IMF chief calls on Italy, France, Spain to ‘buckle up’ on debt

PARIS: Italy, France, and Spain must do more to tackle rising debt and deficit levels, IMF chief Kristalina Georgieva told European media, flagging “very modest” European growth in the post-Covid climate.

“These three countries have seen their debt-to-GDP ratios jump significantly,” she said in an interview with several newspapers, according to a transcript published Thursday by Italy’s Corriere della Sera.

“Their fiscal response to Covid was appropriately very strong, but it led to increasing debt and deficit levels. So now they truly have to buckle up and go for fiscal adjustments.”

For Italy, “the problem is compounded by the slowing of growth as a result of withdrawal of policy support measures,” she said.

“The budget for Italy should be strengthened: the fiscal adjustment Italy is taking is not going to work fast enough to bring deficits and debt levels down,” she said.

Noting that France is “in a better position because growth there is more accommodating for fiscal adjustment”, the IMF managing director nevertheless said “2024 has to be a turning page for France in terms of tightening”.

Spain, which “benefited from a big rebound of services and tourism” is forecasting a 0.3 percent adjustment, which she says the IMF considers acceptable so long as it “does not renew the policy support measures that are expected to expire at the end of this year”.

Overall, she flagged concerns for economic recovery in Europe.

“Unlike the US, which has recovered to its pre-pandemic trend, the Eurozone is still 2 percent below its pre-pandemic trend, and growth is very modest,” she said, citing the war in Ukraine and demographic challenges as the leading factors.

Asked about the war between Israel and Hamas, Georgieva said the global economic impact has been minimal so far but that could change if the conflict is prolonged or intensifies.

“Economically, the most significant impact is at the epicenter of the conflict. In Gaza, the destruction is massive,” she said.

“Growth in Israel is inevitably going to be affected.”