Under scrutiny

Italy has agreed to allow the European Commission and the International Monetary Fund (IMF) to monitor its implementation of budgetary reforms that would cut state spending and raise revenue in a bid to prevent the sovereign debt crisis from spreading to the eurozone's third largest economy.

"Italy has decided on its own to ask the IMF to monitor the implementation," EU Commission President Jose Manuel Barroso told reporters at the end of the G20 summit in Cannes, France dominated by the debt crises in Italy and Greece.

Italian Prime Minister Silvio Berlusconi has come under escalating political fire both in Rome and abroad for failing to present a roadmap to guide Italy out of its difficult fiscal and economic straits. Berlusconi failed to present a reform package to fellow eurozone members and other G20 partners on Wednesday after his own cabinet refused to support the stimulus and austerity measures.

In Rome, the Italian premier faces growing calls for his resignation, including from within his own center-right coalition government. Berlusconi said during the G20 summit that he would tie the passage of the reform measures to a vote of confidence, which would take place within the next two weeks.

Italy faces the firing line

Meanwhile, yields on Italian bonds have spiked to above 6 percent this week, raising concerns about whether Rome can cope with debt obligations that amount to 120 percent of the nation's gross domestic product (GDP).

"Italy holds the key to the eurozone debt crisis," BNP Paribas analyst Luigi Speranza wrote in a research note late on Thursday. "Developments in Italy are a crucial test for the credibility of the anti-crisis framework set up by the EU."

International monitoring of Italy's progress toward reform comes amid growing calls within quarters of the eurozone for the 17-member currency union to institute fiscal governance in which Brussels would have a greater say over budget policy at the national level.

German Chancellor Angela Merkel confirmed in a separate news conference that the Italian government agreed to quarterly reports on its reforms.

"We have explicitly agreed today that the IMF and European Commission should present their reports (about Italy) quarterly," Merkel said.

Author: Spencer Kimball (Reuters, dpa, AFP)
Editor: Andreas Illmer