Italy has been placed under special IMF supervision to prevent it being the next victim of the euro crisis

FIRST Greece. Next Italy? Troubled euro-zone countries get bail-out money with conditions and strict monitoring by the International Monetary Fund (IMF). But at the G20 summit that concluded in Cannes today, the troubled euro zone got no more money (more on this in my next post ), and Italy was placed under IMF monitoring.

Though yields on its bonds have soared alarmingly, Italy has not had to seek a bail-out (not yet anyway). And in an attempt to ensure it does not succumb, bringing down the euro with it, it has been placed under a special preventive regime—placed on probation to ensure it implements the many promises it made to carry out reforms designed to promote growth and balance the budget by 2013.

The polite fiction is that Italy has "invited" this monitoring, but nobody makes any secret of the fact that the government of Silvio Berlusconi has a problem with “credibility”. Nicolas Sarkozy, the French president, says Italy's case is “completely different” to that of Greece, which has galvanised the attention of the G20 summit, given the prospect that it may soon default on its debt (see my recent post here and my last column here)

By the same token, Italy's position is now markedly worse than that of Spain, which until this summer had been seen as the country most likely to succumb after Greece, Ireland and Portugal. But Spain's outlook is now less dire as a result of a succession of reforms, and the decision by the prime minister, José Luis Rodríguez Zapatero, to step down at the next election later this month.

So Mr Berlusconi, in the dying days of his government, has been put in remedial class—a humiliation for the third-biggest economy in the euro zone, and a founding member of the European Union. “He is fully aware of the seriousness of the situation. And if he wasn't, he is aware of it now,” says one senior EU source.

Little more than a fortnight ago, such treatment would have been unthinkable. Officials in Brussels recount how Mr Van Rompuy had sent Mr Berlusconi an early draft of the last European summit's conclusions, making passing reference to “specific commitments made by Italy and Spain”.

Mr Berlusconi telephoned him, saying being singled out in such a manner was “a scandal”. Italy's fiscal position, with a primary budget surplus (before interest) and low private debt, was healthier than that of most other euro-zone members, insisted Mr Berlusconi. Italy's high debt was the product of the past, accumulated by previous Christian Democrat and Socialist governments for which he could not be held accountable. “I have always wanted to carry out reforms,” Mr Berlusconi told Mr Van Rompuy. To which the European Council president replied: “Silvio, it's time to make your dreams come true.”

At the first of two pairs of European summits last month, Mr Berlusconi was summoned by Angela Merkel, Germany's chancellor, and Nicolas Sarkozy, the French president, to be told to come up with a credible reform plan within three days (see my column here), in time for the second round of summits on October 26th.

Euro-zone leaders welcomed Italy's promises but, as with cold-war nuclear pacts, decided to “trust but verify”. The summit declared:

We invite the Commission to provide a detailed assessment of the measures and to monitor their implementation, and the Italian authorities to provide in a timely way all the information necessary for such an assessment.

A week later, the IMF was also “invited” to join the monitoring process. As well as humbling Mr Berlusconi, the decision was also a sign of mistrust in the ability of the commission to act with sufficient rigour.

Mr Berlusconi shrugged it all off as nothing more that an audit, of the sort that a company might seek from an accountancy firm. Some audit. Christine Lagarde, the IMF's boss, said she would be reporting quarterly, in public documents, on Italy's progress. This is what she had to say:

We will be checking the implementation of the commitments that have been made by Italy under the 15-page commitment that it has made to the members of the euro zone a couple of weeks ago. So it's verification and certification, if you will, and implementation of a programme that Italy has committed to. As far as I'm concerned, I might be laborious I might be demanding, I might be rigorous but I will be looking at the commitments that have been made to confirm the implementation. The problem that is at stake, and that is what was clearly identified both by the Italian authorities and by its partners, is a lack of credibility of the measures that are announced. Therefore, to attest the credibility of those measures, in other words their implementation, the typical instrument that we would use is a precautionary credit line. Italy does not need the funding that is associated with such instruments. The next best instrument is fiscal monitoring.

The question of precautionary credit lines led to a strange little incident that highlights Mr Berlusconi's problem with credibility. The Italian prime minister claimed that the IMF had offered him such a line of credit. But Ms Lagarde said no such offer was made. Who to believe? Most will take Mrs Lagarde's word over Mr Berlusconi's.

(Photo credit: AFP)