IMF denies rumoured £500bn aid package for Italy and Spain

The International Monetary Fund (IMF) today denied reports it is planning a £500bn rescue package for Italy and Spain.

News of the talks emerged in Italy's La Stampa newspaper, following positive noises from a meeting between German and Dutch finance ministers indicating the IMF is set to be involved in a last ditch attempt to save the euro.

It was also suggested the IMF may step in to support Spain by giving it access to  credit, rather than a rescue package, the BBC reports.

An IMF spokesperson denied the talks, however, saying there were "no discussions with Italian authorities".

Markets rallied in late trading, with the FTSE 100 up 2.22% by midday, the German Dax climbing 3.31% and the French Cac 40 jumping 3.72%.

IMF involvement in European rescue packages would be underwritten by British taxpayers, raising concerns the UK would be liable if Italy and Spain were unable to pay back the international loan, according to the BBC.

The UK provides 4.5% of the IMF funding and would therefore face a potential liability to an Italian package of up to €27bn (£23bn).

IMF rescue packages are traditionally issued in exchange for a country agreeing to a major austerity programme to cut spending. A credit line is a more flexible arrangement giving short-term access to international finance.

Both Italy and Spain have been in the spotlight in recent months as their levels of debt have risen to worrying levels. Italy's debt to GDP is 118%, while Spain's is at a lower level of 63.6%, but it has been billed as the country most at risk of euorzone contagion, and is showing zero growth.

European finance ministers are set to meet tomorrow to discuss draft plans for a bailout scheme. Under the plans, the European Financial Stability Facility (EFSF) would have to insure bonds of troubled countries by covering the first 30% of any unpaid debt.

The scheme would require a tripling of the current size of the scheme to €1.4tn.