While Italian Prime Minister Silvio Berlusconi earlier vowed that he would allow officials from the International Monetary Fund (IMF) to monitor the country’s progress in imposing austerity measures to reduce its debt, there is growing skepticism about Rome’s true commitment.

No less a figure than Christine Lagarde, the managing director at IMF, has said that Italy's proposed budgetary reforms “lack credibility,” according to a report in BBC.

The problem that is at stake and that was clearly identified both by the Italian authorities and by its partners is a lack of credibility of the measures that were announced, Lagarde said.

Italian lawmakers agreed on Wednesday to a raft of modest budget reforms, including a plan to sell state-owned assets and raise taxes, among other items. However, the Rome cabinet did not issue a decree to formalize the budget proposals – which means parliament must vote on the changes in a vote of confidence.

That won’t be easy since Berlusconi is facing a mountain of opposition to his reforms. Not only that, but the Prime Minister is also hearing a loud and shrill chorus demanding his resignation.

On Thursday, six of Berlusconi’s former loyalists wrote him an open letter asking him to quit after the Rome government failed to arrive at a concrete plan to reform the budget and economy.

The stakes regarding Italy are extremely high. As the third biggest economy in the Eurozone, a collapse in Italy would be catastrophic for Europe, dwarfing the impact of a Greek default.

Italy is burdened by almost 2 trillion euros ($2.7 trillion) of debt (or 119 percent of GDP). Compounding the problem is Italy’s tepid economy, which is expected to grow by less than 1.0 percent this year and next.

Berlusconi has said Italy’s budget will be balanced by 2013, but few people (inside and outside of Italy) believe that target is realistic.

Moreover, although Lagarde assured that the IMF would offer Italy money (in limited circumstances) to stimulate its economy, Berlusconi earlier rejected the overture.

Speaking at a press conference at the G20 summit in Cannes, France, Berlusconi also waved off suggestions that his government was in danger of collapse.