His message was clear, no frills:
“We are paying the consequences of Germany and France breaking the Fiscal Pact in 2003,” stated Spain’s economy minister Luis de Guindos on Friday at the Brookings Institution think tank in Washington.
In his first official visit to the US, Mr De Guindos tried to spur US confidence, explaining the key points of financial and labour reforms in Spain.
“Europe and Spain’s main problem is not fiscal austerity but boosting growth,” he pointed out. “Spain has been the OECD country that has put in place the biggest fiscal stimulus so far.” This did not prevent the unemployment rate to soar up to 23 percent, he reckoned: “Our mistake was to mix up fiscal expansionary policy and economic growth.”
Besides, the economy minister bluntly asked Germany to be more flexible in its austerity drive.
“Germany is starting to feel recession because their exports machine is not working that well,” he explained. “What happens in Italy and Spain should be very important for Germany.”
The EU asked Spain last month to take additional austerity steps after the government said it expects a shortfall a third larger than its target in 2011. Spanish authorities are struggling to shrink the gap from around 8 percent of gross domestic product to 4.4 percent of GDP this year as the economy contracts.
Mr De Guindos did not miss the opportunity to try to attract foreign banks.
“We will have in Spain fewer players in the banking landscape but much sounder and much safer, with better corporate governance. There is an opportunity.” he said.
LOOKING FOR THE FED’S COMPREHENSION
De Guindos also met the most powerful monetary policy setter, US chairman of Federal Reserve Ben Bernanke. Mr De Guindos explained his government’s new deficit reduction measures. Mr Bernanke had previously expressed his concern about the financial tensions in the Eurozone. Although he said the blitz of ECB money has been positive in Europe, he still considers there are deep problems, not only fiscal but concerning slow growth and competitiveness issues. While the FED has bought $2.3 trillion in long-term securities to boost economic growth since 2008, the ECB is relying on banks to pass on the unlimited funds it is providing, now also with 3-year loans.