Sunday, November 27, 2011

IMF Readying Mega Loan of Up to $800B to Italy, Italian Paper Reports

Bailouts don't take weekends off people....

Italian paper La Stampa reports a mega loan of 600B Euro (approx $800B USD) is being prepared for Italy if it's situation degrades.  Looks like (if true) the rate would be a much more manageable 4-5%, rather than rates over 7% we are now seeing - which of course would be higher as the crisis progresses. As Americans, it is good to know our money is going to prop up others - the IMF's larges funding source is the United States of course...

Here is the translated text using Google Translate (hence the weird grammar):

  • If inspections in Italy IMF agreed G20 summit in Cannes have not started yet is because the director Christine Lagarde wants to give enough time to Mario Monti to launch reforms, reserving the right to help with a financial assistance program that could get to be worth up to 600 billion euros
  • The International Monetary Fund has already launched programs to aid European countries in difficulty because of the debt crisis: the first for Iceland, then to Portugal, Ireland and finally to Greece. The existence of previous interventions related to coordinated with the European institutions helps to explain what could happen even if what distinguishes the Italian weakness is the size of the debt, about 2000 billion or more than the sum of all other European countries that already receiving aid. 
  • Hence the possibility of launching a "program Italy," which, according to IMF estimates circulating in the environment in Washington, could have a value between 400 and 600 billion euros in order to give the government Mountains 12-18 months to undertake the necessary reforms, alleviating the need of refinancing debt
  • Ensuring rates between 4 and 5 percent, the IMF would offer much better conditions compared to Italy to markets where we are already more than 7-8 per cent, which would shelter from Rome to the growing pressures on government bonds. 
  • The magnitude of this figure is, however, it becomes difficult for the IMF to operate only on the basis of currently available resources.  Should be increased and there are several ways to do it: the issuance of new Special Drawing Rights in coordinated efforts with the European Central Bank, headed by Mario Draghi
  • This last scenario comes from the fact that the resistances in Berlin to a greater commitment by the ECB to support countries in difficulty - starting with Italy - would be less if it were money to be dished out under strict supervision of the IMF. 
  • If Largarde (and Monti) should agree on the "program Italy", IMF staff would have to negotiate the details with Rome before submitting it for approval by the IMF board on one side indicating the amount of loans and other conditions on. Since Italy has a state budget better than other European countries it is reasonable to assume that these conditions the IMF would focus on two aspects: the need to reduce debt and increase growth.

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