Monti can't rule out bailout

Italy's Prime Minister Mario Monti on Tuesday admitted that the prospect of Italy turning to eurozone rescue funds in the future to bring down the nation's borrowing costs could not be ruled out.

"It is very difficult to say that Italy will never need help from one fund or another and caution compels me not to talk about such things," Monti said to reporters following the second day of a eurozone finance ministers' meeting in Brussels.

The 17 finance ministers of the eurozone countries met for their two-day summit in Brussels on Monday to reach an agreement on how best to prop up Spain’s struggling banking sector.

The panel agreed to provide Spain with the first installment of its banking bailout, worth 30 billion euros ($37 billion). Conditions attached to the package are to be finalized in the second half of July, with the money to arrive in Madrid later in the month. The finance ministers also decided that Luxembourg premier Jean-Claude Juncker will remain head of the Eurogroup panel of ministers for now.

IMF warnings

Meanwhile, the International Monetary Fund (IMF) added to international anxiety about Italy when it also warned on Tuesday that the country was still “vulnerable” in the context of the European debt crisis. It said Italy's economic decline could have a domino effect globally, although “strong efforts” are being made by statesman Monti to get the country back on track.

The IMF further commented that Italy's growth rates would continue to trail behind other eurozone countries, although healthier export levels could prompt recovery to “take hold” at the start of 2013. But the organization did not alter its lackluster growth forecasts for the country, which remain at minus 1.9 percent for 2012 and 0.3 percent for 2013.

The Bretton Woods institution said  that lenders were excessively exposed to sovereign risk and reliant on liquidity supplied by the European Central Bank.

Solutions that the IMF report championed included measures to bolster growth, and “[raise] productivity and labor participation" as well as focus on creating a "more dynamic and resilient banking system."

"The key will be forceful and expeditious implementation of these reforms. To the extent that public support weakens then this will become more challenging," said Kenneth Kang, head of the IMF's mission to Italy.

"Public support is still there and it is important that it remains there."

Since Monti came to power in November 2011, his technocratic government has introduced 20 billion euros worth of austerity measures. It has also pushed a raft of reforms including raising the pension age and labor reforms to make it easier form firms to hire and fire. His approach has given rise to criticism from the left for taking austerity too far and from the right for not going far enough.

sej/ng (AFP, dpa)