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IMF to warn Italy’s debt poses major risk to euro zone economy

FILE PHOTO: The International Monetary Fund (IMF) headquarters building

The International Monetary Fund has identified Italy’s debt as a major risk to the euro zone economy, together with global trade tensions and a hard Brexit, an EU source told Reuters on Wednesday, anticipating a report the IMF will present next week.

Later on Wednesday the European Commission is expected to say that an EU disciplinary procedure against Italy over its growing debt is warranted, paving the way for a possible stricter monitoring of the country’s finances and financial sanctions.

The IMF annual report on the euro zone will be presented by the fund’s managing director Christine Lagarde at a meeting of euro zone finance ministers on June 13, the source said. The main issues have been already discussed with euro zone representatives this week.

The IMF expects euro zone growth to pick up later this year, but forecasts major risks that could materialise in autumn. That would lead to a prolonged period of low growth and low inflation.

The fund sees high risks from euro zone countries with high debts that are not building sufficient buffers. Italy is considered the riskiest case, as the IMF deems that the free-spending policies of its eurosceptic government represent a potential “major violation” of EU fiscal rules, the source said.

If the EU commission and EU ministers agree with this assessment, Italy could face EU financial sanctions as early as August.

The IMF also sees risks from Britain’s departure from the EU without a deal, an eventuality for which many economic sectors are not prepared, with the exception of the financial sector, the source said.

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