German Finance Minister Wolfgang Schaeuble dismissed comparisons between the eurozone’s latest problem case Spain and bailout recipients Greece, Ireland and Portugal, but said Madrid must work to win back the confidence of financial markets.
In an interview with Reuters days before the spring meetings of the International Monetary Fund and World Bank, Schaeuble also said he expected the world’s top 20 economies to agree to boost the crisis-fighting resources of the IMF by $400 billion.
After a jump in the borrowing costs of both Spain and Italy reignited eurozone crisis fears, European governments hope additional IMF funds will help reassure markets at a time when worries about Spain in particular are on the rise.
Schaeuble played down concerns about Madrid’s finances when asked whether Spain could be the next eurozone country to seek an international bailout, a bill that would stretch eurozone resources to the limit.
“No, the fundamental data in Spain is not comparable to those in the countries that are under a program,» he said. «Spain needs to work to win confidence however if the positive developments are to continue.”
Despite some disquiet after Madrid ripped up an agreed budget deficit target for 2012, Schaeuble praised its drive to cut its deficit to a softer target of 5.3 percent of gross domestic product this year from 8.5 percent in 2011 and to 3 percent in 2013, an aim that is forcing Spain to hunt for savings of roughly 60 billion euros.
“The decisions taken by the Spanish government, such as the reduction of the budget deficit in 2012, really deserve respect and support. Spain is delivering. Italy has delivered. Other countries have delivered, Europe is also delivering and now it takes time,» Schaeuble said in the interview.
“Of course there will be cause for markets to react nervously every now and again. The nervousness will be here for some time. You don’t win back trust overnight.”
On Monday, concerns about debt sustainability in Spain, the eurozone’s fourth-largest economy, and the ability of its banks to fund themselves, pushed Madrid’s borrowing costs above 6 percent – an important psychological level – for the first time this year.
Schaeuble said Europe must now implement the reforms it had agreed.
Germany has been relentless in pushing fiscal discipline on its eurozone partners, arguing that for the currency bloc to emerge from the crisis it has to fight the unsustainable policies that got it there.
This has meant spending cuts at a time when some economies are already struggling with little or no growth, high unemployment and in some cases civil unrest, but Schaeuble rejected the idea that public acceptance of harsh austerity was waning.
Opinion polls show a majority of Greek voters may back radical fringe parties in a general election next month.
And in France, polls show far-right leader Marine Le Pen and hard-left politician Jean-Luc Melanchon, both of whom reject many of the crisis policies Germany has pushed, are poised to win nearly one third of the votes in the first round of a presidential election on Sunday.
“There is growing acceptance for Europe’s course,» Schaeuble said, declining to comment on specific countries where elections loom.
Last month, the eurozone expanded its bailout capacity to 700 billion euros from 500 billion to ward off a new flare-up of the debt crisis. Germany hopes this step will prompt its G20 partners to boost their contributions to the IMF in return.
Schaeuble said the fact that the IMF now needed less additional funds than deemed necessary three months ago was a sign that Europe had done its homework successfully.
IMF Managing Director Christine Lagarde said on Tuesday she hoped to gain governments’ agreement this week to raise IMF funds by about $400 billion and Schaeuble backed her view, saying his expectation was that Europeans would contribute roughly half of that amount.
He warned against delaying a decision on boosting IMF resources beyond the meeting of finance chiefs in Washington this week, saying this would amount to going back on a promise.
“That’s what we’ve agreed and I assume it will happen. There are some voices that apparently want to set new conditions. That would go against what we’ve agreed,» Schaeuble said.
“That’s why nobody should get the idea now to say we’ll decide on increasing the funds only once the quota increase has been decided.”
Schaeuble was referring to calls from some emerging economies, such as China, Brazil and India, to tie the increase in IMF funds to greater voting powers in the organization. Germany wants the quota issue to be resolved later this year.
eurozone countries have already committed to provide 150 billion euros, and hope other European Union countries, most notably Britain, will pledge up to 50 billion euros.
In January, the IMF estimated it would need an additional $500 billion to lend and another $100 billion for reserves to erect an adequate safeguard against the risks posed by the eurozone’s crisis.
But since then, Lagarde has said the IMF may not need as much money as it had thought because economic risks had waned. [Reuters]