The IMF could bail out Italy with up to 600 billion euros ($814 billion), an Italian newspaper has reported, as prime minister Mario Monti came under pressure to speed up austerity measures.

The money would give Mr Monti a window of 12 to 18 months to implement urgent budget cuts and growth-boosting reforms "by removing the necessity of having to refinance the debt," La Stampa reported, citing IMF officials in Washington.

The report said the IMF would guarantee rates of 4 or 5 per cent on the loan - far better than the borrowing costs on commercial markets, where the rate on two-year and five-year government bonds has risen above 7 per cent.

Italy needs to refinance about 400 billion euros ($543 billion) in debt next year.

Several options were being explored, including possible joint action with the ECB, in which the IMF would be guarantor.

"This scenario is because resistance from Berlin to a greater role for the ECB in helping states in difficulty - starting with Italy - could be overcome if the funds are given out under strict IMF surveillance," the report said.

French president Nicolas Sarkozy's office said in a statement that any problem with Italy would hit "the heart of the eurozone".

Mr Sarkozy and German chancellor Angela Merkel warned at a summit with Italy in the French city of Strasbourg last week that "a collapse of Italy would inevitably be the end of the euro," Mr Monti's press office said on Friday.

The European Union and the ECB have sent auditors to check Italy's public accounts and the IMF is set to send experts soon under a special surveillance mechanism agreed at a G20 summit in France earlier this month.

Mr Monti's predecessor Silvio Berlusconi said at that summit that he had turned down an offer of financial aid in the form of a precautionary credit line from the IMF, although IMF chief Christine Lagarde later denied the claim.

Asked about the report on Sunday, Mr Berlusconi claimed no knowledge but referred back to the previous offer saying: "We believed it was not adequate."

Paolo Guerrieri, an economist at the College of Europe in Bruges, was quoted by La Stampa as saying: "IMF intervention is inevitable but not enough."

"There is a grave risk of a liquidity crisis soon in the entire eurozone, including both sovereign states and banks," Mr Guerrieri said.

Reform pressure

Italy's 1.9 trillion euro ($2.6 trillion) public debt and low growth rate have spooked the markets in recent weeks, prompting concern that it could have to seek a bailout like fellow eurozone members Greece, Ireland and Portugal.

Mr Monti, an economics professor and former top EU commissioner who was installed on November 16 after a wave of market panic ousted Mr Berlusconi, is under intense pressure to move quickly to implement long-delayed reforms.

Italian news reports said that a package of budget measures, which would still have to go before parliament for final approval, would be approved at a cabinet meeting on December 5 ahead of an EU summit on December 9.

The reports said the measures could include the re-introduction of a tax on first home buyers, as well as a one-off tax on property worth more than a million euros, a reform to increase the pension age and infrastructure projects.

During a visit to Rome on Friday, EU Economic Affairs commissioner Olli Rehn called for an "ambitious timetable" for the reforms, warning that Italy's high borrowing costs risked impacting the country's growth prospects.

AFP/ABC