It is something of an understatement to call the ongoing situation in Europe fragile. Years of plummeting stocks, soaring bond yields, and governments teetering on the verge of default have left many, both on the continent and around the world, wondering what the next scene will hold in this drama.
On Thursday, an IMF spokesman assessed the situation in a press conference in New York. Gerry Rice, who serves as the IMF’s Director of External Relations, downplayed fears of a Greek default, while also reassuring markets on Spain’s ability to remain solvent.
“Over the past few years, the IMF has made great efforts to help support Greece to help tackle this crisis,” he announced. “We are deeply aware that Greece continues to face a daunting and difficult situation. We continue to believe that if all players fulfill their responsibilities and the right policies are implemented that Greece can overcome this situation and build a better future and the IMF remains fully committed to supporting Greece in this effort.”
Greece, the epicenter of the eurocrisis, has been given several rounds of bailout by the IMF and European Central Bank – but they have come at a heavy price. Austerity measures designed to eliminate moral hazard and ensure that the profligacy that infected Greece before the crisis does not swell up once again, have devastated the country’s growth capacity, leading to riots and political outrage among the Greek people. By expressing solidarity with the Greeks as they head towards their next election (which could see radical left and right wing parties emerge victorious over the center), Mr. Rice showed that the IMF remains committed to a Greek recovery.
As sword of Damocles hangs over the head of the Athens, leadership in Madrid is trying frantically to ensure that it does not come west. Spain, with an economy much larger than Greece’s and thus much more capable of wreaking havoc on the Eurozone and global markets, has announced that will not meet its debt reduction goals this year. Unemployment, which is hovering around 25 percent, remains a painful problem in the country, whose new Prime Minister Mariano Rajoy is desperately seeking economic growth while adhering to austerity measures.
Mr. Rice noted that “the IMF is not drawing up plans that involve financial assistance for Spain, nor has Spain requested any financial support from the IMF;” for the time being, it seems as though Spain will stay in black – or at least avoid a Greek style IMF bailout.
Of course, Europe remains nervous. A Greek withdrawal from the euro and eventual default are becoming increasingly likely. And while this would shake markets, it would be a drop in the bucket compared to a Spanish default, or a further hiccup from other troubled markets like Italy, Portugal, and Ireland. A critical point in the global economy, the Eurozone remains a land of suspicious and nerves. While IMF reassurances can help markets from panicking, real reform and solid growth measures are necessary to ensure that disaster will be averted.