IMF chief speaks up for Spain

18th June 2010, Comments 0 comments

The head of the International Monetary Fund weighed in with support for Spain on Friday, saying he was optimistic about the economy in the medium to long term now that austerity and reforms are under way.

IMF head Dominique Strauss-Kahn, speaking after days of high market tension over Spanish debt and the banking system here, declared: "I am really confident in the medium and long-term prospects for the Spanish economy, providing the efforts that have to be made will be made."

He continued: "And what I see today is that these efforts are underway."

Strauss-Kahn, speaking at a joint news conference with Spanish Prime Minister Jose Luis Rodriguez Zapatero, said: "So I wanted to discuss with (Zapatero) the focus he has, the way he wants to implement it."

The IMF head said their talks had also ranged over "the political difficulties, because nobody can believe it is going to be easy, but also the commitment by the government to go forward.

"And I think all this is clearly done for the good of the Spanish economy."

The two held talks against a background of tumultuous events for the Spanish economy in the last few days, marked by rumours of a bailout by the IMF and the EU, and a union call for a general strike over crucial labour reforms, but also by renewed market confidence over Spain's debt.

A plan announced on Wednesday to convince sceptical markets that Spanish banks are sound, also later backed by EU leaders, and a successful auction of long-term government bonds on Thursday eased investor fears that the country was heading for a Greek-style financial crisis.

Zapatero said that he had explained to the IMF chief the various measures that the government is taking.

"I conveyed to (Strauss-Kahn) the determination of the Spanish government to implement and to make effective every single one of these reforms that we have launched, to demonstrate that Spain can overcome the crisis and emerge with a stronger economy," he said.

After Spain's public deficit ballooned to 11.2 percent of gross domestic product last year, the Socialist government launched an austerity drive to slash the shortfall between revenues and spending to the eurozone limit of three percent in 2013.

The government on Wednesday also passed crucial reforms of the rigid job market, deemed essential for reviving the economy.

But rumours of a bailout for Spain, along with possible strains within the Spanish banking system, caused a degree of alarm on financial markets during the week.

Zapatero said he was "not too bothered about rumours. I'm worried that people actually believe these rumours... At the end of the day, the fundamentals are more important than rumours."

To calm market nerves about the strength of its financial institutions, the Bank of Spain announced on Wednesday that it will publish "stress tests" on the ability of its banks to withstand any sudden financial shocks.

Germany has also decided to go public with analyses of their banks. And in Brussels, EU leaders on Thursday agreed to release the results of similar tests.

"The stress test is our response to get that confidence restored," said Zapatero.

He noted that at the EU summit in Brussels on Thursday, "we all agreed to work toward transparency of the financial system, because the crisis began in the financial system in the US."

© 2010 AFP

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