IMF backs Spanish austerity measures

The head of the International Monetary Fund says he is optimistic about the Spanish economy in the medium to long term now that austerity measures and reforms are underway. Dominique Strauss-Kahn was speaking after a meeting with Spanish Prime Minister Jose Luis Rodriguez Zapatero.

Reuters

Zapatero said that he had explained to Strauss-Kahn the measures his government is taking.

"I conveyed 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.
 

LISTEN

02:53

Giada Giani, Citygroup, London

Judith Prescott

But Citygroup economist Giada Giani told RFI there’s a good chance that Spain will have to have the European financial stabilisations mechanism before the end of the year.

“I wouldn’t be surprised if given these risks if Spain with the IMF and the European Commission and the ECB are not already discussing what are the possible conditions that the IMF and the European Commission may ask Spain in order to extend that financing facility as they did for Greece,” she said.

Giani added that the main problem of the Spanish economy is private debt. The main problem in the Greek economy was public debt.

 
“From a macro point of view the Spanish economy could be actually weaker than the Greek economy,” she said.

After Spain's public deficit reached 11.2 per cent of GDP last year and the government’s austerity measures are designed to bring it down to the eurozone limit of three per cent in 2013.

The government on Wednesday also passed job market reforms and 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.

Giani was optimistic about the state of Spain's banks, saying the capital shortages of most of the Spanish banks were still fairly contained.

"I'm worried that people actually believe these rumours,” said Zapatero. “At the end of
the day, the fundamentals are more important than rumours."