IMF delivers blistering report on Italy’s economy

THE IMF last night recommended that Italy’s populist coalition adopt a ‘ growth friendly’ budget policy, putting it on a potential collision course with Brussels which is demanding greater austerity.

In a blistering critique of the performance of the third largest economy in the eurozone, the IMF noted that real incomes are at the levels of two decades ago, unemployment has been stuck at 10pc for the same period and emigration is near a five-year high.

The Fund’s assertion that the Italian government’s emphasis on growth and social inclusion is ‘welcome’ is bound to be seen as a provocation by the European Commission (EC).

It is demanding Italy rewrite its budget to tackle more directly the deficit and government debt burdens.

The clash between Brussels and Rome has sent the borrowing cost on Italian bonds surging to levels last seen at the time of the crisis in the euro area in 2010.

The EC is threatening to impose swingeing penalties on Italy unless it conforms to European regulations. If it is not satisfied with a budget submitted by Italy’s government – led by populist prime minister Giuseppe Conte ( pictured) – then disciplinary action could come as soon as this month.

The more conciliatory tone towards Rome taken by the IMF reflects the view in Washington that Brussels is being too tough on the eurozone’s weaker countries.

The Fund wants budget reforms that are inclusive but also support the goal of reducing Italy’s national debt, which at 130pc of national output is the second highest in the euro area after Greece.

Europe’s mounting financial problems were underlined by the European Central Bank which says the continent’s top three investment banks, Germany’s Deutsche, France’s SocGen and BNP Paribas, need up to £9.6bn of new capital to make them safer.

Concerns about Italy have put downward pressure on the euro against the dollar in recent days. But reports last night of a Brexit deal saw the euro rise by 0.53pc to $1.277.