IMF head warns Spain against 'drastic' budget reduction

22nd April 2013, Comments 0 comments

Spain, which wants Brussels to agree to relax its deficit targets, should avoid a "drastic" reduction to its public deficit, the head of the International Monetary Fund said in an interview published Thursday in Spain.

"Countries that are under financial stress and which follow a pattern of high debt and high deficits have to adopt immediate measures. The key question is the speed which they take those measures," IMF head Christine Lagarde told daily business newspaper Expansion.

"Our opinion is that for a country like Spain there is no objective reason to rush towards a drastic reduction in the deficit," she added.

Spain recorded an annual public deficit equal to 7.0 percent of gross domestic product (GDP) last year, missing a 6.3-percent target it had agreed with the European Union.

Now, the Spanish government wants Brussels to agree to relax its 2013 deficit target to about 6.0 of GDP from the previously agreed 4.5 percent, a government source said this month.

Spain also wants the European Union to agree to give it an extra year to bring its deficit to below the bloc's limit of 3.0 percent of GDP, the source said.

Lagarde said Spain could return to growth next year "unless the country was forced to adopt tough fiscal consolidation measures".

"We are advocating a reasonable and sensible financial restructuring for Spain instead of recommending an exclusive and excessive focus on deficit reduction where there only are numeric goals," the former French finance minister added.

The IMF predicts that the Spanish economy, the euro zone's fourth-largest, will contract by 1.6 percent this year before rebounding to expand by 0.7 percent in 2014.

Struggling in a double-dip recession sparked by the collapse of a decade-long property boom in 2008, Spain has been under tight European Union surveillance since 2009.

Determined to slash the public deficit despite rising public protests, Rajoy's government has enacted spending cuts and tax increases aimed at saving 150 billion euros ($194 billion) between 2012 and 2014.

© 2013 AFP

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