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.
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.
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.
Madrid was taking “really serious measures” on reforming the country’s labor market and reducing its fiscal shortfalls, she said.
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.
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.
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