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Europe

IMF chief backs Madrid's austerity measures

Text by News Wires

Latest update : 2010-06-18

International Monetary Fund chief Dominique Strauss-Kahn has thrown his weight behind recent unpopular austerity measures introduced by the government of Jose Luis Rodriguez Zapatero during a meeting in Madrid on Friday.

REUTERS - Austerity measures aimed at slashing the budget deficit are taking Spain in the right direction, the IMF said on Friday, as the country’s prime minister predicted they would not impede economic recovery.

“If the reforms are as strong as we expect and generate enough confidence, (they) ought not to affect economic recovery and maintain growth under way since the first quarter,” Jose Luis Rodriguez Zapatero.

The planned spending cuts and labour reforms aimed at tackling a deficit that rose to more than 11 percent of GDP last year have been criticised by some analysts and media for not going far enough.

Spanish bond spreads versus German Bunds rocketed in recent months over fears that Spain, with unemployment of 20 percent and first quarter economic growth of just 0.1 percent quarter-on-quarter, could be the next candidate for a Greek style EU bailout.

But International Monetary Fund Managing Director Dominique Strauss-Kahn threw his weight behind the Spanish measures on Friday after meeting with Zapatero.

“Everyone knew exactly what had to be done and the measures this government has decided on are absolutely in the right direction,” Strauss-Kahn said, speaking through an interpreter.

“In doing so, in my opinion, the government is not only trying to solve short-term problems but is building the foundations for two decades of growth in this country.”

The IMF director said stress tests to demonstrate the stability of banks should take place “as soon as possible”, and Zapatero agreed they were key to restoring the market’s faith in the economy.

Zapatero also said that the economy would benefit from increased EU political union.

“If we strengthen European policy, if we strengthen European political unity, we will strengthen the European Union’s capacity for economic growth and prosperity,” Zapatero said.

The Spanish bond spread versus Germany narrowed by about 10 basis points to about 195 basis points on Friday following Strauss-Kahn’s comments.

The IMF earlier this week denied reports it, the EU and United States were preparing a safety net to shore up Spain’s economy.
 

Date created : 2010-06-18

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