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What should we follow in Spain?
In Spain, I think we really want to follow the government’s access to credit. The market is very skeptical that the Spanish economy can perform the fiscal reforms that have been required. There comes a point where it becomes unaffordable for Spain to continue to borrow, and at that point Spain becomes a problem for Europe. So I’m watching the bond yields and the news from the banking system, which we all know is very vulnerable.
Can anything get done at theIMF meeting in Washington?
I think this is going to be one of the more tense IMF meetings because we have a schism between what Europe wants and what the major shareholder in the IMF, the U.S., is prepared to deliver. The Europeans want outside support for their economic stabilization funds. The Obama administration would be drawn and quartered if they were to commit U.S. taxpayer money to bailing out Europe.
What must the euro zonegovernments do if Spain fails?
When a country loses access tomarkets, the first thing you have to do is start planning the restructuring. And that means you work on managing the debt they already have. The second thing is to recognize that growth lies at the root of all the long-term answers to these problems. While austerity is a noble medium-term measure, imposing austerity from Day One is a disaster.