Italy looks to teach Greece a lesson

Italy's finance minister has hit back at criticisms from his Greek counterpart, arguing that the country's debt is sustainable and structural reforms are steaming ahead.

On Sunday, Yanis Varoufakis, the finance minister in Greece's increasingly controversial government, singled out Italy as needing a few lessons on national debt levels. The Italian government should be aware that the country could be the next possible victim of debt in the euro zone, Varoufakis added, saying its debt was "unsustainable."

The comments attracted the ire of Italian Finance Minister Pier Carlo Padoan, who said in a tweet Sunday that Italy's debt was "solid and sustainable" and that Varoufakis' comments were "out of place."

Speaking to CNBC Monday, Padoan reiterated that Italy was in a strong position going forward.

"Italy has large debt but this is getting more sustainable getting forward – this is justified by the recent growth estimates from the European Commission and the structural reforms effort will intensify, also the pension system in Italy is among the strongest in Europe."

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As Greece looks to renegotiate its bailout program with its international lenders, Varoufakis warned Sunday that the euro zone was like a "house of cards" and that if Greece left, the region would collapse – and that Italy could be next.

"Who will be next after us? Portugal? What will happen when Italy discovers it is impossible to remain inside the straitjacket of austerity?" Varoufakis said in an interview with Italian state television network RAI.

Speaking to CNBC on the sidelines of the G-20 summit in Istanbul, Padoan dismissed concerns of contagion over the brewing Greek crisis, saying that there is "no house of cards in Europe and we will find a solution that is good for Greece and good for Europe."

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Despite Padoan's assurances, Italy does have the second-largest debt pile after Greece. While the former's debt to gross domestic product ratio is estimated to be 133 percent in 2015, according to European Commission forecasts published last week, Greece's debt is seen at 170.2 percent of GDP this year.

Reforms losing steam?

How to deal with that debt has become something of a bête noire in both Italy and Greece – particularly set against a wider backdrop of economic slowdown at home and in the broader euro zone. Structural reforms too, remain, painfully slow.

Since the new Greek government came to power two weeks ago, it has sought to overhaul its bailout program and renegotiate its debt burden. It has also started to undo unpopular austerity measures and the country's privatization program, to the consternation of its euro zone neighbors.

Padoan said that Greece's primary need was to have a "strong and credible structural reform program that makes growth sustainable" and that once that was in place, the debt problem would resolve itself.

Structural reforms in Italy have been dogged by political upheaval and infighting between and within parties in parliament, although Prime Minister Matteo Renzi has made some progress over a new electoral law and labor market reforms.

Defending the pace of reforms, Padoan said that he said there was still appetite for change, however, saying, "I don't see any lack of steam in my boss' and government's energy towards structural reforms."

Furthermore, he added there was "a window of opportunity" to accelerate structural reforms against a better macro-economic climate.

"There is an important window of opportunity – the macro environment is improving with the oil price going down, with the euro being weaker and with (ECB) QE of course which will bring a bit more inflation – this is the time to accelerate structural reforms because they can now produce stronger results."

There are hopes that fourth-quarter euro zone GDP figures released this week will show that Italy finally exited recession. In addition, the European Commission forecasts that the economy could grow 0.6 percent this year.

Like Greece, however, Italy is dogged by unemployment, which grew in December to 12.9 percent from 12.6 percent in the same period in the previous year. Youth unemployment also stands around 40 percent, whereas in Greece it is around 50 percent.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld