Italy's prime minister faces a testing week as he seeks to shore up the country's strained public finances, with an IMF mission expected in Rome and market pressure building to a point where outside help may be needed to stem a full-scale debt emergency.
However, an IMF spokesperson poured cold water on a report in the Italian daily La Stampa that said up to 600 billion euros could be made available at a rate of between 4-5 percent to give Italy breathing space for 18 months.
There are no discussions with the Italian authorities on a programme for IMF financing, an IMF spokesperson said.
Adding to international pressure on euro zone leaders to stem the debt crisis, U.S. President Barack Obama will press senior European Union officials in Washington on Monday to reach a solution to the emergency that Moody's said now threatens the credit standing of all European government bond ratings.
After slumping last week, Asian shares and the euro rose on Monday on hopes that some measures may emerge this week to ease the crisis.
Euro zone finance ministers will meet on Tuesday to consider detailed rules to boost the impact of a 440-billion-euro rescue fund.
Germany and France are also exploring radical ways to secure deeper and more rapid fiscal integration among the bloc's 17 countries to shore up the region's defences against the debt crisis.
Italian Prime Minister Mario Monti is expected to unveil measures on December 5 that could include a revamped housing tax, a rise in sales tax and accelerated increases in the pension age. But pressure from the markets could force him to act more quickly.
One source with knowledge of the matter said contacts between the International Monetary Fund and Rome had intensified in recent days as concern has grown that German opposition to an expanded role for the European Central Bank could leave Italy without a financial backstop if one were needed.
The IMF inspection team is expected to visit Rome in the coming days but no date has been announced.
EYE OF THE STORM
Italy is in the eye of the euro zone debt storm after its borrowing costs returned to the levels that triggered the collapse of former Prime Minister Silvio Berlusconi's centre-right government. Yields on 10-year bonds ended last week at more than 7.3 percent.
Italian yields are now in the territory that forced Greece, Ireland and Portugal to seek international bailouts and an auction on Tuesday of up to 8 billion euros of BTP bonds will be a crucial test.
On Friday, Italy paid a euro lifetime high yield of 6.5 percent to sell new six-month paper, a level that analysts said cannot be maintained for long without pushing a public debt amounting to 120 percent of gross domestic product out of control.
European Central Bank member Christian Noyer said on Monday that Italy's economy was fundamentally sound and Rome should be able to restore market confidence if it shows fiscal discipline.
Italy should not be considered a weak economy, Noyer told reporters on a visit to Tokyo.
Italy, the euro zone's third biggest economy, would be far too big for existing bailout mechanisms and default on its 1.8 trillion euro debt would cause a banking and financial crisis that would probably destroy the single currency.
It has more than 185 billion euros of bonds falling due between December and the end of April.
Obama was due to hold talks on Monday with European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso, although no breakthroughs were expected.
The president was expected to reiterate he was confident that Europe's leaders could handle the crisis, which is emerging as a major worry for the 2012 U.S. elections, if they show political leadership.
Moody's warned in a report that it may take a series of shocks before the political impetus for a resolution to the debt crisis finally emerges. The crisis had deepened in recent weeks, it said.
The probability of multiple defaults (in addition to Greece's private sector involvement programme) by euro area countries is no longer negligible, it said.
Civil servants from Germany and France were exploring ways for more rapid fiscal integration after the realisation that getting an agreement among all 27 countries in the EU will be difficult any time soon.
An agreement among just the euro zone countries is one option.
The goal is for the member states of the common currency to create their own Stability Union and to concentrate on that, German Finance Minister Wolfgang Schaeuble told ARD television on Sunday.
Another option being explored is a separate agreement outside the EU treaty that could involve a core of around 8-10 euro zone countries, officials say.
Monti outlined the broad thrust of his reform plans earlier this month, promising a mix of budget rigour and reforms to stimulate economic growth, and has stuck to Berlusconi's pledge to balance the budget by 2013.
But with growing signs that Italy's chronically sluggish economy could be entering recession, he has come under pressure to provide concrete details quickly.
The measures outlined so far are broadly in line with directions previously given by the ECB, but there have been no detailed discussions with international bodies on the kinds of conditions normally attached to IMF assistance programmes.
As well as loosening job protection measures, privatising local services and opening up professions to more competition, additional budget measures estimated by Italian media at up to 15 billion euros could be announced.
Monti can take some comfort from surveys showing broad popular support for his technocrat government, but austerity measures have yet to bite deeply and surveys also show a mixed picture on individual austerity measures.
On pensions, the government is expected to bring forward an already-planned increase in retirement ages, with a wider reform possible in the coming weeks.
Monti may reintroduce a housing tax that was scrapped by Berlusconi in a last-minute campaign pledge before the 2008 election. The move cost the Treasury an estimated 3.5 billion euros a year.
Other ideas under consideration include raising the value-added tax band in bars and restaurants, which currently stands at 10 percent.
(Additional reporting by Gavin Jones and Steve Scherer and Lesley Wroughton in Washington; Ian Chua in Sydney and Stanley White and Rie Ishiguro in Tokyo; Editing by David Stamp, Alessandra Rizzo and Alex Richardson)