IMF in Euroland

Last year, Ireland raised the prospect of seeking IMF help.  It is highly likely that the Irish government was voicing this prospect as a means of frightening the public sector unions into accepting necessary wage reductions and possible job losses.  The reaction of the market and the unions was not good and reminds us of the risks of playing this type of poker.  Hollow treats are never a good idea.

A recent article entitled "Germany will stand by Greece, says Merkel" clearly indicated that Germany did not intend, at least at that moment, to provide Greece with any financial support.  Mr. Papandreou, the Greek Prime Minister, has indicated that Greece may seek IMF support.  Déjà vu!!  Once again, the prospect of IMF involvement has been raised.  Another hollow treat?

Is it so unrealistic to consider IMF help for eurozone economies in difficulties?  I am not so sure that it would be such a problem.   IMF help would entail adhering to very strict budgets to endure that the country being helped returned to good health in a timely manner.  The patient, in these situations, is the sole concern of the IMF.  Would that be the same if Europe were to provide the support or would European considerations be more important?

In the case of Ireland, French support for any European initiative would certainly require that Ireland "adjust" their corporation tax rate which the French object to but any change would not be in Ireland's interest.  Fortunately, Ireland seems to be turning the corner although we can expect a long convalescence.

Another consideration is that the current head of the IMF, Dominique Strauss-Kahn, could be an opponent for President Sarkozy at the next French presidential elections.  For this reason Sarkozy would prefer not to see any IMF involvement (particularly successful) in euroland.  A recent article on the onĺine New York Times entitled "IMF Help for Greece is a Risky Prospect" is interesting.

Now an agreement has been reached by the 16 eurozone members on a rescue package for Greece should it be needed (Greece has welcomed it but hasn't actually asked for it!!).  This decision requires the 27 EU countries to ratify this agreement.  It would seem that, once again, the spectre of the IMF has been raised in order to progress matters here in Euroland.

As an aside, Spain currently holds the presidency of the EU so, where was Zapatero, who values his role on the European/world stage, when all these decisions were being made?  Apart from the usual suspects, we have had commentaries from the President of the European Council and the European Commission President but not so much from our man.

In my view, given the current stage of the development of the EU, where we have partial monetary union without adequate political union, we would we be better off with an IMF involvement to avoid internal politics and squabbling and allow us to concentrate fully on resolving our problems.

What do you think?

The Spanish Economy

The Spanish economy remains in recession  according to a recent article on the BBC web site.  It is a fairly balanced article which looks at the current situation in Spain, backed up by INE statistics.  Another BBC article of interest could be PIGS - Portugal, Ireland (or perhaps now Italy), Greece and Spain -  which provides statistical information for Eurozone countries worst affected by the recession.

There is no doubt that the situation in Spain is bad.  However, every bad situation provides an opportunity.  Now could be the time to make fundamental changes to re-shape our economy in order to take advantage of opportunities when things start to improve.

In order to correct a situation, it is necessary to accept that a problem actually exists.  None of us is very good at accepting our faults or shortcomings and some people feel that this is especially true here in Spain.

These and other points are raised in an article (English translation of the original Spanish article) about the Spanish economy which I have just read by a Spanish journalist, Ricardo Angoso García.  The article, written towards the end of 2008, seems rather hard-hitting to me although it is hard not to agree with many of his contentions.

Check out the articles and let me have your views.