IMF denies reports of Italy bailout deal

Rumours of an International Monetary Fund (IMF) bailout for Italy boosted markets on Monday morning, as Moody’s warned that the escalating eurozone crisis threatens the credit rating of all EU states.

Italian newspaper La Stampa reported that the IMF was preparing an aid package for Italy, a claim swiftly denied by the international body: “There are no discussions with the Italian authorities on a programme for IMF financing,” a spokesperson said.

La Stampa claimed that the IMF could provide up to €600bn (£515bn) at a rate of 4%-5%, giving Italy 18 months to sort its finances out. Italy has moved centre-stage in the eurozone crisis in recent weeks as the cost of its borrowing has soared. The yields on its 10-year bonds are comfortably above 7%, the threshold above which other eurozone countries have received bailouts.

Reuters reported on Monday morning that contact between the IMF and Rome have intensified recently, but that it was unclear what support Italy could be offered.

An IMF inspection team will be in Rome over the coming days.

“Given that IMF chief Christine Lagarde recently said that the fund only had €285bn in emergency funds, this story seems rather implausible, however there does appear to be talk of some form of plan in the works, however it is not immediately clear how the IMF would be able to raise the money needed,” said Michael Hewson, an analyst at CMC markets.

European stock markets rose in early trading despite the IMF denials. The FTSE 100 was up 42 points at 5,206, a 0.75% rise, while the French CAC and the German DAX were up 1.4% and 1.5% respectively. The euro rose 0.4% against the dollar.

The IMF rumours came just as credit ratings agency Moody’s warned that all EU countries could be downgraded as a result of the growing eurozone crisis.

“The continued rapid escalation of the euro area sovereign and banking credit crisis is threatening the credit standing of all European sovereigns,” Moody’s said.

Moody’s said there was a possible positive scenario, in which the euro was preserved without widespread defaults: “Even this ‘positive’ scenario carries very negative rating implications in the interim period.”

The possibility of multiple defaults and the fragmentation of the euro area “would have negative repercussions for the credit standing of all euro area and EU sovereigns,” Moody’s said.