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The IMF Dispatches a Monitor to Rome: Will Italy's Crisis Upstage Greece?

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Meanwhile, as the G20 ends, all eyes are still on Greece where Papandreou faces a confidence vote.

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The G20 summit in Cannes looks set to end as it began: completely swamped by the eurozone sovereign debt crisis. The Greeks may have backed down from their risky referendum plans, but as heads of state start issuing their farewell speeches, there's a very real sense that the summit has failed. An advance glimpse of the communiqué – the wrap-up document – from ITV's Laura Kuenssberg shows few concrete additions to the already vague plans that issued from the most recent meeting between German chancellor Angela Merkel and France's Nicolas Sarkozy.

In one of the rare actual developments, Merkel told reporters that few of the G20 economies are interested in contributing to any future eurozone bailout funds, promptly setting off another run on U.S. stock index futures. As well, rumors continued to swirl in recent days about the IMF and its increased involvement with Italy, which has seen its borrowing costs teeter on the edge of sustainability. Today Italy agreed to have a "chaperone" from the IMF publicly review its progress in implementing financial reforms every quarter. EU officials are hopeful that this kind of hand-holding will help Italy successfully launch a $75 billion dollar austerity package and steer away from the risk of bankruptcy.

No doubt the reports will also focus investor spotlight on Italy in coming months. As the New York Times reports, "Should Italy get swept up in the debt contagion, its $2.5 trillion debt load would threaten to overwhelm even the latest bailout vehicle being assembled, the $1.4 trillion European Financial Stability Facility, taking Europe's debt crisis to a new level and potentially weighing on the global economy."

For now, though, the real drama is still in Athens, where Greek prime minister George Papandreou now faces a Friday afternoon confidence vote. With just a two-person majority, and vocal dissent inside his own party, it is only the fear of total political collapse among the Greek political class that will keep Papandreou in power at this point. Losing the vote triggers an election, which would promptly paralyze the country as it awaits acceptance of the 130 billion euro bailout -- and as it holds on desperately for the next 8 billion euro tranche of funding from its last bailout, without which it will run out of cash by mid-December. Current conventional wisdom in Greece at the moment suggests that Papandreou will survive the vote, just barely, but resign shortly afterwards.

And chatter increases about the troubled country's exit from the eurozone, as more leaders and prominent politicians start to openly ponder a Greece-less zone. Said Sarkozy: "We have said clearly that we want Greece to stay in the euro, but we cannot wish for this if she does not want it herself. We have to defend the currency ... we cannot accept the breakup of the euro. That would mean the breakup of Europe."

Meanwhile, aside from the minute-by-minute political theater and brinkmanship, the continent continues to head into a stiff economic headwind. The European Central Bank has already announced an interest rate cut, reducing the rate to 1.25% amid worsening economic predictions. The Eurozone PMI Composite Output index, which measures activity in the region's private sector economy, hit a 28-month low, falling to 46.5 in October, down from 49.1 in September (a figure of less than 50 means contraction). "There are no bright spots among the large euro nations," said Markit's Chris Williamson. As Germany and France sink ever further into stagnation, expect pressure to mount for another ECB rate cut, perhaps as soon as December.
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