WASHINGTON (AFP) – IMF head Christine Lagarde said Thursday that it would be able to boost its crisis intervention capacity this week as worries mounted that Spain might be the next eurozone country to seek a rescue.
Warning that “dark clouds” still hover over the global economy, she expressed confidence that International Monetary Fund members meeting this week in Washington would put up the funds needed for a “global firewall” — despite the United States not taking part.
“As part of the outcome of this meeting, we expect our firepower to be significantly increased,” she said, hours after Poland and Switzerland declared their contributions to the $400 billion pool targeted to forestall any financial contagion from Europe.
“You’ve got lots of clouds out there,” she told journalists ahead of the annual IMF-World Bank spring meetings.
The eurozone remains “the epicenter of potential risks” she added.
Worries that Spain might be the next country to seek a bailout, sparking new turmoil across the fragile eurozone, have filled markets over the past week.
On Thursday Madrid scraped through a key bond market test but failed to quash doubts over its future finances.
Overall, the Spanish Treasury raised 2.5 billion euros ($3.3 billion), above its goal, at a high borrowing rate for 10-year notes but still below the psychologically important 6.0 percent level
Investors had been nervously waiting for the government bond auction, fearing a flop could unleash new attacks on Spain’s sovereign debt and reignite the flames of the eurozone debt crisis.
“Spain has replaced Greece in the international and especially the Anglo-Saxon press as the country that has the most problems. The problems are clearly enormous but reforms are being made,” said Daniel Pingarron, analyst at Spanish brokerage IG Markets.
Even so, he admitted, “These tensions are not going to calm in the short term or even the medium term,” he added.
Lagarde said Spain does not need an IMF rescue loan as long as Europe itself keeps working to help the government with its reforms.
“There is no such need at the moment as I understand,” she told Bloomberg Television.
Madrid was taking “really serious measures” on reforming the country’s labor market and reducing its fiscal shortfalls, she said.
“I hope that through the combined efforts that the Europeans will be able to support the efforts undertaken by the Spanish government.”
But the IMF continued to push for its own firewall.
As of early Thursday, the IMF was more than three-quarters of the way toward meeting its $400 billion goal for boosting its intervention “firepower”.
The European Union has pledged $200 billion, Japan $60 billion, and Sweden, Norway, Denmark, Poland and Switzerland and some smaller contributors another $60 billion.
But the BRICS economies seeking greater say in the running of the IMF — Brazil, Russia, India, China and South Africa — have yet to declare how much they will contribute.
“China will be at the meeting, that’s certain,” said a European source referring to the world’s second largest economy.
“But will it give a figure this week, or wait until Mexico?” when Group of 20 leaders meet in June.
With Washington saying it would not contribute, the IMF had already rolled back its target of $500 billion, and some economists worry the IMF and European crisis funds might not be enough if markets turn sour on Spain and Italy.
Lagarde also urged members to beef up the IMF’s fund for helping out the world’s poorest countries, on top of the crisis firewall.
“It’s equally important that we have the adequate resources to help the low-income countries if they need it.”
“I very much hope that the entire membership will respond and seize the moment,” she said.