IMF chief says Spain to avoid wider debt woes

 

Spain will ward off the worst of a European debt crisis without needing a rescue and there is no threat to the euro currency's existence, the head of the International Monetary Fund said on Thursday.

Dominique Strauss-Kahn, interviewed at a Thomson Reuters Newsmaker event, played down worries that Spain faced perils like those confronting debt-strapped Greece and Ireland, recipients of massive bailouts from the European Union and IMF.

"I don't see that the risks for Spain will be that big in 2011," he said. "It doesn't mean there is no risk ... but I'm not that pessimistic about the Spanish economy."

Spain, the euro zone's fourth-largest economy, paid a hefty premium at a bond auction on Thursday, a test of investor appetite a day after credit ratings agency Moody's said it may cut the country's rating.

Strauss-Kahn said EU leaders needed to act more decisively to prevent the risk of the debt crisis sweeping through economies on the periphery of the euro zone. Otherwise, he said they could find themselves "at the edge of the cliff," as they did when offering last-minute rescues to Ireland and Greece.

"I am worried and that's why I am urging the Europeans ... to provide a comprehensive solution because this piecemeal approach ... obviously doesn't work," he said. "The markets are just waiting for what's next."

European Union leaders began a two-day summit at which they are expected to approve changes to the EU's governing treaty to allow the creation of a permanent mechanism for handling financial crises.

The IMF chief expressed confidence that the euro currency would survive the crisis and he said, in the end, European institutions would emerge more resilient.

"It's a strong currency which behaved during the last ten years better than even the Deutsche mark in the previous decade," Strauss-Kahn said. "I see many reasons why there may be a problem in the euro zone in terms of growth, unemployment, even, beyond unemployment, social problems ... but that doesn't mean at all that I see any threat to the euro."

He added: "Any solution other than the euro would be worse for the euro zone members."

He struck a positive note on Ireland's future, saying the EU/IMF rescue will enable the nation to find its way back to economic health.

"It's going to work but of course it's difficult," he said.

Ireland's parliament on Wednesday gave its stamp of approval to an 85 billion euro joint European Union-IMF bailout, and the IMF's Executive Board on Thursday formally approved its 22.5 billion euro contribution to the rescue.

Strauss-Kahn said that, on a global basis, the economic recovery from the 2007-09 financial crisis is not yet secured, with growth at a sluggish pace in Europe and an uncertain outlook in the United States.

Still, he said he did not see a risk of the United States slipping back into a recession.

Strauss-Kahn pushed aside a question on whether he will give up leadership of the IMF to seek the presidency of France in elections in 2012 - a source of wide speculation that he did not entirely dismiss.