IMF: Italy should offset any new measures to tackle high energy prices

“Italia has made impressive progress over the last two years in tackling its excessive public debt, managing to reduce the deficit to 3 per cent of GDP this year. However, given the debt situation, we believe that any measures, including those designed to counter rising energy prices, must be offset elsewhere.” This was stated by the European Director of the International Monetary Fund, Mateusz Szczurek, during a closed-door meeting with the press, in response to a question about requests for flexibility from Italia and Greece to fund measures to tackle high energy prices.

“Many countries have announced plans to consolidate their public finances. This is a positive development. But for most EU countries, these plans are insufficient. It is clear that more needs to be done,” says the director of the European Department at the International Monetary Fund. “Without fiscal consolidation,” he warns, debt would follow “an unsustainable trajectory”. If policies remain unchanged, the IMF estimates that by 2040 debt will rise by more than 50 percentage points of GDP in advanced European economies and by more than 80 percentage points in Central, Eastern and South-Eastern Europe.

The estimates by the International Monetary Fund regarding Ukraine’s additional financing requirements for 2027–2028 are not expected to differ significantly from those of the European Commission, which stand at around 70 billion euros. “We are in constant contact with the European Commission, practically every day, regarding the estimates. Apart from differences in definitions, I do not expect the figures to differ significantly,” explains Szczurek.

“Our team is currently on a mission this week” in Ukraine, “and once the mission is complete, we will provide our estimate of the funding requirements for 2027–2028”. Szczurek emphasises that the war is dragging on longer than previously anticipated and that Russian bombardments are causing increasing economic damage, with repercussions for tax revenue and exports. As for funding, the IMF hopes for contributions from partners other than the EU and calls for aid to be provided “as grants or on highly favourable terms”, given Ukraine’s very limited capacity to take on new debt. Szczurek gave no indication as to how the EU might financially support Ukraine’s additional needs: “It is up to European heads of state and government to decide. I can only hope that this decision is taken as quickly as possible”, effectively emphasising that, in order to complete the forthcoming reviews of the assistance programme for Ukraine, the IMF needs assurances that the financial requirements will be met.

“Yields on 10-year government bonds in the four largest economies of the eurozone and the United Kingdom have risen by an average of around 100 basis points since the start of the war in the Middle East in February,” is another of the issues addressed by the director of the International Monetary Fund’s European Department. The four major economies under consideration are Germany, France, Italia and Spain. “Around two-thirds of the increase is driven by global factors,” he explains, adding that “yields have risen most sharply in European countries with weaker fiscal positions and greater political uncertainty”. If yields return to pre-war levels by 2027, the direct additional interest cost will average 0.2 per cent of GDP in the major economies under consideration. “But the costs could rise rapidly if high yields were to persist: all the more reason to start consolidation immediately,” warned Szczurek.