UPDATE 2-Spain moving in right direction, IMF says

* Spain taking right steps – IMF’s Strauss-Kahn

* Stress tests should be as soon as possible – Strauss-Kahn

* Austerity measures won’t endanger growth – Spain PM

* More EU political unity would soothe markets – Zapatero

(adds details, quotes)

By Sonya Dowsett and Martin Roberts

MADRID, June 18 (BestGrowthStock) – Austerity measures aimed at
slashing the budget deficit are taking Spain in the right
direction, the IMF said on Friday, as the country’s prime
minister predicted they would not impede economic recovery.

“If the reforms are as strong as we expect and generate
enough confidence, (they) ought not to affect economic recovery
and maintain growth under way since the first quarter,” Jose
Luis Rodriguez Zapatero.

The planned spending cuts and labour reforms aimed at
tackling a deficit that rose to more than 11 percent of GDP last
year have been criticised by some analysts and media for not
going far enough.

Spanish bond spreads versus German Bunds rocketed in recent
months over fears that Spain, with unemployment of 20 percent
and first quarter economic growth of just 0.1 percent
quarter-on-quarter, could be the next candidate for a Greek
style EU bailout.

But International Monetary Fund Managing Director Dominique
Strauss-Kahn threw his weight behind the Spanish measures on
Friday after meeting with Zapatero.

“Everyone knew exactly what had to be done and the measures
this government has decided on are absolutely in the right
direction,” Strauss-Kahn said, speaking through an interpreter.

“In doing so, in my opinion, the government is not only
trying to solve short-term problems but is building the
foundations for two decades of growth in this country.”

The IMF director said stress tests to demonstrate the
stability of banks should take place “as soon as possible”, and
Zapatero agreed they were key to restoring the market’s faith in
the economy.

Zapatero also said that the economy would benefit from
increased EU political union.

“If we strengthen European policy, if we strengthen European
political unity, we will strengthen the European Union’s
capacity for economic growth and prosperity,” Zapatero said.

The Spanish bond spread versus Germany narrowed by about 10
basis points to about 195 basis points on Friday (ES10YT=RR: )
following Strauss-Kahn’s comments.

The IMF earlier this week denied reports it, the EU and
United States were preparing a safety net to shore up Spain’s
economy.

Investment Anaysis

UPDATE 2-Spain moving in right direction, IMF says