Bloomberg News

Euro-Area Spreads Show Need for Deeper Changes, IMF Says

July 16, 2012

Euro-area sovereign-bond spreads aren’t justified by countries’ economic situations and underline the need for deeper changes to the currency union, the International Monetary Fund said.

Spanish and Italian 10-year bonds yield more than 6 percent, compared with 1.2 percent for the equivalent securities in Germany.

“Current sovereign spreads are well above what could be justified on the basis of fiscal and other long-term fundamentals, suggesting that wide-ranging reforms durably affecting expectations are needed,” the Washington-based IMF said today in its Fiscal Monitor report. The plan backed by European leaders on June 29 is a step in the right direction, though it “will need to be complemented by more progress toward deeper fiscal integration and full-fledged banking union.”

The IMF report lauded plans to ease Spain’s deficit- reduction targets and said the budget-cutting path proposed by France is “appropriate” for now. For the U.S., the looming expiry of tax provisions known as the “fiscal cliff” remains a “significant concern,” the IMF said.

To contact the reporter on this story: Mark Deen in Paris at markdeen@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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