Greek drama needs political solution, even IMF: Italy

The crisis in Greece affects the whole of Europe and requires a political solution, which could even include a role for the International Monetary Fund (IMF), Italy's Economy Minister Giulio Tremonti said on Saturday.

Tremonti, a critic of free-market globalization and supporter of a prominent economic role for governments, said a web of cross-border investments on banks' balance sheets meant Europe's wealthy nations could not afford to turn their back on Greece's budgetary problems.

The exposure of 'core Europe' to Greece is limited. But the exposure of 'core Europe' to the countries which surround it...amounts to trillions of euros, Tremonti said in an editorial in the Corriere della Serra newspaper.

The expansion of the crisis is systemic and the solution can only be political. The political superstructure must align itself with the economic structure, he added.

The Italian minister recalled that Rome had supported proposals for a European rescue fund for banks in 2008.

Is it not time to again discuss something similar? It is even possible to contemplate the intervention of the IMF. Not as an external institution which arrives in the midst of a political desert, but, if Europe is strong enough, as a bank offering its capital ... and know-how.

He also cited the possibility of issuing euro zone bonds to reduce borrowing costs for Mediterranean countries or increasing the coordination and transparency of member states' bond issues, with a view to reducing speculation.

Tremonti's tight control on spending last year was credited with helping Italy avoid the speculative pressure faced by Athens, despite a government debt equivalent to around 115 percent of GDP. Rome restricted its state deficit to 5.3 percent of GDP, well below the EU average.

He said the moment had arrived to devise long-term growth strategies as Europe emerges from its worst post war recession. Italy's economy shrank by 5.0 percent last year and the government forecasts it will grow a modest 1.1 percent in 2010.

To drive development, private consumption is not enough. For development, additional public sector demand is necessary, ranging from investment in energy to the environment and infrastructure, he said.

(Reporting by Daniel Flynn; editing by James Jukwey)