Lagarde seeks more time on deficits

International Monetary Fund managing director Christine Lagarde today said struggling European countries such as Greece and Spain should be given more time to reduce their budget gaps.

Both economies are at the centre of the euro zone debt crisis, with Greece struggling to fulfil a debt-reduction programme and Spain inching towards seeking aid to handle its debts, having already obtained a €100 billion credit line for its banks in June.

"Instead of frontloading heavily, it is sometimes better, given circumstances and the fact that many countries at the same time go through that same set of policies with a view to reducing their deficit, it is sometimes better to have a bit more time," Ms Lagarde said at a news conference in Tokyo.

"That is what I have advocated for Portugal, this is what I have advocated for Spain, and this is what we are advocating for Greece, where I said repeatedly that an additional two years was necessary for the country to actually face the fiscal consolidation programme that is considered."

A report on the Greek programme from the European Commission, the European Central Bank and the IMF - known as the troika - is due in the next few weeks.

European officials said on Monday divergences had emerged inside the euro zone and with the IMF over how best to proceed, especially on whether Athens should obtain some respite in its deficit-cutting efforts.

Spain is also under pressure as the IMF, the Bank of Spain and many economists have said that the economic forecast the government used to build its budget plan for 2013 was too optimistic, putting the country at risk of missing its deficit targets.

The IMF forecast Spain's economy would shrink 1.3 per cent next year, which compares with a forecast for a 0.5 per cent contraction used in next year's budget.

Spain's economy minister Luis de Guindos on Monday said Madrid would stick to its targets and was not planning any further cuts. The euro zone has already eased fiscal targets for Spain once this year.

On Monday, the euro zone gave Portugal one more year, until 2014, to get its budget deficit below the European Union ceiling of 3 per cent of gross domestic product.

Reuters