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16 April 2012

Bloomberg: Euro area seeks bigger IMF war chest on Spanish concerns


While the US insists that Europe can overcome the crisis using its own financial firepower, euro area officials say they've done enough to trigger additional global assistance.

Spanish Prime Minister, Mariano Rajoy, who is pushing through an austerity agenda targeting spending on health and education, won backing from his party’s regional leaders over the weekend. People’s Party chiefs from regions including Madrid, Valencia and Galicia agreed to streamline bureaucracy and write deficit targets into budget laws.

“We need to manage a reality that is very tough”, Maria Dolores Cospedal, the deputy party head and president of Castilla La Mancha, told reporters after a party meeting. Rajoy’s government has struggled to convince investors after last month saying it would not meet budget deficit targets set by the European Commission and the previous government.

European governments are banking on a bigger safety net to soothe markets as the crisis continues to simmer, with Spanish borrowing nearing the level that prompted Greece, Ireland and Portugal to seek bailouts. Sentiment will be gauged again on April 19, when Spain auctions two- and 10-year debt.

The Europeans’ appeal for funds may find more success after IMF Managing Director Christine Lagarde last week scaled back her request for $600 billion in new contributions. Lagarde said April 12 that she is hoping to make “real progress” at this week’s meetings. She has also said the IMF needs more cash to quell economic risks separate from Europe’s woes, such as higher oil prices and slowing US growth.

Her retooled strategy reflects international and particularly US reluctance to deliver more cash amid suspicion Europe isn’t doing enough to save itself. The IMF has less than $400 billion available to lend.

Full article



© Bloomberg


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