will take Mrs Lagarde’s word over Mr Berlusconi’s.
(Photo credit: AFP)
In this blog, our Charlemagne columnist considers the ideas and events that shape Europe, while dealing with the quirks of life in the Euro-bubble. An archive of print columns can be found here.
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Dear Sir,thank you for all the informative topics, do you have any news regarding Ireland and its present difficulties with the Euro, i am informed that they too are having big problems? personally, i think you may be adding Romania to the list of countries who cannot support the Euro.The M.F.I,from Brussels seem to be a permanent fixture in Buchurest. Dare i pose this question, Why do the countries of Europe actually need to adopt the euro ? when, since its inauguration it has caused great hardships on the populations that have to pay to support it, to my mind its not such a great advantage to be "In this club".
Dear Sir,thank you for all the informative topics, do you have any news regarding Ireland and its present difficulties with the Euro, i am informed that they too are having big problems? personally, i think you may be adding Romania to the list of countries who cannot support the Euro.The MFI,from Brussels seem to be a permanent fixture in Buchurest. Dare i pose this question, Why do the countries of Europe actually need to adopt the euro ? when, since its innaugeration it has caused great hardships on the populations that have to pay to support it, to my mind its not such a great advantage to be "ïn this club".
Charlemagne: why don't you dare to show your name ? Perhaps because you are aware to write too many lies ?
For your info: to have the IMF to supervise the Italian Job for a new comeback was a request made expressly by Mr. B.just to assure markets that something like Greece's was not going to happen again.
In fact a new lending offer made by the IMF was refused by the Italian Govt.
Berlusconi is a public embarrassment for Italy. Anyone who uses its own citizen's tax dollars to pay for prostitutes and luxury items can not display any credibility whatsoever. Mrs. Lagarde's word should be trusted a thousand times more than Mr. Berlusconi's. If Berlusconi wanted to help Italy he would resign as soon as possible and allow Italy to try and restart their entire economy.
The bottom line is Italy is struggling. I do agree with the article that Italy's case is a good bit different than the one of Greece's. Other European countries are showing proactivity by demanding a legitimate bailout plan from Berlusconi. Berlusconi has a credibility issue, and it needs to be worked out for Italy, as well as the rest of the European countries, to survive. I also agree that most people will take Mrs. Lagarde’s over Berlusconi's. And a side note: the facial expression shown in the picture seems to define Italy's state at this point in time.
I agree and disagree with Nicolas Sarkozy’s statement that, “Italy’s case is “completely different” to that of Greece”. Italy’s situation is similar to Greece’s. They are both in very deep debt. The one main difference between the two countries’ situations is that Italy is a top world economy. Italy is “the third-biggest economy in the euro zone.” If Italy were to crash it would completely destroy the euro zone. I believe that more attention should be placed on Italy because they are in as much trouble as Greece, if not more.
Italy is going down the same path Greece was. The only way for Italy to help themselves is for Berlusconi to step down, he is obviously the problem. Zapatero was able to turn it around for Spain so why can't Berlusconi do the same for Italy? Something needs to change pretty soon.
Mr. Berlusconi's actions highlight an obstacle that will be difficult to overcome in the Euro Zone. While the EU or Germany or France or the IMF may make demands and calls to action of Mr. Berlusconi and Greece's now former PM George Papandreou but ultimately successful implication falls to the willingness of the leader. George Papandreou's reaction to Angela Merkel's robust suggestions towards Greece's overwhelming debt in his announcement of referendum exemplifies the struggle any solution proposed. Especially in Italy, the state's historical position of power as a founding member of the EU and its position as the third largest global economy will work against any externally imposed reform. However it comes down to this ever present idea of sovereignty and political power. Is the EU, the IMF, or any other organization or state in the position to decide if a political leader is no longer fit to hold the position? Conversely, is it worth the potential collapse of the Euro Zone or easily all of Europe for the sake of respecting a state's ability to maintain its leadership? Either way, at the end of the day the world is left to watch as the global economy struggles to regain stability as specific leadership refuses to cooperate.
As the holder of the world's third largest nominal debt, Italy has little hope of improving its financial situation and could well be the straw that breaks the Eurozone's back. Its debt is twice the size of that held by Greece and it has the world's 11th highest debt-to-GDP ratio. Burlesconi needs to resign.
In most situations people use their leader as a scapegoat for their problems, they blame the leader even though they might not have much to do with it. In Italy's case their is no scapegoat, Berlusconi is pretty much responsible for all of his countries problems and truely is to blame for the situation.
With Italy being a new addition to the European Union and International Monetary Funds nations, many countries are paying close attention the ways of Italy's leader, Silvio Berlusconi.Trust is key component that should be encompassed by all the nations within the EU and IMF in order to keep them running. I believe Italy needs to earn the other countries' trust instead of getting it handed to them. Berlusconi has been known to sneak around, so it would not be a smart move to blow over Berlusconi's scandals. He's not a very reliable leader, so the smart thing to do would be to start fresh with a new leader. He is just holding them back. Not only would a new leader help bring happiness and a positive future for Italy, it would help the EU and IMF nations be more willingly to accept Italy as a member. One of the main things holding Italy back is their recessing economy, ultimately caused by Berlusconi's poor leadership. Italy should look at Spain for an uplifting example: ever since Zapatero has agreed to step down in Spain, their economy is gradually improving every day.
It's interesting that the thing the eventually brought Berlusconi down was nothing of his personal life but rather his leadership. Although the story says that he understands the severity of the situation, it seems that he is still attempting to skirt the issue or at the very least displace blame for the countries economic woes. As the article concludes though, Berlusconi has lost a lot of credibility.
"It's interesting that the thing the eventually brought Berlusconi down was nothing of his personal life but rather his leadership." Well as long as his personal life does not involve crime, that's the way it should be.
Berlusconi has recently not been the leader that Italy needs in this time of crisis. After his sex scandal, news has seemed to focus on nothing but the bad in Berlusconi--- maybe because Berlusconi really hasn't been doing anything good. Berlusconi has lost his credibility worldwide and it comes as no surprise that he is being requested to step down. Italy is in a position in which it needs a strong leader to pick it up; however, Berlusconi is not this leader. Getting Berlusconi out of his position of power may be Italy's first step to recovery.
Mr. Berlusconi needs to swallow his pride and realize that not only the economic health of his own country is at stake, but that if he does not follow through with his reform commitments, it could have disastrous effects on the entire global economy; seeing as Italy is one of the top 10 economies in the world. Italy is at a dire position right now; it will either get it's act together under Mr. Berlusconi through the suggested reforms or will crumble under the pressure and lead to an economic bail-out similar to Greece, except on a much higher level. The best thing possible would probably to have Mr. Berlusconi step down as so many people would like so that the reforms will actually become a successful reality.
It is amazing that Berlusconi is now lashing out at others even though it is impossible to deflect blame in his current situation. The mountains of Italian debt are largely his fault. Even worse, he is now accusing others of scandal?! Unbelievable. If his government fails, it is clear that he was the one at the helm. There is no deflecting that blame. The Italy issue needs as much attention as it can get because if Italy were to default on its debt, it would mean the end to the Euro. I say this because Italy is the third largest economy in the Euro zone and the big players cannot start defaulting on debts. It's bad enough that Greece is in the situation its in. Berlusconi better figure things out fast, or its the end of his career, and possibly the Euro.
- Italian deficit/GDP ratio is 4% (1/3 of greeke one, that's like 11-12% (for don't talk about spain or portugal as well))
- That's fun, only think that who produce ferrari, gucci, prada, lamborghini can declare default just for some shark in marketplace that speculate on they public debt it's just scifi; Italy can pay, don't worry, they only need a serious gov and some structural adjust.
Berlusconi has basically lost all of his credibility. The only way for Italy to see a reform would be for Berlusconi to resign from his position. He is an insanely corrupt official and it's hard for me to believe that the country has survived under his office for so long. Berlusconi tries to blame others for his own faults because he knows he can't make any sensible decisions by himself
It isn’t surprising that Italy’s economy would be the next to fall. Berlusconi’s scandals and their government allowed it to be put in this position. Spain was able to head in the right direction after their leader stepped down. Berlusconi should step down if Italy wants to head in the right direction towards fixing the economy.
Throughout history, leaders involved in scandals of all kinds have been taken out of power by any means necessary. It is very interesting and unsettling that Italy, one of Europe's largest countries, that provides a significant amount of money to the European economy, will not remove such a controversial person from their leadership. It would be best for Italy's future to implement new leadership and get all of Italy back on its feet.