IMF to Italy: Carry on Restructuring

The IMF has released yesterday’s concluding statement of its mission to Italy.   It’s mixed reading.  On the one hand, Italy is looking at a full year recession for 2008, let alone 2009 (the latter being the benchmark prediction for most OECD countries).  And long-term problems, such as low employment rates, remain.  However Italy has dodged the most severe aspects of the global financial crisis, partly because it never rode the wave upwards in the first place.  Nonetheless, the Fund wants to be clear that while the G20 summit might have sounded like a call for many countries to engage in fiscal stimulus, Italy shouldn’t think of itself as one of those countries.  It doesn’t have the room and should concentrate instead on getting the budget under control.  Indeed, the Fund’s emphasis on expenditure cuts for Italy makes it sound like the kind of medicine that David Cameron will be prescribing for the UK when the Pre-Budget Report comes out next week — but he is not going to get the gift of an IMF report saying that the UK should join Italy as a country needing to get its fiscal house in order.  Incidentally, the final paragraph of the IMF statement for Italy seems to be an oblique warning to Silvio to avoid any more industrial policy initiatives as part of his “solution” to the crisis.