Lagarde endorses Spain austerity efforts

Ms. Lagarde endorses Spain's efforts
Ms. Lagarde endorses Spain’s efforts

Spain may not have actually asked for a full bailout but it would probably get one without making any further changes to it’s economic policy.

This is according to Christine Lagarde, IMF managing director, who says Spain is already doing what it would be asked to do if a bailout was to be requested.

The comments, seen by many as an endorsement of Spain’s economic policy, suggest that the struggling country should not need a bailout but would get one if needed.

“When we look at what Spain has already done and is committing to do, there is not much more that we would be asking from Spain if it was in a programme with the IMF,” Ms Lagarde said.

Lagarde also said Spain has already taken steps towards a large deficit reduction and made good progress on labour reforms, healthcare and education. “They have done an awful lot in the last few months,” she said.

A continuing rise in yields on its sovereign debt has fuelled fears that Spain will be asking for support from the IMF and the EU beyond the 100 billion euro bank bailout already agreed.

Spain’s highly indebted regions, which have a combined debt of over 140 billion euros (of which 35 billion matures this year) have become the latest targets in Mariano Rajoy’s government drive to meet it’s deficit reduction target agreed with Europe earlier this year.

On Wednesday, Spain’s economy minister Cristobal Montoro set new limits for the country’s 17 regions insisting that their annual debt must not exceed 15.1 per cent of local GDP. In Andalucía this would be equivalent to a €2.7bn spending cut.

Many of the regions are expected to struggle to meet the 15% mark. Catalonia currently has a debt ratio of 21%, with Valencia close behind with 20%, according to Barclays Capital.

According to the Bank of Spain the average debt as a percentage of GDP of all the regional governments has more than doubled since 2008 (6%) to the end of 2011 when the figure stood at 14%.