By: Mike Campbell
The IMF operates under the auspices of the United Nations and as such their employees are international civil servants, working for the good of all their 186 Member States. Against that backdrop, one couldn’t and shouldn’t expect them to keep quiet about problems that they perceive in a Member State’s economy. However, the timing of the announcement of the IMF’s concerns about the Spanish economy could hardly have come at a worse time whilst the Eurozone is trying to bolster confidence in the single currency.
The Euro has been under speculative pressure for weeks over the ability of Greece to meet obligations stemming from its massive public debt. Greek made it plain that it intended to honour its obligations and when that became prohibitively expensive through the markets, the Eurozone and IMF provided it with a mechanism to do so.
Concern (or was it opportunism?) then turned to Portugal and Spain over their own debt situations. These were not as dramatic as the Greek problems and nor had their respective governments a record of deceiving their Eurozone partners, but the speculation continued. Both governments announced far reaching and unpopular austerity measurements to tackle the debt burden, but the speculation continued.
Now the IMF points out that Spain needs to make “far-reaching” reforms and faces “severe challenges”; not least in social security payments to the 20% of Spaniards out of work. The IMF is not telling Spain anything that she did not already know and this will serve to increase speculation against the Euro at a time when world markets are starting to slide, casting doubt on the viability of an already weak global recovery. America and Japan are also highly indebted. Is this the start of the double dip recession?