IMF says Spain, Portugal should be given more time to trim deficits

IMF Managing Director Christine Lagarde on Thursday called for financially strapped euro-zone countries such as Spain, Portugal and Greece to be cut more slack in reducing their public deficits.

Lagarde said that the criteria used for deficit targets should be set in structural terms – i.e. corrected for the fall in economic activity – rather than in nominal terms. All three countries are currently in recession, a situation that will continue into next year.

“It is sometimes better, given the circumstances and the fact that many countries at the same time go through that same set of policies with a view to reducing their deficit, it is sometimes better to have a bit more time," Lagarde said at a news conference in Tokyo, where the IMF is holding its annual meeting.

"That is what I have advocated for Portugal, this is what I have advocated for Spain, and this is what we are advocating for Greece, where I said repeatedly that an additional two years was necessary for the country to actually face the fiscal consolidation program that is considered."

The European Commission has given Spain and Portugal another year to bring their deficits back within the European Union ceiling of 3 percent of GDP. But in its World Economic Outlook report released earlier this week, the IMF said it does not expect Spain to achieve that goal until 2017, when Brussels wants the government of Prime Minister Mariano Rajoy to get there in 2014.

The IMF also questioned the government’s ability to meet its targets for this year and the next of 6.3 percent and 4.5 percent of GDP, respectively, putting its own estimates at 7 percent for this year and 5.7 percent for next year. It also forecast a contraction in GDP of 1.3 percent for next year when the government estimates a fall of 0.5 percent.

In response, Economy Minister Luis de Guindos said the Rajoy government is sticking by its own figures, arguing those of the IMF are not written “in stone.”

Lagarde on Thursday also urged “creditor countries” to facilitate bailouts to countries such as Spain if they request them. Germany has argued Spain does not need a second rescue package on top of that granted to recapitalize its banks.