IMF: Spain, Portugal Not in Same Boat as Greece
WASHINGTON – The International Monetary Fund said Thursday that Spain’s fiscal challenges are not as severe as those faced by Greece, reinforcing the message that Madrid has been delivering to the world’s financial markets.
In its first official comment on the matter, the IMF told investors that Spain and Portugal should not be placed in the same boat as debt-laden Greece.
“Regarding Portugal and Spain, we do see differences between their circumstances and those of other parts of the euro area,” IMF spokesman David Hawley said, dismissing the idea that Greece’s financial woes could spread beyond its borders.
Hawley said Spain and Portugal have robust economic statistics and institutions with a solid track record and credibility, adding that the two Iberian nations also had strong fiscal starting positions prior to the global recession.
That assessment echoed the message Spanish Economy Secretary Jose Manuel Campa has brought to Paris and London and plans to reiterate at closed-door meetings with investors in New York and Boston.
Campa said in an interview with Efe-DowJones that when investors see that see the diagnosis of the situation has been correct and that the measures that the Spanish government has taken are adequate, “it will generate a lot of reassurance.”
The Greek crisis, which has rattled financial markets in Spain and Portugal, began when that country’s new government acknowledged in December that its budget deficit at the close of 2009 would be 12.7 percent of gross domestic product, significantly higher than the range of between 6 percent and 8 percent that had been forecast by the previous administration.
Prime Minister George Papandreou pledged to implement radical austerity measures, but that did not prevent rating agencies from downgrading Greece’s government bonds.
Greece’s difficulties not only caused risk premiums on its own sovereign debt to spike but also those of other countries in the euro zone, particularly Portugal and Spain.
But Spain’s investment waters were calmer Thursday after the government sold a 5-billion-euro ($6.8-billion) 15-year bond the day before in an auction that was oversubscribed, proving – experts said – the government’s ability to raise financing.
The country paid a risk premium of 85 basis points in the bond issue over the benchmark swap rate.
By comparison, the risk premium demanded by holders of 10-year Greek bonds over Germany’s 10-year benchmark bonds rose Thursday to 328 basis points.
Hawley stressed Thursday that Greece’s budget deficit woes date back to before the global recession, while Spain had a surplus equal to 2 percent of GDP at the start of the financial downturn.
Even so, Spain, whose economy was battered by the collapse of the country’s once buoyant construction sector, has seen its public finances deteriorate rapidly. The nation’s budget deficit rose to 11.4 percent of GDP in 2009 and unemployment has skyrocketed to 19 percent.
The IMF is forecasting that Spain will be the world’s only developed economy to remain in recession this year, contracting by 0.6 percent. EFE