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IMF says Italy faces 'monumental challenge'

Tuesday, July 12, 2016 - 01:45

Italy's economy will grow by less than one percent this year and only marginally faster in 2017, the International Monetary Fund says, cutting its previous forecasts as a result of Britain's decision to leave the European Union. But, as Sonia Legg reports, Italian government borrowing costs did edge lower, as Rome moved closer to a deal to safeguard the country's struggling banks.

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"Monumental" - not the building housing one of Italy's main banks - but the economic challenge facing the country, according to the IMF. Italy's banks are of course a key part of that - they're collectively saddled with 360 billion euros of bad loans. The problem's not a new one. But the halving of their share values after the Brexit vote is - and that made Italy an issue for finance ministers meeting in Brussels. (SOUNDBITE) (English) EUROGROUP PRESIDENT JEROEN DIJSSELBLOEM, SAYING: "Yes, there are issues of non-performing loans in Italian banks, but that's not a new issue. It needs to be dealt with, it will have to be dealt with gradually. There will be no big solutions. I don't think that's possible for this kind of issue and it's not an acute crisis." The Eurogroup President may have been playing down the risks. But the IMF wasn't. It's revised down its growth forecasts - predicting Italy will grow by less than one per cent this year and only marginally faster in 2017. (SOUNDBITE) (English) CIBC, HEAD OF FX STRATEGY, JEREMY STRETCH, SAYING: "The level of Italian debt has consistently run north of 100 percent of GDP - that hasn't changed so I think Italy struggles from a lack of structural improvement - it has a relatively weak political backdrop although Mr. Renzi is trying to reduce that. I think his constitutional referendum in a few months time will be integral to that process." There are plenty of doubts about whether the Italian prime minister will succeed. And even Britain's central bank chief had a view on the issue. (SOUNDBITE) (English) BANK OF ENGLAND GOVERNOR, MARK CARNEY, SAYING: "The challenges in Italy, the Italian banking system again are at the acute end of the spectrum in Europe. That's our judgement at this stage." Italians may see some irony in that - the latest crisis only became "acute" because British voters chose to leave the EU.

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IMF says Italy faces 'monumental challenge'

Tuesday, July 12, 2016 - 01:45